Eco 2013 Ch 3 Quiz

Given the graph below, what is the equilibrium quantity and price?

$q=50 thousand, p=$160 Equilibrium occurs where demand and supply meet, in this case where quantity is 50 thousand and price is $160.

Given the chart below, what is the equilibrium price and quantity?

$q=60 thousand, p=$4 per gallon Equilibrium price and quantity occurs where the supply and demand curves cross or where quantity supplied equals quantity demanded. In this case, q=60 thousand and p=$4 per gallon.

Factors that increase supply include:

-lower taxes on the cost of goods -an increase in the number of producers Businesses treat taxes as costs, thus, lower taxes result in increased supply as the perceived costs of production by the producer go down. More producers in a market allows for more of the good to be produced, which also increases supply.

Which of the following factors would result in a change in the supply of farm equipment?

A decrease in the price of steel Changes in the price of inputs for farm equipment to be made (steel, rubber, and glass) would change the supply of farm equipment. While gasoline is needed to run such equipment, it is not a factor of production.

____________________ leads to a surplus.

A price above the equilibrium price A surplus, or excess supply, occurs when the quantity supplied exceeds the quantity demanded. A price above the equilibrium price would cause this to occur.

Which of the following will increase the demand curve?

A rise in income (for a normal good). A rise in income (for a normal good) will increase demand because people will have more money to spend.

Which of the following is not a true statement about "demand"?

Demand is the same as quantity demanded. In economic terminology, demand is not the same as quantity demanded. When economists talk about demand, they mean the relationship between a range of prices and the quantities demanded at those prices, as illustrated by a demand curve or a demand schedule. When economists talk about quantity demanded, they mean only a certain point on the demand curve, or one quantity on the demand schedule.

The government implements a tax on gasoline to encourage the purchase and use of hybrid and electric cars. On the graph below, demonstrate the impact of this tax on the supply of gasoline cars by shifting the supply curve.

Taxes on the production of goods are assumed by the producer, which causes a decrease in production of gasoline cars. Due to the tax on gasoline, suppliers produce less combustion engine cars, resulting in a leftward shift of the supply curve. A leftward shift in supply means that at every given price, the quantity supplied is lower.

Suppose that favorable weather conditions double the quantity of tobacco crops, causing a reduction in the price of tobacco. Tobacco is an input into the production of cigarettes. On the graph below, demonstrate the change in the supply of cigarettes by shifting the appropriate curve.

The doubling of tobacco crops reduces their overall price to seller, which decreases production cost for cigarettes. This causes an increase or rightward shift in supply. A rightward shift in supply means that at every given price, the quantity supplied is higher.

Assume a market is currently at the equilibrium price and quantity, and a price ceiling is set below equilibrium price. Which of the following statements is true:

The quantity demanded will rise and the quantity supplied will fall, causing a shortage. When a price ceiling is set below the equilibrium price, the quantity demanded will rise and the quantity supplied will fall, causing a shortage.

Suppose there is a decrease in the price of butter. What do we expect to happen to the demand for bread? Assume that bread and butter are often consumed together.

There will be an increase in demand for bread. Butter and bread are complementary goods, so if the price of one decreases, then the demand for the other will increase.

The graph below represents the market for lumber. Graph the change in demand if a category 5 hurricane is predicted to hit the area, which increases the need of homeowners to board up windows and doors.

When consumers hear the news of a major event, such as a hurricane, they stock up on the necessary goods to weather the storm. In this case, the demand for lumber increases. As a result, the demand curve shifts to the right at every price level, raising both equilibrium price and quantity.

John is studying the effects of income on the demand for peppers. Which factors are held constant when using the "ceteris paribus" assumption?

all factors affecting demand, except income When studying the relationship between demand and an influencing factor, the "ceteris paribus" assumption holds all other influencing factors constant in order to study the effects of only the factor at hand.

Which of the following would shift the demand curve? -changing tastes or preferences of consumers -changing income levels -expectations about future prices -all of the above

all of the above Changing incomes, changing tastes or preferences, and expectations about future prices (or expectations about tastes and preferences, income, and so on) can all affect demand.

If bacon and eggs are complementary goods, a rise in the price of eggs will _____________ the demand for bacon.

decrease Bacon and eggs are complementary goods. Thus, the increase in the price of one will decrease the demand for the other.

Demand is ________________ quantity demanded.

different from Demand refers to consumers willingness to buy at each price, represented by the demand curve as a whole, whereas quantity demanded refers to the specific quantity consumers are willing to buy at a single price, represented by a point along the demand curve.

A rise in the price of a substitute for corn flakes will ________________ demand for corn flakes.

increase A rise in the price of a substitute will increase demand because people are likely to buy the more affordable product instead of the higher priced one.

Government intervention of setting price controls impacts the __________________. As a result, when a price floor is set, a very likely outcome is a ______________ in the market.

market equilibrium; surplus A price floor holds the price above equilibrium price and prevents it from falling. The result of the price floor is that the quantity supplied exceeds the quantity demande. There is excess supply, also called a surplus.

A price ceiling is a legal __________ price that one pays for some good or service.

maximum A price ceiling is a legal maximum price that one pays for some good or service. A government imposes price ceilings in order to keep the price of some necessary good or service affordable

When trying to understand supply and quantity supplied, quantity supplied refers to the _____________ and supply refers to the _____________.

point on the supply curve; curve When economists refer to supply, they mean the relationship between a range of prices and the quantities supplied at those prices, a relationship that can be illustrated with a supply curve or a supply schedule. When economists refer to quantity supplied, they mean only a certain point on the supply curve, or one quantity on the supply schedule. In short, supply refers to the curve and quantity supplied refers to the (specific) point on the curve.

A _______________ good is one that can be used in place of another good or service and has an effect on the demand curve for the original good.

substitute A substitute good is one that can be used in place of another good or service. Its substitution for another good has an effect on the demand curve for the original good.

Demand is different from quantity demanded because ___________________________________.

"demand" is comprised of a series of quantity demanded at different prices, while "quantity demanded" is the number of units consumers demand at a specific price Demand refers to consumers willingness to buy at each price, represented by the demand curve as a whole. Quantity demanded refers to the specific quantity consumers are willing to buy at a single price, represented by a point along the demand curve.

The supply and demand schedule below represents the market for pocket protectors. What is the equilibrium price and quantity?

q=24,p=$20 Equilibrium occurs where quantity supplied equals quantity demanded, in this case where quantity is 24 and price is $20.

Use the table below to choose the correct equilibrium price and quantity.

quantity = 12, price = $10 The supply and demand schedule shows that quantity supplied equals quantity demanded when quantity = 12, price = $10.

The table below represents the market for wheat. Suppose there is a price floor set at $6.00 for a bushel. Calculate the surplus caused by the price floor.

$0 bushels of wheat A price floor keeps the price for a good from falling below a set minimum. An effective price floor is set above equilibrium price. To calculate the surplus caused by the price floor, subtract the quantity demanded from the quantity supplied. In this case, the price floor is equal to 11,000−11,000=0, or 0 bushels. Since the price floor is set at market equilibrium, there is no surplus.

The graph below represents the market for electric cars. If a price floor is set at $92,000, calculate the surplus of cars that will result.

$10,000 electric cars A price floor keeps the price for a good from falling below a set minimum. An effective price floor is set above equilibrium price, making the quantity supplied greater than the quantity demanded, causing a surplus. To calculate the surplus caused by the price floor, subtract the quantity demanded from the quantity supplied. When a price floor is set at $92,000, the quantity supplied is 12,000 and the quantity demanded is 2,000. Subtract 2,000 from 12,000 to find the surplus, which is 10,000 electric cars.

A snow storm hits Atlanta in March. The table below represents the market for milk. Suppose there is a price ceiling set at $2.25 per gallon to avoid price gouging. Calculate the shortage caused by the price ceiling.

$3,900 gallons of milk A price ceiling keeps the price for a good from rising above a set maximum. An effective price ceiling is set below the equilibrium price. To calculate the shortage caused by the price floor, subtract the quantity demanded minus the quantity supplied. In this case, the price floor is equal to 4500−600=3900 gallons of milk. Quantity Demanded − Quantity Supplied = The Shortage

During a hurricane, a price ceiling of $450 is put on generators. Calculate the shortage caused by the price ceiling.

$439 generators A price ceiling keeps the price for a good from rising above a set maximum. An effective price ceiling is set below the equilibrium price. To calculate the shortage caused by the price ceiling, subtract the quantity supplied from the quantity demanded. In this case, the shortage is equal to 789−350=439 generators. Quantity Demanded − Quantity Supplied = The Shortage

Which of the following would likely cause a rightward shift in demand for solar power?

-a widely-seen documentary touts the benefits of solar power -the price of coal power increases A widely-seen documentary on the benefits of solar power could change consumer tastes in a way that causes consumers to demand more solar power at any given price. This would cause a rightward shift in the demand for solar power. Coal power is a substitute for solar power, so an increase in the price of coal power would cause demand for solar power to shift to the right.

Which of the following factors will affect the overall supply of hats, a normal good, in the entire market?

-higher textile costs -lower prices for trademarked logos The price of inputs used to produce a good affect production costs, which impact supply. Higher prices for textiles, an input for hats, likely would lower the supply of hats while lower prices for trademarked logos, would likely increase the supply of hats.

The price of beef rises 8%. Demonstrate the effect the price increase has on the equilibrium price and quantity of chicken by moving the demand curve. (For this exercise, beef and chicken are substitutes.)

Step 1: Draw the initial supply and demand curves with the initial equilibrium price and quantity. Step 2: Is the supply or demand affected? Beef and chicken are substitutes. Because the price of beef increases 8%, the demand for chicken increases. Step 3: The demand for chicken will increase, shifting the demand curve to the right. Step 4: A rightward shift in demand causes a movement up the supply curve, increasing the equilibrium price and the equilibrium quantity.

A late frost slows down orange production across Florida. Demonstrate the effect of a late frost on the equilibrium price and quantity of oranges.

Step 1: Draw the initial supply and demand curves with the initial equilibrium price and quantity. Step 2: Is the supply or demand affected? Frost will decrease the supply of oranges. Step 3: The supply of oranges will decrease, shifting the supply curve to the left. Step 4: A leftward shift in supply causes a movement up the demand curve, increasing the equilibrium price and decreasing the equilibrium quantity.

By definition, _______________ occurs when quantity supplied is greater than quantity demanded

a surplus By definition, a surplus occurs when quantity supplied is greater than quantity demanded . Firms cannot earn profits from unsold inventory, while production is costly. Since producers cannot find enough buyers at this price, producers in a competitive market will be incentivized to cut production and probably cut price as well.

An effective price floor is set ___________ equilibrium and is meant to help the producer and results in a ______________.

above, surplus A price floor is defined as the minimum amount that can legally be charged for a good or service. An effective price floor is set above equilibrium and is meant to help the producer. At a price floor set above equilibrium quantity supplied is greater than quantity demanded which results in a surplus.

In general, improvements in technology that is used to produce a good will result in ___________.

an increase in supply When a firm discovers a new technology that allows the firm to produce at a lower cost, the supply curve will shift to the right, increasing quantity produced at any given price.

The demand curve for a normal good is sloped _______________. The demand curve for an inferior good is sloped _______________.

downwards, downwards The demand curves for both an inferior and normal good are sloped downwards. It is only in relation to income (not graphed) that their behavior differs.

A decrease in demand for _________________ results from a rise in income.

inferior goods A decrease in demand for inferior goods results from a rise in income because inferior goods are usually cheaper substitutes purchased with lower incomes. Some inferior goods include bus rides, apartment rentals, spam, etc.

For normal goods, there is a _________________ relationship between income and demand levels, and there is an ______________ relationship for inferior goods.

positive, inverse For normal goods, demand increases with income, while it decreases with income for inferior goods.

Quantity demanded is ________________ at a specific price, while demand ________________.

the number of units consumers demand; is a table or function linking quantity demanded and price Quantity demanded is the total number of units of a good or service consumers are willing to purchase at a given price. Demand is a menu of prices and quantities demanded across the whole range of prices. This can also be expressed as the demand curve.

If we use "ceteris paribus" when plotting a demand curve for canned beans, all of these factors are constant except for one. Select the variable that is not constant in this scenario.

the price of canned beans "Ceteris paribus" is a Latin phrase meaning "everything else being equal." When plotting price and quantity of canned beans on a demand curve, we hold all other factors constant. Those include the prices of the substitutes and complements of a can of beans, consumers income, the supply of canned beans and others. We can vary both price and quantity of cans of beans as these are the variables whose relationship we are plotting with the demand curve.

Recent fires in Southern California have caused significant loss and damages to homes. In the graph below, show how demand for construction materials is impacted by this change by shifting the appropriate curve.

After the fires, homeowners need to rebuild and/or fix damaged property. Homeowners, the population likely to conduct these repairs, rises, resulting in an increase or rightward shift in demand. A rightward shift in demand means that at any price, the quantity demanded will be higher than it was before.

A popular celebrity figure was seen sporting a handbag from Designer X, which caused a significant jump in popularity of the designer. In the graph below, show how demand for handbags from Designer X is impacted by this change by shifting the appropriate curve.

An increase in popularity results in an increase, or rightward shift, in demand. A shift in demand means that at any price (and at every price), the quantity demanded will be different than it was before.

Suppose that there is a shift in society's preferences towards "green" technologies and now more people prefer to drive electric vehicles. Further, suppose that government has decided to introduce a tax on electric car producers, the revenues of which will be used to build the infrastructure to allow public charging of electric vehicles. Indicate the changes in the electric vehicle market by shifting the demand and/or supply curves.

Effect on Quantity: As supply of electric vehicles shifts to the left, this decreases the equilibrium quantity. As demand for electric vehicles shifts to the right, this increases equilibrium quantity. Since the two effects work in opposite directions, unless we know the magnitudes of the two effects, the overall effect on quantity of electric vehicles is unclear. Effect on Price: As supply of electric vehicles shifts to the left, this increases the equilibrium price. As demand for electric vehicles shifts to the right, this also increases equilibrium price. Since the two effects work in the same direction, we can assert that the overall price increases in equilibrium.

A main component used in the production of drum heads has risen in price by 9%. Demonstrate the effect this has on the equilibrium price and quantity of drum heads.

Step 1: Draw the initial supply and demand curves with the initial equilibrium price and quantity. Step 2: Is the supply or demand affected? The increase in price of materials to make drum heads will decrease supply because of increased production costs. Step 3: The supply of drum heads will decrease, shifting the supply curve to the left. Step 4: A leftward shift in supply causes a movement up the demand curve, increasing the equilibrium price and decreasing the equilibrium quantity.

Suppose that stock market investors expect a booming economy and a higher overall price for stocks over the next year. Indicate the changes in the stock market by shifting the demand and/or supply curves.

Effect on Quantity: As supply of stocks shifts to the left, this decreases the equilibrium quantity. As demand for stocks shifts to the right, this increases equilibrium quantity. Since the two effects work in opposite directions, unless we know the magnitudes of the two effects, the overall effect on quantity of stocks is unclear. Effect on Price: As supply of stocks shifts to the left, this increases the equilibrium price. As demand for stocks shifts to the right, this also increases equilibrium price. Since the two effects work in the same direction, we can assert that the overall price increases in equilibrium.

____________ is the total number of units of a good or service producers are willing to sell at a given price. This is not to be confused with __________, which is a function representing the relationship between quantity supplied and different prices.

Quantity supplied; supply Quantity supplied is the total number of units of a good or service producers are willing to sell at a given price. This is not to be confused with supply, which is the curve on which quantity supplied is plotted according to the supply schedule of a given producer or market.

The market for auto maintenance on cars that are 0-3 years old is initially in equilibrium. Demonstrate the effect of an increase in income on the equilibrium price and quantity of auto maintenance for this group of cars.

Step 1: Draw the initial supply and demand curves with the initial equilibrium price and quantity. Step 2: Is the supply or demand affected? An increase in income increases the demand for a good. Step 3: The demand for auto maintenance will increase, shifting to the right. Step 4: A rightward shift in demand causes a movement up the supply curve, increasing the equilibrium price and quantity.

Due to changes in the fortunes of their local sports teams, residents of a certain city have shifted their sports interests from hockey to baseball. Graph the change in demand for tickets to baseball games in the city.

When consumers preferences change, their demand for goods change. When they are more interested in a good, demand for the good increases. In this case, the demand curve for tickets to baseball games in the city shifts to the right, since residents are more interested in baseball.