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Sandee Milewski. Printer: West Group. Eagan, MN. Microeconomic Theory. Basic Principles and Extensions. Tenth Edition. Walter Nicholson Christopher Snyder. Lecture Notes1. Microeconomic Theory. Guoqiang TIAN. Department of Economics. Texas A&M University. College Station, Texas ([email protected] edu). These notes are prepared for the Microeconomic courses I teach at the Nicholson, W., and C. M. Snyder (): Microeconomic theory: basic principles.
If the price of Y increases and, as a consequence, the demand curve for X shifts to the left, then: X and Y are substitutes.
X and Y are complements. X and Y are unrelated. X and Y are inferior goods. A shift in the consumer's demand for a good X cannot result from a change in the: Which of the following would cause the demand for coffee to increase? An increase in the price of tea, a substitute for coffee b.
A decrease in the price of tea, a substitute for coffee c. An increase in the price of cream, a complement to coffee d. A decrease in the price of coffee Answer: Which of the following is likely to occur if the demand for housing increases?
The price of lumber used to build a house will fall. The interest rate on mortgages needed to download a house will rise.
The demand for schools will rise. The wages of carpenters who build houses will fall. Hard Section Reference: As a consequence, the demand curve shifts down since people download less at a higher price, and the supply curve shifts up because producers find it profitable to supply more output at a higher price.
Price will continue to adjust until there is no excess demand. The quotation is correct. The quotation confuses excess supply with excess demand.
The quotation confuses movements along curves with shifts in curves. The quotation confuses short-run adjustments with long-run adjustments. Which of the following is likely to shift the demand for chocolates to the left? An increase in the price of cocoa used to make chocolates b. Medical reports suggesting increased risk of memory loss among the aged due to high chocolate consumption c. A decrease in the price of chocolates d. The introduction of minimum wages by the government in an attempt to improve the average wage level in the economy and alleviate poverty Answer: A supply curve for a good depicts the: An increase in quantity supplied occurs when: The market supply curve depicts: D Difficulty Level: An increase in quantity supplied: As the price of shirts rises, the law of supply would predict a n: An increase in supply occurs when: Refer to Figure What is the equilibrium price and quantity in this market?
Explain how equilibrium price and quantity are determined in a market for a good or service. When there is an excess demand for a good, there is: When there is an excess supply of a good, there is a n: When the market for a good, such as gasoline, is competitive and its price suddenly increases substantially, we can infer: An excess demand for a good or service tends to cause: Determination of Equilibrium Price and Quantity Full file at https: An excess demand for a product indicates that: When the actual price in a market is above the equilibrium price we would expect: An excess supply for a product indicates that the price is: If both supply and demand for a good increase at the same time, which of the following must also increase?
The equilibrium price b. The use of substitutes c. The equilibrium quantity d. The price of substitute goods Answer: Analyze how a market equilibrium is affected by changes in demand or supply.
An increase in the demand for a commodity accompanied by a decrease in its supply will result in a n: C Full file at https: A local businessman points out that, as the price of VCR has fallen, sales have increased tremendously. The businessman cites this example as proof that the law of supply does not hold.
Which of the following explanations best solves the paradox cited by the businessman? Demand was decreasing during the period in question. Demand was stable during the period in question. Supply was stable during the period in question. Supply was increasing during the period in question.
Which of the following would result in a higher equilibrium price and an ambiguous change in the equilibrium quantity?
An increase in both supply and demand b. An increase in supply and a decrease in demand c. A decrease in both supply and demand d.
A decrease in supply and an increase in demand Answer: Which of the following would result in a higher equilibrium quantity and an ambiguous change in equilibrium price?
An increase in supply and demand b. A decrease in supply and demand d. A decrease in supply and an increase in demand Full file at https: The equilibrium price of houses in the San Francisco Bay Area has risen dramatically in recent years because: If land use restrictions in major cities were relaxed, the: An expectation that the price of housing will increase more rapidly in coming years will cause the: Which of the following market outcomes can be explained by the supply-demand model?
An increase in the demand for cigarettes after an increase in its price b. A decrease in household consumption following an increase in average monthly income c.
An increase in supply in spite of a decline in input prices d. An increase in the per capita consumption of medical care in a country due to an epidemic Answer: Which one of the following will not cause a change in the demand for gasoline?
More people deciding to live closer to their workplace b. More people downloading large pickup trucks and sports utility vehicles c. New technology that lowers the cost of producing gasoline d. Expectations of consumers that the price of gasoline will be significantly greater next week Answer: When the demand for a commodity decreases and its supply is vertical we can conclude that: An increase in supply, other things equal, will cause the: Which of the following is true of a legislated price ceiling?
It is illegal to charge a price higher than the ceiling.
It is illegal to sell commodities on which ceiling has been imposed. It is illegal to charge a price lower than the ceiling. It is illegal to download commodities on which ceiling has been imposed.
Wage, Productivity and Unemployment Microeconomics Theory and Macroeconomic Data
Government Intervention in Markets: In fact, much analysis is devoted to cases where market failures lead to resource allocation that is suboptimal and creates deadweight loss. A classic example of suboptimal resource allocation is that of a public good.
In such cases, economists may attempt to find policies that avoid waste, either directly by government control, indirectly by regulation that induces market participants to act in a manner consistent with optimal welfare, or by creating " missing markets " to enable efficient trading where none had previously existed.
This is studied in the field of collective action and public choice theory. This can diverge from the Utilitarian goal of maximizing utility because it does not consider the distribution of goods between people. Market failure in positive economics microeconomics is limited in implications without mixing the belief of the economist and their theory.
The demand for various commodities by individuals is generally thought of as the outcome of a utility-maximizing process, with each individual trying to maximize their own utility under a budget constraint and a given consumption set. Basic microeconomic concepts[ edit ] The study of microeconomics involves several "key" areas: Demand, supply, and equilibrium[ edit ] Main article: Supply and demand Supply and demand is an economic model of price determination in a perfectly competitive market.
It concludes that in a perfectly competitive market with no externalities , per unit taxes , or price controls , the unit price for a particular good is the price at which the quantity demanded by consumers equals the quantity supplied by producers.
This price results in a stable economic equilibrium. Measurement of elasticities[ edit ] Main article: Elasticity economics Elasticity is the measurement of how responsive an economic variable is to a change in another variable.
Elasticity can be quantified as the ratio of the change in one variable to the change in another variable, when the later variable has a causal influence on the former.
ECONOMICS 231 MICRO-ECONOMIC THEORY I
It is a tool for measuring the responsiveness of a variable, or of the function that determines it, to changes in causative variables in unitless ways. Frequently used elasticities include price elasticity of demand , price elasticity of supply , income elasticity of demand , elasticity of substitution or constant elasticity of substitution between factors of production and elasticity of intertemporal substitution. Consumer demand theory[ edit ] Main article: Consumer choice Consumer demand theory relates preferences for the consumption of both goods and services to the consumption expenditures; ultimately, this relationship between preferences and consumption expenditures is used to relate preferences to consumer demand curves.
The link between personal preferences, consumption and the demand curve is one of the most closely studied relations in economics. It is a way of analyzing how consumers may achieve equilibrium between preferences and expenditures by maximizing utility subject to consumer budget constraints. Theory of production[ edit ] Main article: Production theory Production theory is the study of production, or the economic process of converting inputs into outputs.
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