(Complete) Chapter 3: Supply and Demand

Suppose that Tom bought a bike from Lauren for $200. If Lauren's reservation price was $170, and Tom's reservation price was $225, the seller's surplus from this transaction was

$30

Refer to the given table. Suppose the columns in this table reflect demand and supply. There will be an excess demand of 45 units at a price of

$30.

Assume consumers eat either rice or pasta for dinner every night. If the price of rice increases, then one would expect to see

An increases in the demand for pasta.

Suppose Bianca buys a used a textbook from Sebastian for $66. If Bianca's surplus from this transaction was $24, we can infer that

Bianca's reservation price was $90.

The smallest amount you would have to pay Bronx Pizza to get them sell an additional cheese pizza is $8.84. Thus, $8.84 is

Bronx Pizzas reservation price

Which of the following is not a characteristic of rent controls?

Greater availability of apartments

A decrease in both the equilibrium price and the equilibrium quantity of rice is best explained by

a decrease in the demand for rice.

If a late frost damages a part of this year's orange crop, this should lead to:

a decrease in the number of oranges bought and sold in the market. an increase in the price of oranges.

Suppose that the equilibrium price of french fries rises while the equilibrium quantity falls. The most likely explanation for these changes is

a decrease in the supply of french fries.

If the demand for wine increases as people's incomes go up, then wine is _____.

a normal good

If your cousin gets a big raise at work, and as a result, goes out to eat more often, then this suggests that for your cousin restaurant meals are _____.

a normal good

If the demand for a good decreases as income decreases, then the good is:

a normal good.

A supply curve is ______.

a schedule or graph showing the quantity of a good that sellers wish to sell at each price

A change in demand is represented by a ______.

a shift of the entire demand curve

A change in supply is represented by ______.

a shift of the entire supply curve

Economic efficiency occurs when

all goods and services are produced and consumed at their socially optimal levels

Suppose that when the price of broccoli is $4 per pound, buyers wish to buy 500 pounds per day and sellers wish to sell 800 pounds per day. In this case

excess supply will lead the price of broccoli to fall

Refer to the accompanying figure. If the current market price were $20

there would be an excess demand of 25 units.

Suppose that Tom bought a bike from Lauren for $195. If Lauren's reservation price was $185, and Tom's reservation price was $215, the seller's surplus from this transaction was

$10.

Given the picture on the right, if buyers currently purchase 7,000 gallons of milk per day, then the reservation price of the last buyer willing to buy milk (the marginal buyer) is:

$2

Given the picture on the right, if sellers currently produce 3,000 gallons of milk per day, then the marginal cost of the 3,000th gallon of milk is:

$2

In the figure to the right, what is the equilibrium price?

$3 per gallon

Given the picture on the right, if buyers currently purchase 3,000 gallons of milk per day, then the reservation price of the last buyer willing to buy milk (the marginal buyer) is:

$4

Given the picture on the right, if sellers currently produce 7,000 gallons of milk per day, then the marginal cost of the 7,000th gallon of milk is:

$4

If people tend to go swimming more in the summer than in the winter, then we would expect _____.

-the demand for swimsuits to be higher in the summer -the quantity of swimsuits bought and sold to be higher in the summer -the price of swimsuits to be higher in the summer

In the figure to the right, when the price of milk is $3 per gallon

-the quantity supplied equals the quantity demanded. -the market is in equilibrium.

Which of the following factors will lead to an increase in supply?

- A technological advance that lowers production costs -- A decrease in the cost of inputs to the production process

Prozac and Wellbutrin are both prescription medications to treat depression. If the price of Prozac increases, then this should lead to:

- an increase in the price of wellbutrin - an increase in the number of people who use wellbutrin

Which of the following factors will lead to a decrease in demand?

-A decrease in the population of potential buyers. -A decrease in the price of a substitute.

Which of the following is likely to lead to an increase in the demand for cell phones?

-A decrease in the price of cell phone apps (a complement to cell phones). -An increase in income (assuming cell phones are a normal good).

In which of the following situations is the market equilibrium likely to be economically inefficient?

-A market in which the consumption of the good entails a significant cost to others (like cigarettes and second-hand smoke) -A market in which the production of the good entails a significant cost to others (like pollution from the production process)

The introduction of rent controls could lead to which of the following?

-Discrimination against tenants on the basis of race, religion or other factors. -Poorer maintenance of rent-controlled apartments.

The introduction of rent controls could lead to which of the following?

-Lower rent for those who live in rent-controlled apartments. -An decrease in the quantity of apartments available for rent.

If Red Bull and Coke are substitutes, then a decrease in the price of Red Bull should lead to:

-a decrease in the amount of Coke bought and sold in the market. -a decrease in the price of Coke.

If butter and popcorn are complements, then an increase in the price of popcorn will lead to:

-a decrease in the equilibrium price of butter. -a decrease in the equilibrium quantity of butter.

If several new coffee shops open in your town, this should lead to _____.

-a decrease in the price of coffee -an increase in the amount of coffee bought and sold in your town

If hot dogs and ketchup are complements, then an increase in the price of ketchup will lead to:

-a decrease in the price of hot dogs. -a decrease in the number of hot dogs bought and sold in the market.

In which of the following situations is the market equilibrium likely to be economically inefficient:

-a market in which the consumption of the good entails a significant benefit to others (like vaccinations). -a market in which the production of the good entails a significant cost to others (like pollution from the production process).

In the figure to the right, when the market price is $4, there is

-an incentive for sellers to lower their price. -excess supply.

Given that college professors are an important input to the production of a college education, a decrease in the salaries of college professors should:

-decrease college tuition. -increase the number of students attending college.

A technological innovation that reduces the cost of extracting natural gas from the earth's surface should:

-decrease the price of natural gas. -increase the quantity of natural gas bought and sold in the market.

Given that flour is an important input to bread, an increase in the price of flour should lead to:

-decrease the quantity of bread bought and sold in the market. -increase the price of bread.

All else equal, the introduction of tractors into farming in the early 1900s is likely to have:

-decreased the price of agricultural products. -increased the quantity of agricultural products bought and sold in the market.

Failure to achieve economic efficiency means that _____.

-everyone in the economy could be made better off -total economic surplus is not maximized

In the figure to the right, when the market price is $2, there is

-excess demand. -an incentive for buyers to offer a higher price.

Given that paper is made from wood, a decrease in the price of wood should:

-increase the quantity of paper bought and sold in the market. -decrease the price of paper.

Relative to the summer months, people have less exposure to the sun during the winter. Thus, relative to the summer, we can expect _____.

-the demand for sunscreen to be lower in the winter -the amount of sunscreen bought and sold in the market to be lower in the winter -the price of sunscreen to be lower in the winter

Which of the following is likely to lead to a decrease in the current supply of gold?

An announcement that makes suppliers believe that gold prices are going to increase next year.

Suppose Martin just bought a guitar from Jackson off Craigslist for $110. Martin's reservation price was $140, and Jackson's reservation price was $100. The seller's surplus from this transaction was ______ dollars.

10

Some of these answers maybe wrong. Here is the list of flashcards numbers I was unsure about and was unable to find the correct answers for

119, 120, 126, 127, 128, 133, 135, 137, 142, 147, 150

Given the figure on the right, if the government of Pleasantville makes it unlawful to charge more than $500 per month for a one-bedroom apartment, how many apartments would landlords be willing to supply?

15,000 units per month

Given the figure on the right, if the government imposes a price ceiling of $2 per gallon on milk, the quantity of milk supplied will equal

3,000 gallons per day.

Suppose Martin just bought a guitar from Jackson off Craigslist for $110. Martin's reservation price was $140, and Jackson's reservation price was $100. The buyer's surplus from this transaction was _____ dollars.

30

Refer to the graph as shown. If the price of milk is $4 per gallon, then the consumers would be willing to purchase _____ gallons of milk per day. (Enter your answer as a number.)

3000

Given the figure on the right, if the government of Pleasantville makes it unlawful to charge more than $500 per month for a one-bedroom apartment, how many apartments would tenants demand?

35,000 units per month

Given the picture on the right, if the price of milk is $3 per gallon, how many gallons per day do sellers wish to sell? _____ gallons.

5000

Given the picture on the right, if the price of milk is $4 per gallon, how many gallons per day do sellers wish to sell? ____ gallons per day.

7000

Given the picture on the right, if the price of milk is $4 per gallon, how many gallons per day do sellers wish to sell? _____ gallons per day.

7000

Refer to the graph as shown. If the price of milk is $2 per gallon, then the consumers would be willing to purchase _____ (enter a number only) gallons of milk per day.

7000

Which of the following factors will lead to a decrease in the current supply of a good?

A belief that the price of a good or service will go up in the future

Which of the following factors will lead to an increase in the demand for a good?

A decrease in the price of a complement An expectation of higher prices in the future

Assume that Joe is willing to produce a hamburger for $1, and Mary is willing to pay $3 for a hamburger. Which of the following is true?

Joe and Mary can make a mutually beneficial exchange.

The most John is willing to pay for a slice of pizza is $2.56. Thus, $2.56 is

John's reservation price for pizza.

Suppose you bought a concert ticket from Ticketmaster for $50, but when you get to the concert, there are a large number of people waiting outside who offer to pay you more than $50 for your ticket. What is probably true?

There is an excess demand for tickets at the Ticketmaster price

True or false: The socially optimal quantity is that level for which the marginal cost and marginal benefit of the good are the same.

True

In a market in which the government has set a price ceiling below the equilibrium price

a black market might develop.

A shift in the entire demand curve is considered ______.

a change in demand

A shift of the entire supply curve is considered ______.

a change in supply

A movement along the demand curve is considered ______.

a change in the quantity demanded

A movement along the supply curve is considered ______.

a change in the quantity supplied

An increase in the supply of corn (a rightward shift in the supply curve) could be the result of _____ in the price of an input to the production of corn.

a decrease

If a local art museum announces that it is going to lower the cost of admission into the museum next month, then this should lead to _____ in the current demand for admission into the art museum.

a decrease

If bagels and cereal are substitutes, then a decrease in the price of bagels will lead to _____ in the demand for cereal.

a decrease

If butter and popcorn are complements, then an increase in the price of butter will lead to _____ in the demand for popcorn.

a decrease

If people who currently own homes learn that home prices are likely to go up in their area next year, then this should lead to ____ in the current supply of homes.

a decrease

If the price of cheese increases, then this should lead to _____ in the supply of pizza.

a decrease

If torrential rains wipe out this year's corn crop, this should lead to _____ in the supply of corn.

a decrease

Refer to the accompanying figure. Assume the market is originally at point W. Movement to point Z is a combination of

a decrease in supply and an increase in quantity demanded.

Which of the following factors will lead to a decrease in supply?

an expectation of higher prices in the future

A medical breakthrough that decreases the cost of treating cancer should lead to ____ in the supply of cancer treatments.

an increase

If a government announcement leads home buyers to believe that house prices will go up in the future, then this should lead to _____ in the current demand for houses.

an increase

If butter and popcorn are complements, then a decrease in the price of butter will lead to _____ in the demand for popcorn.

an increase

If the price of sugar falls, this is like to lead to _____ in the supply of candy.

an increase

Refer to the accompanying figure. Assume the market is originally at point W. Movement to point X is the result of

an increase in demand and no change in supply.

Refer to the accompanying figure. Moving from demand curve D1 to demand curve D2 could be caused by

an increase in income, if this is an inferior good.

If Hulu Plus and Netflix are substitutes, then an increase in the price of Netflix should lead to _____.

an increase in the price of Hulu Plus an increase in the number of people who subscribe to Hulu Plus

Given that hops are an important input to the production of beer, a sharp increase in the price of hops should lead to:

an increase in the price of beer a decrease in the amount of beer bought and sold in the market

If bread and peanut butter are complements, then a decrease in the price of peanut butter will lead to:

an increase in the price of bread an increase in the amount of bread that people buy

Two goods are complements if

an increase in the price of one leads to a decrease in the demand for the other

Two goods are substitutes if

an increase in the price of one leads to an increase in the demand for the other

Suppose that the equilibrium price of apples decreases, and the equilibrium quantity of apples increases. This is best explained by

an increase in the supply of apples.

Suppose that the equilibrium price of pickles falls while the equilibrium quantity rises. The most likely explanation for these changes is

an increase in the supply of pickles.

Equilibrium price and quantity are determined by

both supply and demand

To understand how the price of a good is determined in a free market, one must account for the desires of

buyers and sellers

When the current price of a good is below the equilibrium price

buyers have an incentive to offer to pay sellers more than the current price.

It is likely that for most people

coffee and tea are substitutes.

If an increase in the price of one good, causes a decrease (leftward shift) in the demand for another good, then the two goods are _____.

complements

If the demand for bread increases when the price of peanut butter falls, then this suggests that bread and peanut butter are _____.

complements

If the price of butter increases, the quantity of butter demanded will ______.

decrease

In the figure on the right, the movement from point A to point B represents a(n)

decrease in quantity demanded.

Given the picture on the right, as the quantity milk bought increases from 3,000 to 5,000 gallons per day, then the reservation price of the marginal buyer (the last buyer who is willing to buy milk) _____.

decreases

Given the picture on the right, as the quantity milk bought increases from 5,000 to 7,000 gallons per day, then the reservation price of the marginal buyer (the last buyer who is willing to buy milk) _____.

decreases

The numbers in the table below likely capture the daily _______ tennis balls.

demand for

You observe that the price of books has gone down at the same time that the number of books bought and sold in the market has decreased. The best explanation for this is that the:

demand for books has decreased

Suppose that new scientific studies conclude that high-fiber diets do not reduce the risk of developing colon cancer as well as was previously thought. The likely result will be that the

demand for high-fiber foods will decrease.

Given the figure on the right, if the government imposes a price ceiling of $2 per gallon on milk, the this will lead to an excess _____.

demand of 4,000 gallons per day

When all goods and services are produced and consumed at their socially optimal levels ______.

economic efficiency is achieved

Suppose that the market price for hot dogs sold by street vendors has just risen from $4.50 to $5, and that in response Curly has now begun operating a hot dog cart. We can assume that Curly's reservation price for hot dogs is

greater than $4.50 but no more than $5

Suppose that as the price of coffee increases, consumers purchase less coffee in part because they can no longer afford to buy as much coffee as they used to. This reduction in the quantity of coffee demanded is known as the _____ of a price change.

income effect

Suppose that as the price of movie tickets increases, people stop going to the movies as often because they can no longer afford to do so. This reduction in the quantity of movie tickets demanded is known as the _____ of a price change.

income effect

Along a supply curve, if the price of butter increases, the quantity of butter supplied will _____.

increase

In the figure on the right, the movement from D to D' represents a(n)

increase in demand.

In the figure on the right, the movement from point A to point B represents a(n)

increase in quantity supplied.

In the figure on the right, the movement from S to S' represents a(n)

increase in supply.

If an increase in income leads to a decrease in the demand for ground beef, then ground beef is a(n)

inferior good

Suppose you drive a car that gets good gas mileage, and you notice that more and more people are driving gas-guzzling cars. Their increased demand for gas

is likely to cause the price you pay for gas to increase.

Movements toward efficiency make the total economic pie _____, making it possible for everyone to have a _____ slice.

larger; larger

A buyer's reservation price is the

largest dollar amount the buyer would be willing to pay for a good

If supply increases and demand decreases, the new equilibrium price will be ______ and the new equilibrium quantity will be ______.

lower; uncertain

A change in the quantity supplied is represented by

movement along a supply curve.

A change in quantity demanded is represented by

movement along the demand curve

Efficiency is an important social goal because

movements toward economic efficiency make the total economic pie larger.

A maximum allowable price specified by law is a _______.

price ceiling

The smallest dollar amount for which a seller would be willing to sell an additional unit of a good is the _____.

seller's reservation price

In a free market, if the price of a good is above the equilibrium price, then

sellers, dissatisfied with growing inventories, will lower their prices.

If an increase in the price of one good, causes a increase (rightward shift) in the demand for another good, then the two goods are _____.

substitutes

If the demand for tea increases when the price of coffee goes up, then this suggests that coffee and tea are _____.

substitutes

Suppose that as the price of pencils increases, people buy fewer pencils and instead use pens. The resulting reduction in the quantity of pencils demanded is known as the _____ of a price change.

substitution effect

The change in the quantity demanded of a good that results because buyers switch to or from substitutes when the price of the good changes is known as the _____ of a price change.

substitution effect

A schedule or graph showing the quantity of a good that sellers wish to sell at each price is known as a _____.

supply curve

The picture on the right represents a _____.

supply curve

The numbers in the table below likely capture the daily _______ tennis balls. Price ($/ball) Quantity (balls/day) 0.50 100 1.00 200 1.50 300

supply of

You observe that the price of ice cream has gone up and that less ice cream is being bought and sold. The best explanation for this is that the

supply of ice cream has decreased.

Refer to the accompanying figure. Suppose the solid line shows the current demand for coffee. In response to a news story explaining that coffee causes heart disease, you should expect

the demand curve to shift to D(A) because some people will stop drinking coffee.

"All else constant, consumers will purchase more of a good as the price falls." This statement reflects the behavior underlying

the demand curve.

Buyer's surplus is

the difference between the buyer's reservation price and the price the buyer actually pays

Total surplus is

the difference between the buyer's reservation price and the seller's reservation price.

Seller's surplus is

the difference between the price the seller receives and the seller's reservation price.

Suppose the demand for gasoline increases at the same time the supply of gasoline falls, then we know that

the equilibrium price of gasoline will go up but the equilibrium quantity could go up or down.

Suppose that people's incomes rise at the same time that the cost of producing cell phones falls. If cell phones are a normal good, then we know that

the equilibrium quantity of cell phones will go up, but the price could go up or down.

Refer to the accompanying figure. If demand shifts from D1 to D2, and at the same time, supply shifts from S1 to S2, then according to the figure

the equilibrium quantity will increase and the equilibrium price will increase.

In the figure to the right, if the market price for milk is $2 per gallon, then

the excess demand for milk will be 4,000 gallons per day.

In the figure to the right, if the market price for milk is $4 per gallon, then

the excess supply of milk will be 4,000 gallons per day.

An increase in the price of cotton is likely to shift the supply curve for clothing (that uses cotton as an input) to

the left.

The socially optimal quantity is

the quantity of a good that maximizes the total economic surplus that results from producing and consuming the good.

Given the figure on the right, if the government of Pleasantville makes it illegal to charge more than $1,000 per month for a one-bedroom apartment, then

this will have no effect on the market.

If Zach's reservation price for a gallon of milk is $5.53, and the market price for milk is $4.90, then Zach

will buy a gallon of milk

A price ceiling that is set above the equilibrium price

will have no effect on the market.

If Jason's reservation price for a pound of apples is $1.40, and the market price for a pound of apples is $1.52, then Jason

will not buy a pound of apples.

When a new technology reduces the cost of production, supply ______.

will shift to the right (increase)