question

Quantity supplied

answer

is the amount of a good or service that sellers are willing and able to supply at a given price.

question

Supply schedule

answer

A table that shows the relationship between the price of a product and the quantity of the product supplied. It is a table that reports the quantity supplied at different prices, holding all equal.

question

In a perfectly competitive market

answer

1) Sellers all sell an identical good or service 2) Any individual buyer or any individual seller isn't powerful enough on his or her own to affect the market price of that good.

question

The demand curve

answer

plots the relationship between the market price and the quantity of a good demanded by buyers. It plots the quantity demanded at different prices and plots the demand schedule.

question

The supply curve

answer

plots the relationship between the market price and the quantity of a good supplied by sellers. It plots the quantity supplied at different prices and plots the supply schedule.

question

The competitive equilibrium price

answer

equates the quantity demanded and the quantity supplied.

question

When prices are not free to fluctuate

answer

markets fail to equate quantity demanded and quantity supplied.

question

A market

answer

is a group of economic agents who are trading a good or service. and the rules and arrangements for trading.

question

Prices

answer

act as a selection device that encourages trade between the sellers who can produce goods at low cost and the buyers who place a high value on the goods.

question

Market price

answer

is referred to when all the sellers and buyers face the same price.

question

A price-taker

answer

is a buyer or seller who accepts the market price - buyers can't bargain for a lower price and sellers can't bargain for a higher price.

question

Quantity demanded

answer

is the amount of a good that buyers are willing to purchase at a given price.

question

A demand schedule

answer

is a table that reports the quantity demanded at different prices, holding all else equal.

question

Holding all else equal

answer

implies that everything else in the economy is held constant. The Latin phrase ceteris paribus means "with other things the same" and is sometimes used in economic writing to mean the same thing as "holding all else equal.

question

Negatively related

answer

if the two variables move in opposite direction.

question

Law of Demand

answer

In almost all cases, the quantity demanded rises when the price falls - holding all else equal.

question

Law of Supply

answer

The rule that, holding everything else constant, increases in price causes increases in the quantity supplied, and decreases in price cause decreases in the quantity supplied.

question

Demand curves

answer

are downward-sloping - the height of the curve falls as we move from left to right along the horizontal axis.

question

Willingness to pay

answer

is the highest price that a buyer is willing to pay for an extra unit of a good.

question

Diminishing marginal benefit

answer

As you consume more of a good, your willingness to pay for an additional unit declines.

question

Aggregation

answer

The process of adding up individual behaviors.

question

Aggregating quantity demanded

answer

means fixing the price of the good and adding up the quantities that each buyer demands. It is important to remember that quantities are being added together, not prices.

question

The market demand curve

answer

is the sum of the individual demand curves of all the potential buyers. It plots the relationship between the total quantity demanded and the market price, holding all else equal.

question

Demand schedules are aggregated by

answer

summing the quantity demanded at each price on the individual demand schedules.

question

Demand curves are aggregated by

answer

summing the quantity demanded at each price on the individual demand curves.

question

The demand curve shifts when these 5 major factors change

answer

1) Taste and preferences 2) Income and wealth 3) Availability and prices of related goods 4) Number and scales of buyers 5) Buyers' beliefs about the future

question

A taste change

answer

could also shift the demand curve to the right, corresponding to an increase in the quantity demanded at a given market price.

question

A "left" shift in the demand curve

answer

because a lower quantity demanded for a given price corresponds to a leftward movement on the horizontal axis. An example would be a lower quantity demanded for a given price of oil.

question

A change in factors reduces

answer

the quantity demanded at a given price, causing the demand curve to shift left.

question

A change in factors increases

answer

the quantity demanded at a given price, causing the demand curve to shift right.

question

The demand curve shifts

answer

only when the quantity demanded changes at a given price.

question

A movement along the demand curve

answer

If goods's own price changes and its demand curve hasn't shifted, the own price change produces a movement along the demand curve.

question

For an inferior good

answer

rising income shifts the demand curve to the left. No insult intended to Spam lovers.

question

A change in income or wealth

answer

affects your ability to pay for goods and services.

question

Normal good

answer

is an increase in income that causes the demand curve to shift to the right.

question

Inferior good

answer

is when rising income shifts the demand curve for a good to the left (holding the good's price fixed). It describes a negative relationship between increases in income and leftward shifts in the demand curve.

question

For a normal good

answer

an increase in income causes the demand curve to shift to the right - holding the good's price fixed.

question

For an inferior good

answer

an increase in income causes the demand curve to shift to the left - holding the good's price fixed.

question

Two goods are substitutes

answer

when the fall in the price of one leads to a left shift in the demand curve for the other.

question

Two goods are compliments

answer

when the fall in the price of one, leads to a right shift in the demand curve for the other.

question

The only reason for a movement along the demand curve

answer

is a change in the price of the good itself.

question

Two variables are positively related

answer

if the variables move in the same direction.

question

Willingness to accept

answer

is the lowest price that a seller is willing to get paid to sell an extra unit of a good. It is the same as the marginal cost of production.

question

Market Supply Curve

answer

is the sum of the individual supply curves of all the potential sellers. It plots the relationship between the total quantity supplied and the market price, holding all else equal.

question

Aggregation of Supply Schedules

answer

To calculate the total quantity supplied at a particular price, add up the quantity supplied by each supplier at that price. Repeat this for each price to derive the total supply curve.

question

The supply curve shifts when these variables change

answer

- Prices of inputs used to produce the good - Technology used to produce the good - Number and scale of sellers - Sellers' beliefs about the future

question

An input

answer

is a good or service used to produce another good or service.

question

The supply curve shifts only

answer

when the quantity supplied changes at a given price.

question

Movement along the supply curve

answer

The own price change if a good's own price changes and its supply curve hasn't shifted. This is the only reason for a movement along the supply curve.

question

Competitive markets

answer

converge to the price at which quantity demanded are the same. In a competitive market, the market price is the point at which the demand curve intersects the supply curve.

question

The competitive equilibrium

answer

is the crossing point of the supply curve and the demand curve.

question

The competitive equilibrium price

answer

is the quantity that corresponds to the competitive equilibrium price.

question

Excess supply

answer

is when the market price is above the competitive equilibrium price, quantity supplied exceeds quantity demanded.

question

Excess demand

answer

is when the market price is below the competitive equilibrium price, quantity demanded exceeds quantity supplied.

question

A left shift in the supply curve

answer

raises the equilibrium price and lowers the equilibrium quantity.

question

Both the Demand Curve and the Supply Curve Shift Left

answer

When both supply and demand shift left, the competitive equilibrium quantity will always decrease -Q2 is always less than Q1. On the other hand, the competitive equilibrium price may decrease - P2 less than P1, stay the same - P2 equal to P1, or increase - P2 greater than P1.

question

Quantity demanded

answer

is the amount of good that buyers are willing to purchase at a given price. A demand schedule is a table that reports the quantity demanded at different prices, holding all else equal. A demand curve plots the demand schedule. The Law of Demand states that in almost all cases, the quantity demanded rises when the price falls, holding all else equal.

question

A market

answer

is a group of economic agents who are trading a good or service, and the rules and arrangements from trading. In a perfectly competitive market, 1) Sellers all sell an identical good or service 2) Individual buyers or individual sellers aren't powerful enough on their own to affect the market price of that good or service.

question

The market demand curve

answer

is the sum of the individual demand curves of all the potential buyers. It plots the relationship between the total quantity demanded and the market price, holding all else equal.

question

The demand curve shifts only

answer

when the quantity demanded changes at a given price. If a good's own price changes and its demand curve hasn't shifted, the own price change produces a movement along the demand curve.

question

Quantity supplied

answer

is the amount of a good or service that sellers are willing to sell at a given price. A supply shcedule is a table that reports the quantity supplied at different prices, holding all else equal. A supply curve plots the supply schedule. The Law of Supply states that in almost all cases, the quantity supplied rises when the price rises, holding all else equal.

question

The market supply curve

answer

is the sum of the individual supply curves of all the potential sellers. It plots the relationship between the total quantity supplied and the market price, holding all else equal.

question

The supply curve shifts

answer

only when the quantity supplied changes at a given price. If a good's own price changes and its supply curve hasn't shifted, the own price change produces a movement along the supply curve.

question

The competitive equilibrium

answer

is the crossing point of the supply curve and the demand curve. The competitive equilibrium price equates quantity supplied and quantity demanded. The competitive equilibrium quantity is the quantity that corresponds to the competitive equilibrium price.

question

When prices are not free to fluctuate

answer

markets fail to equate quantity demanded and quantity supplied.

question

What is meant by holding all else equal and how is this concept used when discussing movements along the demand curve?

answer

All variables can affect the demand for the good are held constant.

question

We make the assumption of holding all else equal when considering demand curves since we want to focus on the changes in the quantity demanded that result from changes in

answer

only the price of a good.

question

If widespread unemployment leads to a drop in incomes, then the demand for the Toyota Rav4 SUV would _____

answer

decrease

question

If people began to believe that SUVs were causing global warming, then the demand for the Toyota Rav4 would ________

answer

decrease, shift left.

question

Economists refer to the process of adding up the individual curves to find the market demand curve as __________

answer

aggregation.

question

Aggregation consists of fixing the ____ __ __ ___ and adding up the _______ _______ by each buyer.

answer

price of the good; quantity demanded.

question

Which of the following is not one of the five major factor that shifts the demand curve when it changes?

answer

Prices of inputs used to produce the good.

question

Which one of the five main factors changes, causing an increase in demand, the demand curve shifts ________

answer

rightward.

question

If the price of a substitute good increases. how would the demand for a normal good be impacted?

answer

the demand curve would shift to the right.

question

The Law of Supply states that, in most cases, the quantity supplied of a good ________ when the price of the good rises. This means we would expect a typical supply curve to be _________

answer

rises; upward-sloping

question

The lowest price that a seller is willing to receive to sell an extra unit of a good is called _______

answer

willingness to accept.

question

The highest price that a buyer is willing to pay for an extra unit of a good is called ___________

answer

willingness to pay.

question

If the number of sparkling wine decreases significantly, then the supply curve for sparkling wine would __________

answer

decrease - shift left.

question

If the government sets a minimum wage for seasonal workers, then the supply curve for sparkling wine would __________

answer

decrease - shift left.

question

Which of the following is not one of the four major factors that shifts the supply curve when it changes?

answer

The income of consumers.

question

When one of the four major factors changes, causing an increase in supply, the curve shifts ____________

answer

rightward.

question

How would an increase in demand affect the equilibrium price in a market?

answer

The equilibrium price increases.

question

How would the equilibrium price in a market be affected if there were a small increase in demand and a large increase in supply?

answer

The equilibrium price decreases.

question

How would the equilibrium price in a market be affected if there were a small decrease in demand and a large decrease in supply?

answer

The equilibrium price increases.

question

Other things remaining the same, a right shift in the supply curve will lead to ____________

answer

a decrease in the equilibrium price and an increase in the equilibrium quantity.

question

A(n) ________ is a group of buyers and sellers who are trading goods and/or services.

answer

market

question

Which of the following correctly explains the role of economic agents in a free market?

answer

Economic agents allocate goods to those buyers who value the goods the most.

question

A competitive market is one:

answer

that operates with little or no government control.

question

In a competitive free market:

answer

the government does not impose price controls.

question

Which of the following statements correctly describes a perfectly competitive market?

answer

All participants in a perfectly competitive market are price takers.

question

Suppose the market for cement is one where there are a large number of buyers and sellers, and everyone conducts transactions at a common market price. Which of the following statements is true about the structure of the cement market?

answer

The cement market is free and competitive.

question

Assume that a seller in a perfectly competitive market charges more than competitors are charging. It is likely that this seller will:

answer

lose almost all of his buyers.

question

A seller who is a price taker charges:

answer

the market price.

question

Which of the following is a feature of a perfectly competitive market?

answer

Each seller is too small to influence the market price.

question

Which of the following statements correctly describes a competitive market

answer

The market price is determined by the interaction of demand and supply.

question

A free market can be defined as a market structure where all exchanges are voluntary, and prices are free to fluctuate. Does a perfectly competitive market qualify as a free market?

answer

There is very little government control or coercion in such a market and hence the government does not tell market participants what to do. In a perfectly competitive market, the equilibrium price and quantity are determined through the forces of demand and supply, and without any government intervention. Hence, perfectly competitive markets qualify as free markets.

question

The quantity demanded of a good is:

answer

the amount of a good that buyers are willing to purchase at a given market price.

question

The demand schedule for a commodity illustrates how the consumption of a commodity changes with changes in:

answer

its price.

question

The ________ plots the relationship between prices and the quantity that buyers are willing to purchase.

answer

demand curve

question

The demand curve for most goods is normally:

answer

downward sloping.

question

Which of the following best describes the difference between a demand curve and a demand schedule?

answer

A demand curve is a graphical representation of the relationship between the quantity of a good and its price, whereas a demand schedule is a tabular representation.

question

The Law of Demand states that:

answer

the quantity demanded of a commodity varies inversely with the price of the commodity.

question

Which of the following examples best describes the Law of Demand?

answer

When the price of bread doubles, John's consumption of bread halves.

question

The willingness to pay for a commodity:

answer

decreases as consumption of the commodity increases.

question

Which of the following statements is correct about the concept of willingness to pay?

answer

If a consumer is consuming 10 units of a commodity and he is ready to pay $2 for the eleventh unit, his willingness to pay for the eleventh unit is $2.

question

The buyers of a good will want to purchase it as long as their willingness to pay for the good is:

answer

greater than or equal to the price.

question

The Law of Diminishing Marginal Benefit states that:

answer

the willingness to pay for an additional unit declines as more of a good is consumed.

question

Jenny likes chocolates. One day, a friend offers her a chocolate bar and she is extremely happy on receiving it. As the day progresses, many other people also buy her chocolate. As she gets more and more chocolates, her excitement on receiving each bar is seen to gradually lessen. Which economic principle is reflected in this example?

answer

The Law of Diminishing Marginal Benefit

question

Which of the following examples best describes the Law of Diminishing Marginal Benefit?

answer

With each additional pen Jill buys, her willingness to pay for another pen decreases.

question

The market demand is the ________ of the individual demand of all the potential buyers.

answer

sum

question

A change in the quantity demanded of a good is:

answer

represented by a movement along the demand curve.

question

Which of the following factors will NOT cause a shift in the demand for a good?

answer

A change in the market price of the good

question

An increase in the demand for a good is represented by

answer

a right shift to a new demand curve.

question

Two goods are said to be substitutes when a fall in the price of one good

answer

leads to a left shift in the demand for the other good.

question

Which of the following pairs of goods are likely to be considered substitutes?

answer

A Ford car and public transportation

question

Two goods are said to be complements when a fall in the price of one good:

answer

leads to a right shift in the demand for the other good.

question

Which of the following pairs of goods are likely to be considered complements?

answer

Pens and writing pads

question

Which of the following factors is likely to lead to an increase in the quantity demanded of pens?

answer

A fall in the price of pens

question

Which of the following factors is expected to cause the demand curve for coffee to shift to the right?

answer

A higher tax on the sale of tea, a substitute for coffee

question

Assume that the economy is in a recession and consumers are expecting a fall in their income levels. This will cause a(n):

answer

left shift in the market demand for all goods.

question

Which of the following is likely to cause the demand curve for cars to shift to the left?

answer

A rise in the price of gasoline

question

Which of the following is likely to shift the market demand curve for school textbooks to the right

answer

An increase in the enrollment rates in high schools

question

Define the term "market demand." If these four consumers constitute the entire market, calculate the market demand for notebooks at $1, $4, $6, and $8.

answer

The term "market demand" refers to the sum of the individual demands of all potential buyers in a market. Market demand at $1 = 22 + 17 + 24 + 27 = 90 units Market demand at $4 = 20 + 13 + 21 + 24 = 78 units Market demand at $6 = 16 + 10 + 15 + 18 = 59 units Market demand at $8 = 8 + 6 + 9 + 10 = 33 units

question

Differentiate between a change in demand and a change in quantity demanded.

answer

A change in demand refers to the change in the quantity of a good purchased due to changes in any factors other than price. These factors may include a change in income, tastes and preferences, future expectations, or a change in the number and scale of buyers. A change in demand is graphically represented by a shift of the demand curve. On the other hand, a change in quantity demanded refers to a change in the quantity of a good purchased due to a change in the good's price, other things remaining the same. Graphically, a change in quantity demanded is represented by a movement along the same demand curve.

question

How would the following events affect the market demand for laser printers? a) A recession in the economy leading to a fall in income levels b) A five-fold increase in the price of printing paper

answer

a) A recession in the economy that causes a fall in income levels will cause a fall in the overall demand in the economy including a fall in the demand for laser printers. This will be represented by a left shift in the demand curve for laser printers. b) Printing paper and laser printers are complements. Therefore, a fivefold increase in the price of printing paper will make printing more expensive and subsequently reduce the demand for laser printers. This will be represented by a left shift in the market demand for laser printers.

question

With real-world examples, illustrate the various factors that can cause a shift in the demand curve of a commodity.

answer

The demand curve of a commodity can shift for the following reasons. a) Tastes and preferences: A change in the tastes and preferences of individuals can lead to a change in demand without any change in the commodity's price. For example, if new research proves that caffeine can be very harmful to regular consumers, it is likely that the demand for coffee might decrease, even though the price of coffee may not have increased. b) The income and wealth of consumers: Income and wealth of individuals plays an important role in determining demand. For example, a consumer who goes on vacation only once a year might start taking more vacations if his income increases. Thus, as income increases, the demand curve for a commodity, say movie tickets or vacations, shifts to the right. c) The availability and prices of related goods: Related goods are of two types, substitutes and complements. Two goods are substitutes if an increase in the price of one good leads to an increase in the demand for the other good and vice versa. On the other hand, two goods are complements if an increase in the price of one good leads to a decrease in the demand for the other good. For example, if the price of public transport decreases, the demand for cars is likely to fall. These two goods are substitutes. On the other hand, if the price of gasoline goes up, the demand for cars is likely to fall. Gasoline and cars are complements. d) The number and scale of buyers: The market demand for a commodity greatly depends on the number and scale of buyers. For example, if the enrollment rates in schools go up, the demand for textbooks is likely to increase, regardless of a change in price. e) Expectations about the future: Expectations about the future also plays an important role in determining the demand for a commodity. For example, if consumers expect the price of refrigerators to increase substantially in the near future, consumers may demand more refrigerators in the present.

question

In a market for apples, a consumer purchases 30 pounds when the price of apples is $1 per pound and the consumer's income is $5,000 per month. When the price of apples increases to $2 per pound, without any change in the consumer's income, he decides to purchase only 15 pounds of apples. Suppose, after a given period of time, the consumer's income falls to $3,000 per month. His consumption of apples also decreases to 10 pounds. Using a graph, illustrate the difference between change in quantity demanded and the change in demand for apples.

answer

Initially, the consumer purchases 30 pounds at a price of $1 per pound, and his income is $5,000. Eventually, due to an increase in the price of apples, the consumer reduces his consumption by 15 pounds. Because the change in consumption is owing to a change in the price of apples, it represents a change in quantity demanded. A change in quantity demanded due to an increase in the price of apples is shown by an upward movement along the same demand curve. The change in quantity demanded is 15 units in this case. The decrease in the consumption of apples due to a decrease in the consumer's income, the price of apples remaining unchanged, indicates a change in demand for the apples. The change in the demand for apples in this case is shown by a leftward shift of the demand curve.

question

The quantity supplied of a good:

answer

is the amount of the good that sellers are ready to supply at a given price.

question

A supply schedule is a table that reports:

answer

the different quantities of a good that producers are willing to sell at different prices.

question

The ________ plots the relationship between prices and the quantity producers are willing to sell.

answer

supply curve

question

The Law of Supply states that:

answer

the quantity supplied of a good rises when the price rises.

question

Which of the following examples best describes the Law of Supply?

answer

When the market price of pens increased, sellers started supplying more pens.

question

A seller's willingness to accept is the same as his:

answer

marginal cost of production.

question

Willingness to accept is:

answer

the lowest price that a producer is willing to receive to sell an extra unit of a good.

question

The market supply is the ________ of the individual supplies of all the potential sellers.

answer

sum

question

Which of the following is likely to lead to a right shift in the supply curve of cotton?

answer

An increase in labor productivity due to training programs

question

A fall in the price of flour, used in making cakes, is likely to:

answer

increase the supply of cakes.

question

Which of the following is likely to lead to an increase in the quantity supplied of steel?

answer

A rise in the market price of steel

question

Assume that a worker in a technology firm can produce 3 circuit boards in an hour. Due to subsequent innovation, he is now able to produce 6 circuit boards per hour. Other things remaining the same, the firm's supply curve is likely to:

answer

shift to the right.

question

Which of the following is likely to cause the supply curve for steel window frames to shift to the right?

answer

A decrease in the cost of production of steel due to a new subsidy

question

An expected increase in the market price of oil in the coming year is likely to:

answer

shift the supply curve of oil to the left in the current year.

question

Define marginal cost. Is it different from the concept of willingness to accept

answer

Marginal cost in production refers to the extra cost incurred in producing an additional unit of a commodity. Willingness to accept is the lowest price that a firm is willing to receive to sell an additional unit. In a competitive market, marginal cost is the same as a seller's willingness to accept. This is because the lowest price that any seller is willing to accept for an additional unit will equal the marginal cost of production of that unit. If he asks for a higher price, he will lose almost all of his buyers, and if he asks for a lower price, his cost of producing an additional unit will exceed the revenue he makes from selling it.

question

How are the following events likely to affect the market supply of rice in an economy? a) A fall in the wage rate of farm labor b) An increase in the productivity of farm capital due to better technology c) An increase in the use of agricultural land for non-agricultural purposes

answer

a) A fall in the wage rate of farm labor will lower the cost of producing rice, allowing farmers to supply more at the same market price. As such there will be an increase in the supply of rice, and this will be represented by a right shift in the market supply curve. b) An increase in the productivity of farm capital implies a fall in the cost of production. This will allow farmers to supply more at a given price. This will be represented by a right shift in the market supply curve for rice. c) An increase in the use of agricultural land for non-agricultural purposes will imply a fall in the scale and size of producers. As such there will be a decrease in the supply of rice, and this will be represented by a left shift in the market supply curve of rice.

question

With real-world examples, explain the various factors that can cause a shift in the supply curve of a commodity.

answer

The supply curve of a commodity can shift for the following reasons. a) The price of inputs used to produce the good: The price of inputs plays an important role in a producer's decision of how much of a good to supply. For example, a fall in the price of plastic is likely to increase the supply of plastic cups, at every price level. b) The technology used to produce the good: Technology plays an important role in determining supply. If a new innovation increases labor productivity, it is likely that firms will start supplying more. For example, a new method of manufacturing cars can increase the number of cars supplied to the market at every price level. c) The number and scale of sellers: The number and scale of sellers also determines the market supply. For example, if new firms enter the market for cigarettes, the supply of cigarettes will increase at every price level. d) Expectations about the future: Expectations about the future greatly influence producers' decisions. For example, if producers of winter coats expect the next winter to be colder than normal, they will increase the production of winter coats.

question

Explain how the following will affect the supply curve of coffee. a) A fall in the wages paid to coffee workers b) An increase in the availability of high-yielding coffee plants c) A decrease in the quantity of land under coffee cultivation

answer

a) A fall in wages paid to workers will shift the supply curve of coffee to the right. This implies an increase in the supply of coffee. b) An increase in the availability of high-yielding coffee plants will shift the supply curve of coffee to the right. This implies an increase in the supply of coffee. c) A decrease in the quantity of land under coffee cultivation will shift the supply curve of coffee to the left. This implies a decrease in the supply of coffee.

question

The equilibrium quantity in a perfectly competitive market is determined:

answer

at the point of intersection of the demand and supply curves.

question

Which of the following statements correctly describes perfectly competitive market equilibrium?

answer

Deviations from equilibrium are temporary and equilibrium is automatically restored.

question

At the competitive equilibrium:

answer

the quantity demanded is equal to the quantity supplied of a good.

question

In a perfectly competitive market, the market clearing price:

answer

is always equal to the equilibrium price.

question

A surplus occurs in a market when:

answer

price is higher than the equilibrium price.

question

At a price of $1 per table, the quantity supplied of tables is 100 units whereas the quantity demanded is 70 units. Given this information, which of the following statements is true?

answer

At $1 per table, there is a surplus in the market.

question

A shortage occurs in a market when:

answer

price is lower than the equilibrium price.

question

In a perfectly competitive market, situations of surplus or shortage of a good:

answer

are self-corrected due to the competitive nature of the market.

question

Other things remaining the same, a left shift in the supply curve will lead to:

answer

an increase in the equilibrium price and a decrease in the equilibrium quantity.

question

Other things remaining same, a left shift in the demand curve will lead to:

answer

a decrease in the equilibrium price and the equilibrium quantity.

question

Other things remaining the same, a right shift in the supply curve will lead to:

answer

a decrease in the equilibrium price and an increase in the equilibrium quantity.

question

Other things remaining same, a right shift in the demand curve will lead to:

answer

an increase in the equilibrium price and the equilibrium quantity.

question

Z is a normal good. The equilibrium price and quantity of Z in the year 2011 was $25 and 60 units, respectively. In 2014, the equilibrium price of Z had increased to $35 and the equilibrium quantity had increased to 70 units. Other things remaining the same, which of the following could explain this change?

answer

Shift of the demand curve for Z to the right

question

Z is a normal good. The equilibrium price and quantity of Z in the year 2011 was $25 and 60 units, respectively. In 2014, the equilibrium price of Z had increased to $35 but the equilibrium quantity had decreased to 50 units. Other things remaining the same, which of the following could explain this

answer

Shift of the supply curve of Z to the left

question

Z is a normal good. The equilibrium price and equilibrium quantity of Z in the year 2011 was $25 and 60 units, respectively. In 2014, the equilibrium price of Z had decreased to $15 and the equilibrium quantity had also decreased to 50 units. Other things remaining the same, which of the following could explain this change?

answer

Shift of the demand curve for Z to the left

question

Z is a normal good. The equilibrium price and equilibrium quantity of Z in the year 2011 was $25 and 60 units, respectively. It was seen that, in 2014, the equilibrium price of Z had decreased to $15, but the equilibrium quantity had increased to 70 units. Other things remaining the same, which of the following could explain this change?

answer

Shift of the supply curve of Z to the right

question

If the demand and supply curves for a commodity shift to the right by the same amount, then in comparison to the initial equilibrium, the new equilibrium will be characterized by:

answer

a higher quantity and the same price.

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If the demand and supply curves for a commodity shift to the right and the shift in demand is greater than the shift in supply, then in comparison to the initial equilibrium, the new equilibrium will be characterized by:

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a higher price and quantity.

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If the demand and supply curves for a commodity both shift to the left by the same amount, then in comparison to the initial equilibrium, the new equilibrium will be characterized by:

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the same price and a lower quantity.

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If the demand and supply curves for a commodity both shift to the left and the shift in demand is less than the shift in supply, then in comparison to the initial equilibrium, the new equilibrium will be characterized by:

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a higher price and a lower quantity.

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Assume that the supply curve for a commodity shifts to the right and the demand curve shifts to the left, and the shift in demand is greater than the shift in supply. Then, in comparison to the initial equilibrium, the new equilibrium will be characterized by:

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a lower price and quantity.

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Assume that the supply curve for a commodity shifts to the right and the demand curve shifts to the left, both by the same degree. Then, in comparison to the initial equilibrium, the new equilibrium will be characterized by:

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a lower price and the same quantity.

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Assume that the supply curve for a commodity shifts to the left and the demand curve shifts to the right, and the shift in demand is greater than the shift in supply. Then, in comparison to the initial equilibrium, the new equilibrium will be characterized by:

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a higher price and quantity.

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Assume that the supply curve for a commodity shifts to the left and the demand curve shifts to the right, both by the same degree. Then, in comparison to the initial equilibrium, the new equilibrium will be characterized by:

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a higher price and the same quantity.

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Why is the competitive equilibrium price often referred to as the market clearing price?

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The competitive equilibrium price is determined at the point of intersection of the market demand and the market supply curve. At the point of intersection, the quantity demanded is equal to the quantity supplied in the market, which implies that there is no excess supply or excess demand in the market. Because quantity demanded equals quantity supplied and markets clear at the competitive equilibrium price, the price is also referred to as the market clearing price.

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If there is excess demand in a perfectly competitive market, does the government need to intervene to restore the equilibrium price and quantity?

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No, in a perfectly competitive market, no government intervention is required to restore equilibrium as equilibrium is automatically restored. A situation of excess demand occurs when the market price is below the equilibrium price. Because quantity demanded exceeds quantity supplied in the market, some consumers will be willing to pay higher prices to buy goods. This will act as an incentive for suppliers to supply more, eliminating the shortage in the market.

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What will happen to the equilibrium price and quantity of cars if there is an increase in the price of gasoline?

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An increase in the price of gasoline will cause a left shift in the demand for cars, keeping supply unchanged. With supply unchanged and a left shift in the demand for cars, both the equilibrium price and quantity of cars will decrease.

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Suppose the equilibrium price and quantity of bicycles is determined at $40 and 200 units, respectively. For some reason, the market price of the bicycles initially increases to $60, and then decreases to $20. How will these deviations from the equilibrium price be corrected in a perfectly competitive market?

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The equilibrium in a perfectly competitive market is determined at the intersection of the demand and supply curves of bicycles, or in other words, at the point where the quantity supplied of bicycles equals the quantity demanded. The equilibrium price is $40 and the equilibrium quantity is 200 units.

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The market supply can be estimated by

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summing the quantity supplied of each seller at the different price levels.

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A price ceiling imposed by the government:

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can create situations of excess demand.

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Which of the following was an effect of the price ceiling placed on gasoline in the U.S. in the 1970s?

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Gas stations ran out of gas as the quantity of gas demanded exceeded the quantity supplied.

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Which of the following could explain why there was a stampede at the Richmond International Raceway where 1,000 laptops were being sold at $50 each?

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The quantity of laptops demanded at $50 was higher than the quantity supplied.

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Suppose the government decides that a particular commodity is a luxury and decides to fix its price above the market-determined price. What implications could this policy have?

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If the government fixes the price of a commodity above the market-determined price, it will provide an incentive to sellers to supply more. This will result in an excess supply of the commodity.

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Law of Diminishing Marginal Benefit

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Although consuming one more of any good will add to the Benefit, Marginal Benefit of consuming one more is decreasing.

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Consumer Equilibrium Condition: (5.2 slide)

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If not equal, you can hypothetically relocate A DOLLAR from the lower one to the higher one and be better off. MBs/Ps = MBj/PJ "Equal bang for your buck rule"

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A second way of looking at Consumers Equilibrium Condition (5 appendix)

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Utility. Utility is represented graphically by a series of curves: Indifferent curves.

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Utility

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is the same concept as Benefit, but we don't have to measure it in $; instead we measure it in "utils". - If you like chocolate ice cream more than vanilla ice cream, it means you get more Utils from it. - Utility is represented graphically by a series of curves: Indifferent curves.

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The entire utility function of an individual can be represented by

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indifferent curves, in which each curve corresponds to a different total utility level.

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Properties of Indifferent curves

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- Indifference Curves don't cross! - They are always parallel - The lower the Indifference curves are associated with lower level of utility. - Any two bundles on the same Indifference Curve give the same level of utility.

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The slope of the budget line

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is the relative price or ratio of the prices. -P / P

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Buyer's Optimal Choice

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- Slope of the Budget Line: -P room / P meal = -MU room / MU meal MU room / P room = MU meal / P meal Equal bang for the last buck rule!

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The Law of Demand

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If the price of a good increases, the quantity demanded of the good decreases, and vice-versa, given nothing else changes.

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Sifts of the supply curve occur when on of the following changes:

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1. input prices 2. technology 3. number and scale of sellers 4. sellers' expectations about the future

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Shift versus Movement

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Shift is when you have a change in Q in every price level. Movement is is when the price changes from one value to another value

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A shift happens when

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there is a decrease or increase in quantity demanded at EVERY PRICE LEVEL.

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Shifts of the Demand Curve occur when one of the following changes:

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1. tastes and preferences 2. income and wealth 3. availability and prices of related goods 4. number and scale of buyers 5. buyers' expectations about the future

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Quantity Supplied

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The amount of a good that sellers are willing to sell at a given price.

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Supply Schedule

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A table that reports the quantity supplied at different prices.

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Supply Curve

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Plots the quantity supplied at different prices.

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The Law of Supply

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If the price of a good increases, the quantity supplied of the good increases, and If the price of a good decreases, the quantity supplied of the good decreases, given nothing else changes.

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Shifts of the Supply Curve Occur when one of the following changes:

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1. input prices 2. technology 3. number and scale of sellers 4. sellers' expectations about the future

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Shift in Demand (or Supply) curve

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is regarded as "Increase or Decrease in Demand (or Supply)

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Movement along the Demand (or supply) curve

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is regarded as "Increase or Decrease in Quantity Demanded (or Supplied).

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The Law of Demand

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If the price of a good increases, the quantity demanded of the good decreases, and vice versa, given nothing else changes.

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Shifts of the Demand Curve occur when one of the following changes:

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1. tastes and preferences 2. income and wealth 3. availability and prices of related goods 4. number and scale of buyers 5. buyers' expectations about the future

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Shift

answer

is when you have a change in Q in every price level.

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Movement

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is when the price changes from one value to another value.

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Shift in Demand (or Supply) curve

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is regarded as "Increase or Decrease in Demand (or Supply)

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Movement along the Demand (or supply) curve

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is regarded as "Increase or Decrease in Quantity Demanded (or Supplied).

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There are 10 kids in front of an Italian ice stand. Each kid's willingness to pay for a cup of Italian ice is $0.50, $1, $1, $1,$2, $2, $2, $3, $5, $6. If the price of a cup of ice is $2, how many cups will these kids demand?

answer

6

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There are 10 kids in front of an Italian ice stand. Each kid's willingness to pay for a cup of Italian ice is $0.50, $1, $1, $1,$2, $2, $2, $3, $5, $6. If the price of a cup of ice is $3, how many cups will these kids demand?

answer

3

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Layla bakes a cake at home. In a given given day, it costs her $12 to bake the first cake. It costs her $19 to bake a second cake, and it costs her $45 to bake a third cake. Price of cake Quantity supplied $10 x $20 y $30 z $40 w

answer

x=0

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Layla bakes a cake at home. In a given given day, it costs her $12 to bake the first cake. It costs her $19 to bake a second cake, and it costs her $45 to bake a third cake. Price of cake Quantity supplied $10 x $20 y $30 z $40 w

answer

w=2

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The concept of diminishing marginal benefits means that _______________.

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each additional unit consumed is worth less to you than the previous one.

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The concept of diminishing marginal benefits ________ __________ for goods that you like a lot.

answer

holds true

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Suppose you have a flashlight that takes three batteries to power it. If you buy the batteries one at a time, for which purchase will diminishing benefits set in?

answer

When you buy the forth battery

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A right shift in the supply curve will lead to

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a decrease in equilibrium price and an increase in equilibrium quantity

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How would the equilibrium price in a market be affected if there were a large increase in demand and a small increase in supply?

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The equilibrium price increases

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How would the equilibrium price in a market be affected if there were a large decrease in demand and a small decrease in in supply?

answer

The equilibrium price decreases

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In 1999, the Coca-Cola Company developed a vending machine that would raise the price of Coke in hot weather. Coca-Cola's decision to have vending machines raise prices in hot weather ______________ make sense, since as a result of the change in demand for soft drinks, the equilibrium quantity demanded ________________ and the equilibrium price companies can charge ________________.

answer

does; increase; increases

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Consider weather the Law of Demand holds in the following situations. The price of anti-venom serum, sold to those with snakes bites, increased from $45 to $52, but consumption has still remained the same. In this situation, the Law of Demand ________________.

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does not hold, since the product sold is required for survival , so increasing the price did not affect consumption.

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A demand curve for anti-venom serum is _____________.

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near vertical, since even if the price rises, bite victims will be willing to buy the same quantity.

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A drought in the grape growing regions of the country increases the cost of producing jelly. At the same time, we see the price of peanut butter falls. Suppose that after both of those events the consumption of jelly is left unchanged. In this situation, the Law of Demand ______________.

answer

holds, since the demand curves for both jelly and peanut butter are downward-sloping; it is their shifts that are determining the impact on the quantity consumed.

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Given the supply and deman curves on the right, when the the price of the good is $20, we say that the market is in __________ ___________. At this price, we know that the quantity supplied is __________ ___ the quantity demanded.

answer

competitive equilibrium; equal to

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If the only change in the market was that the price increased to $30, then we know that the quantity supplied will be ____________ ________ the quantity demanded, resulting in ___ __________ __________, which is also know as a __________.

answer

greater than; an excess supply, surplus

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Suppose instead that the price of the good dropped below the competitive equilibrium price to a price of $15 per unit. If this were to occur, then the quantity supplied would be ____ _____ the quantity demanded, resulting in __ _________ ________demand, which is also known as _ __________.

answer

less than; an excess demand; a shortage

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Suppose the price of cofee increases and the demand for sugar decreases. You determine that the goods must be __________.

answer

complements

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This policy of imposing a minimum price for alcohol as a way to reduce binge drinking is likely to be __________, since the increase in price will cause the quantity demanded of alcohol to _____________.

answer

decrease

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A free market is a market:

answer

that operates with little or no government control.

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In a competitive free market:

answer

the government does not impose price control.

Economics Test 2 – Demand, Supply, and Equilibrium – Flashcards

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