ECO- Supply and Demand

Expectations

: changes in what consumers expect to happen in the future

Resource costs (supply)

: cost to purchase factors of production will influence business decisions

BITERS

: factors that shift the demand curve

A shortage will occur whenever A) price is set below the equilibrium price. B) price is set above the equilibrium price. C) price is set equal to the equilibrium price. D) the supply curve is upward sloping.

A

An expected future increase in price may A) increase demand now. B) decrease demand now. C) increase the quantity demanded now. D) decrease the quantity demanded now.

A

Other things constant, the only way to move along a given supply curve for a product is for A) the product's relative price to increase or decrease. B) the future relative price of related goods to change. C) the number of sellers to increase or decrease. D) technological changes to occur.

A

In deriving the demand schedule for a good, economists assume that A) consumers have equal incomes to allocate among goods. B) a consumer will allocate all of her income to one good. C) all other influences of demand except the product price are held constant. D) reported income changes at each point on the demand schedule.

C

Other things being equal, the relationship between price and quantity supplied is A) negative. B) constant. C) positive. D) non-existent.

C

Suppose that baggy jeans were fashionable in the early 1990s become unfashionable in the late 2000s. If other factors were held constant, then there would be A) a rightward movement along the supply curve. B) a rightward shift of the demand curve. C) a leftward shift in the demand curve. D) a leftward movement along the supply curve.

C

The money price of a good is that price A) expressed in constant 1980 dollars. B) expressed in purchasing power against a common item like bread. C) expressed in today's dollars. D) which would clear the market.

C

The quantity supplied of a particular good is the amount of the good that A) households are willing to consume at each particular price. B) firms will actually end up buying at a particular price during a given time period. C) firms are willing to sell at each price during a particular time period. D) households want firms to sell at each price during a particular time period.

C

The relative price of a good is that price A) expressed in today's dollars. B) expressed in constant 1980 dollars. expressed in terms of the price of another good. D) that is equal to the equilibrium price.

C

Which of the following statements about a supply curve is FALSE? A) It shows a direct (positive) relationship between price and quantity supplied. B) It shows the quantity supplied at each specific price. C) It typically slopes downward. D) It has a positive slope.

C

Which of the following will shift the supply curve to the right? A) Input prices rise B) Sales taxes increase C) Input prices are expected to be higher in the future D) Prices are expected to be lower in the future

C

Buyers (# of):

changes in the number of consumers

Related goods

compliments and substitutes

Equilibrium price/ market price

the point at which the amount supplied is equal to the amount demanded, "balance"

In any given market, prices are determined by A) specialization of labor. B) transactions costs. C) supply and demand. D) comparative advantage.

C

Elasticity

How sensitive your products demand is in relation to a change in price

Shortage

This exists when a product is priced below the equilibrium or market price, when that happens people buy it up quickly and a man exceeds supply

Suppliers produce two goods, cheese and butter. Assume that there is no cost to switch resources from cheese production to butter production and vice versa. Suppose the demand for butter increases. What do we expect to happen to the equilibrium in the market for cheese? a. The price will go up and the quantity will drop. b. The price will go up and the quantity will rise. c. The price will go down and the quantity will drop. d. The price will go down and the quantity will rise. e. None of the above.

A

Suppose a college increases the wages paid to student employees. Which of the following options is the best description of the most likely effect of the wage increases on the market for school sweatshirts in the bookstore? A) the demand curve shifts to the right B) the demand curve shifts to the left C) a leftward movement along the demand curve D) a rightward movement along the demand curve

A

When economists talk about a demand schedule for a product, they mean A) the amount of a good that consumers intend to purchase at each price in a set of possible prices in a given time period. B) the amount of a good that consumers are able to purchase (though they might not be willing to) at different prices in a given period of time. C) the amount of a good that consumers intend to purchase at only one particular price in a given period of time. D) the amount of a good that producers are willing to make available for sale at a particular price in a given time period.

A

Which one of the following statements is FALSE? A) Generally, what matters most to consumers is what a good costs in dollars. B) The relative price of a good is its price measured relative to the price of other goods. C) The relative price of a good is also known as the good's nominal price. D) When the price of soda goes up by the same proportion as the prices of all other goods, the relative price of soda does not change.

A

What causes a change in demand

A change in anything except price such as a change in buyer taste, a change in the number of buyers, a change in income, a change in the price of related goods such as substitute goods and complementary goods, a change the expectations

What causes a change in supply

A change in anything except prices such as a change in resource or factor prices, a change in technology or technique, a change in taxes or subsides, a change in prices of other goods, a change in expectations, a change in the number supplies

What causes a "change and quantity demanded quote"?

A change in price

What causes a "change in quantity supplied "

A change in price

Inelastic demand/supply

A change in price has a little impact on quantity demanded (slope - steep)

Elastic demand

A small change in price causes a large change in quantity demanded ( slope-flat)

Which of the following will NOT affect the market supply curve for a good? A) The government grants a subsidy to the producers for each unit of a good that they produce. B) The price of the good increases. C) The number of sellers in the market increases. D) There is an increase in the prices of the inputs used in production.

B

Normal good

An expensive good( the better alternative)(a good that consumers demand more of when their incomes increase)

The drought in the plain states has made grain, and therefore feed, quite expensive. Many ranchers cannot afford to feed their cattle, and have sold much of their herd for slaughter. As it happens, the slaughter of beef cattle has coincided with a decrease in consumers' income. Assuming that steak is a normal good while hamburgers are an inferior good, use a supply-and-demand diagram for either market to illustrate the combined effect of the two aforementioned events on the equilibrium price and quantity of hamburgers and steak.

As consumers' income decreases, the demand for normal goods (such as steak) decreases while the demand for inferior goods (such as hamburgers) increases. Keep in mind that our conclusion from part a is still valid. A lower price of beef will increase the supply of all goods in which beef is an input. Therefore in each of the two markets in question we deal with simultaneous shifts in supply and demand. Steak: S increases, D decreases. Hamburgers: S increases, D increases.

The drought in the plain states has made grain, and therefore feed, quite expensive. Many ranchers cannot afford to feed their cattle, and have sold much of their herd for slaughter. Chicken and beef are substitute goods. Illustrate the effect that the slaughter of the cattle herds will have on the equilibrium price and quantity of chicken.

As the price of beef decreases, consumers will buy more beef and less chicken. The demand for chicken will decrease, causing a decrease in the equilibrium price and quantity of chicken.

Any improvement in overall production technology that permits more output to be produced with the same level of inputs causes A) a movement up the supply curve resulting in both a higher equilibrium price and quantity. B) a rightward shift of the supply curve so that more is offered at each price. C) no movement of the supply curve, but a fall in price and a decrease in quantity supplied. D) a leftward shift of the supply curve so that less is offered for sale at each price

B

Assume cars and gasoline are complements. When the price of gasoline goes up, which of the following will happen to the market for cars? a. The equilibrium price of cars will increase. b. The equilibrium quantity of cars will decrease. c. The supply curve for cars will shift to the left. d. The supply curve for cars will shift to the right. e. The demand curve for cars will shift to the right. f. None of the above.

B

If the price of a product increases, we would expect A) the level of demand to decrease. B) quantity supplied to increase. C) the level of supply to increase. D) an increase in quantity demanded.

B

If the price of apples goes down, then the demand for pears will A) increase if apples and pears are substitutes. B) decrease if apples and pears are substitutes. C) decrease if apples and pears are complements. D) remain constant if apples and pears are related goods.

B

If the price of hot dogs increases, the demand for hot dog buns will A) increase. B) decrease. C) remain constant. D) shift to the right.

B

If there is a shortage in a free market, then A) consumers competing for a limited quantity supplied will force up the price of a good above equilibrium. B) consumers competing for a limited quantity supplied will drive up the price of the good to equilibrium. C) suppliers will decrease their output to match demand. D) suppliers will accept any price below equilibrium.

B

Suppose that the demand curve for apples is downward sloping, and the price per bushel increases from $6.50 to $7.50. We would then expect A) the demand for apples to decrease. B) the quantity demanded of apples to fall. C) the demand curve to shift toward the origin. D) the quantity demanded of apples to increase.

B

Which of the following is a determinant of supply? A) tastes and preferences B) technology C) consumer income D) number of consumers

B

If goods X and Y are substitute goods, then an increase in the price of Y, other things constant, A) results in a decrease in the amounts of both X and Y consumed. B) decreases the quantity demanded of Y, but has no effect on the amount of X consumed. C) results in a decrease in the quantity of Y consumed, but the amount of X consumed increases. D) has no real effect on the quantity demanded of good Y, but increases the demand for X.

C

If more buyers came into the market for a good, we would expect to see the market demand curve A) shift downward and to the left. B) remain unchanged since none of the determinants of individual demand changed. C) shift upward and to the right. D)to reflect a positive relationship between price and quantity demanded.

C

income tax

Change in consumers income

Tastes

Changes in preference or popularity of product/service

Cost of resources for sale which causes

Cost to produce - decrease, amount of supply -increase, supply curve shifts right

Productivity decreases causing

Cost to produce -increase, amount of supply -decrease, supply curve shifts left

Government pays subsidy causes

Cost to produce- decrease, amount of supply- increase, supply curve shifts right

Productivity increases cashing

Cost to produce- decrease, amount of supply- increase, supply curve shifts right

Lower taxes causes

Cost to produce- decrease, amount of supply- increase, supply curve shifts- right

New technology causes

Cost to produce- decreases, amount of supply- increased, supply curve shifts- right

Cost of resources rises which causes

Cost to produce- increase, amount of supply- decrease, supply curve shifts - left

Higher taxes causes

Cost to produce- increase, amount of supply- decrease, supply curve shifts left

A market demand schedule for a product indicates that A) as the products price falls, consumers buy less of the good. B) there is a direct (positive) relationship between price and quantity demanded. C) as a products price rises, consumers buy more of the good. D) there is an inverse (negative) relationship between price and quantity demanded.

D

All of the following will cause the supply curve of good A to shift rightward except A) a reduction in the prices of inputs used to produce good A. B) an increase in the number of firms in the industry producing good A. C) a decrease in the sales tax on good A which producers must pay. D) an increase in the market price of good A.

D

If bagels and croissants are substitute goods, which of the following is likely to occur if the price of bagels has decreased? A) the demand curve for bagels shifts to the right B) a leftward movement along the bagel demand curve C) the demand curve for croissants shifts to the right D) the demand curve for croissants shifts to the left

D

If the government announces today that a tax increase of 50 cents per pack of cigarettes is to take place in two weeks, what would you expect to happen today to the current market for cigarettes? a. The demand for cigarettes would increase. b. The demand for cigarettes would decrease. c. The price of cigarettes would increase. d. Both a) and c) are correct. e. Both b) and c) are correct.

D

Other things constant, quantity supplied of a product is determined by A) input prices. B) taxes and subsides. C) price expectations. D) the products price.

D

Suppose that the price of corn was above its equilibrium price. You would expect to see A) a shortage on the market that caused prices to increase further. B) an increase in quantity demanded because of the high price. C) a leftward shift of the demand curve because of the high price. D) sellers begin to lower their price because of the surplus of corn.

D

The demand for a good is NOT related to A) relative price. B) income. C) tastes. D) absolute prices.

D

The law of demand states that A) consumers have unlimited demands for a good. B) a higher price will lead to increased sales. C) the price can never be too high for some consumers. D) quantity demanded will vary inversely with the price of the good.

D

There is an increase in the quantity of cream demanded when the price of coffee falls. Other things constant, we can conclude that coffee and cream are A) substitute goods. B) inferior goods. C) independent goods. D) complementary goods.

D

To distinguish change in demand from changes in quantity demanded, which of the following is true? A) If demand increases, then price goes down. B) If demand decreases, then price goes down. C) If demand increases, then the demand curve shifts to the left. D) If demand decreases, then the demand curve shifts to the left.

D

When the price of a good falls, there will be A) an outward shift in the demand for the good. B) both an outward shift in the demand for the good and a movement along the good's demand curve. C) a movement along the good's demand curve. D) no change in quantity demanded.

D

When the price of coffee increased in the mid—1970s, restaurants that raised the price of a cup of coffee experienced a decrease in demand for donuts because donuts and coffee are A) substitute goods. B) economic goods. C) inferior goods. D)complementary goods.

D

When the price of meat rose in the 1970s in the U.S., the demand for chicken increased because meat and chicken are A) complementary goods. B) consumer goods. C) inferior goods. D) substitute goods.

D

Surplus

Does exist when a product is priced above the equilibrium or market price, when that happens people stop buying it and supply exceeds demand

If bread is an inferior good, then what will happen in the market for bread as the consumer income increases? a. The quantity will increase. b. The quantity will decrease. c. The price will fall. d. Both a) and c) are correct. e. Both b) and c) are correct.

E

STONER

Factors that shift the supply curve

Number of Sellers

How many firms are in the market

If consumers expect the price of some good to rise next week, then we generally observe the price of the good rising this week. Explain this fact using a graph.

If the good is storable, and an increase in price is expected, consumers will want to buy the good today, before the price increases. As a result, the current demand for the good increases, which results in an increase in the price of the good today.

complementary good

Is a good that goes well with another good, there is an inverse relationship between the price of one and the demand for the other

Elastic demand causes

Luxury, close substitutes, small percent of income, longer time

In elastic demand causes

Necessity, no close substitute, large percent of income, shorter time

The drought in the plain states has made grain, and therefore feed, quite expensive. Many ranchers cannot afford to feed their cattle, and have sold much of their herd for slaughter. a. What will be the immediate effect of this event on the equilibrium price and quantity of beef? Illustrate using a supply and demand diagram.

Slaughtering the cows will result in an increase in the supply of beef to the market, which will in turn lead to a decrease in the equilibrium price of beef and an increase in the equilibrium quantity of beef.

Assume that the markets for sugar cane, rum, and whiskey are initially in equilibrium. Assume further that Hurricane Marilyn destroys much of the Jamaican sugar cane crop. Sugar cane is a principal ingredient in rum, but it is not an ingredient in whiskey. Analyze the effect of the hurricane on the markets for each of the three goods.

Step One - The market for sugar cane The Hurricane results in a decrease in supply (at any given price, sellers are no longer able to provide as much cane as they used to). As a result, the equilibrium price of sugar cane will increase, and the equilibrium quantity will decrease. Step Two - The market for rum Sugar cane is a principal ingredient in rum, and it is now more expensive. An increase in the price of inputs causes a decrease in supply. As a result, the equilibrium price of rum will increase, and the equilibrium quantity will decrease. Step Three - The market for whiskey It is reasonable to assume whiskey and rum are substitutes. Rum is now more expensive than it used to be (see Step Two). As a result, more consumers will buy whiskey instead. This will cause an increase in the demand for whiskey, which leads to higher equilibrium price and quantity of whiskey.

Inferior good

The "cheaper" (good that consumers demand less of when their incomes increase)

Demand

The quantities that people are willing and able to buy at various prices

Supply

The quantities that producers or sellers are willing and able to produce or sell at various prices

The law of supply

There is a direct relationship between price and quantity supplied

The law of demand

There is an inverse relationship between price and quantity demanded

Expectations

businesses consider future prices and economic conditions

Other Goods

businesses consider the price of goods they could be producing

Subsidies and taxes

government subsides encourage production, while taxes discourage production

Technology

improvements in production increase ability of firms to supply

Substitute good

is a product that can be used in the place of another, the price of a substitute good and demand for the good are directly related