Exam 2: The Basic Theory Using Demand and Supply

A decrease in income will lead to an increase in the demand for an inferior good.

The price elasticity of demand measures the responsiveness of consumers to changes in the price of a product.

If a 1% increase in an individual's income leads to a 0.5% increase in the demand for a good, the good is considered to be a normal good.

The net national gain from trade can be measured by the change in consumer and producer surplus that results from trade.

Which of the following will cause a rightward shift of the market supply curve?

Everything else remaining unchanged, when the price of a normal good increases, consumers:

Suppose the domestic supply (Q^S) and demand (Q^D) for skateboards in the United States are given by the following set of equations: =-60+3P =390-2P In the absence of trade with the rest of the world, the consumer surplus in the United States skateboard market equals _____ and the producer surplus equals_____.

Suppose the domestic supply (Q^S) and demand (Q^D) for skateboards in the United States are given by the following set of equations: =-60+3P =390-2P If the United States can import skateboards from the rest of the world at a per unit price of $75, what will be the total demand for skateboards in the United States?

Suppose the domestic supply (Q^S) and demand (Q^D) for skateboards in the United States are given by the following set of equations: =-60+3P =390-2P Calculate the change in consumer surplus when the United States engages in free trade and imports skateboards from the rest of the world at a per unit price of $75.

Suppose good X is a substitute of good Y. Everything else remaining unchanged, an increase in price of good Y will lead to:

The value of price elasticity of demand for a normal commodity is negative because it indicates:

Suppose the domestic supply (Q^S) and demand (Q^D)for MP3 players in the United States are given by the following set of equations: =-25+10P =875-5P In the absence of international trade in MP3 players, how many MP3 players will be sold in the United States?

Consumer surplus is the net economic benefit to consumers who are able to buy a good at a price lower than the highest price that they are willing to pay.

While international trade will benefit both the importing and exporting country in a two-country world, the gains from trade in the exporting country must be greater than the gains from trade in the importing country.

An increase in demand for a good will lead to a larger increase in price if the supply is relatively elastic.

What is the measure of responsiveness of quantity demanded of a product to a change in its price? Why is it a negative number for a typical good? With the help of suitable diagrams, explain the difference between elastic and inelastic demand.

Suppose the domestic supply (Q^S) and demand (Q^D) for skateboards in the United States are given by the following set of equations: =-60+3P =390-2P Calculate the change in producer surplus when the United States engages in free trade and imports skateboards from the rest of the world at a per unit price of $75.

Suppose the domestic supply (Q^S) and demand (Q^D)for MP3 players in the United States are given by the following set of equations: =-25+10P =875-5P If the U.S. engages in free trade and the international price of MP3 players is $50, it would import _____ MP3 players from the rest of the world.

Which of the following is a "unit-free" measure?

Suppose the domestic supply (Q^S_U.S.) and demand (Q^D_U.S)for bicycles in the United States are given by the following set of equations: .=2 =200-2. Demand (Q^D) and supply (Q^S) in the Rest of the World are given by the equations: =P =160-P. Quantities are measured in thousands and price in U.S. dollars. In the absence of international trade, _____ thousand bicycles will be sold in the Rest of the World at a per unit price of _____.