ECO2023 Ch 4 The Market Forces of Supply and Demand

Quantity Demanded:

The amount of a good that buyers are willing and able to purchase at a given price

Suppose there is an increase in both the supply and demand for personal computers. In the market for personal computers, we would expect the

equilibrium quantity to rise and the change in the equilibrium price to be ambiguous.

T/F A monopolistic market has only one seller.

True

What are the variables that should affect the amount of a good that consumers wish to buy, other than its price?

Income, prices of related goods, tastes, expectations, and number of buyers in the market.

Suppose a frost destroys much of the Florida orange crop. At the same time, suppose consumer tastes shift toward orange juice. What would we expect to happen to the equilibrium price and quantity in the market for orange juice?

Price will increase; quantity is ambiguous.

Suppose both buyers and sellers of wheat expect the price of wheat to rise in the near future. What would we expect to happen to the equilibrium price and quantity in the market for wheat today?

Price will increase; quantity is ambiguous.

If there is a surplus of a good, is the price above or below the equilibrium price for that good?

The price must be above the equilibrium price.

Suppose scientists provide evidence that people who drink energy drinks are more likely to have a heart attack than people who do not drink energy drinks. We would expect to see

a decrease in the demand for energy drinks.

What is a market?

a group of buyers and sellers of a particular good or service

Which of the following would cause the supply curve to shift from Supply B to Supply A in the market for beer? a. an improvement in technology that allows firms to use less labor in the production of beer b. an expectation by firms that the price of beer will increase in the very near future c. a decrease in the price of hops d. a decrease in the price of beer

an expectation by firms that the price of beer will increase in the very near future

Inferior good:

an increase in income leads to a decrease in demand the demand for a good rises when income falls

A competitive market is one in which there

are so many buyers and so many sellers that each has a negligible impact on the price of the product

If a seller in a competitive market chooses to charge more than the going price, then

buyers will make purchases from other sellers

Most studies indicate that tobacco and marijuana tend to be

complements

An inferior good is one for which an increase in income causes a(n)

decrease in demand.

The supply curve for stand up paddle boards

does not shift when the price of stand up paddle boards changes because the price of stand up paddle boards is measured on the vertical axis of the graph

Opponents of cigarette taxes often argue that tobacco and marijuana are substitutes so that high cigarette prices

encourage marijuana use, but the evidence does not support this argument

Warrensburg is a small college town in Missouri. At the end of August each year, the market demand for fast food in Warrensburg

increases indicating that when a school semester begins, students will demand for more fast food

The law of supply states that an increase in the price of a good

increases the quantity supplied of that good.

Currently you purchase ten frozen pizza per month. You will graduate from college in December, and you will start a new job in January. You have no plans to purchase frozen pizzas in January. For you, frozen pizzas are a(n)

inferior good

If a increase in income decreases the demand for a good, then the good is a(n)

inferior good

A perfectly competitive market has

many buyers and sellers.

Identical products, as well as a large number of buyers and sellers, are characteristics of a (?) market. In such markets, sellers of goods (?) influence the prevailing market price, giving them the role of price (?) in the market.

perfectly competitive, cannot, takers Perfectly competitive markets have two characteristics: 1. The goods and services bought and sold are all exactly the same. 2. There are large numbers of buyers and sellers, such that no single buyer or seller can affect the market price. Taken together, these two characteristics imply that both buyers and sellers are price takers. That is, both must accept the price as determined by the broader market

Buyers and sellers who have no influence on market price are referred to as

price takers

Holding the nonprice determinants of demand constant, a change in price would

result in a movement along a stationary demand curve

When quantity demanded increases at every possible price, the demand curve has

shifted to the right

In a market economy,

supply and demand determine prices and prices, in turn, allocate the economy's scarce resources.

If consumers want to buy more apples at every possible price,

the demand curve is shifted to the right. A movement along a demand curve is caused by a price change. When consumers want to buy more at all possible price levels, the demand has increased, which is indicated by a shift to the right

The demand curve for coffee shifts

when a determinant of the demand for coffee other than the price of coffee changes.

Suppose that Amanda receives a pay increase. We would expect

Amanda's demand for inferior goods to decrease

Explain the law of demand.

Other things equal, price and quantity demanded of a good are negatively related.

Which of the following would cause a movement along the supply curve for cupcakes? a. an improvement in technology for commercial mixers b. a decrease in the price of cupcakes c. an increase in the price of cake flour d. All of the above are correct.

a decrease in the price of cupcakes

Which of the following shifts the demand for watches to the right? a decrease in the price of watches a decrease in consumer incomes if watches are a normal good a decrease in the price of watch batteries if watch batteries and watches are complements an increase in the price of watches none of the above

a decrease in the price of watch batteries if watch batteries and watches are complements

The movement from point A to point B on the graph is called

an increase in the quantity supplied.

Suppose there is an increase in the price of steel. We would expect the supply curve for steel beams to

shift leftward

The market for diamond rings is closely linked to the market for high-quality diamonds. If a large quantity of high-quality diamonds enters the market, then the

supply curve for diamond rings will shift right, which will create a surplus at the current price. Price will decrease, which will increase quantity demanded and decrease quantity supplied. The new market equilibrium will be at a lower price and higher quantity

Law of supply:

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

The demand for a good or service is determined by

those who buy the good or service

Which of the following is an example of a market? a. a gas station b. a garage sale c. a barber shop d. All of the above are examples of markets

All of the above are examples of markets.

True or False: A decrease in supply of notebooks lowers the quantity of notebooks supplied but not the quantity demanded.

False A decrease in the supply of notebooks will cause the supply curve to shift to the left, resulting in a movement along the demand curve. Provided the demand curve is downward-sloping, both the quantity of notebooks demanded and the quantity supplied will decrease.

Movie tickets and film streaming services are substitutes. If the price of film streaming increases, what happens in the market for movie tickets?

The demand curve shifts to the right

An increase in the price of blueberries would lead to a(n)

a movement up and to the right along the supply curve for blueberries

Normal good:

an increase in income leads to an increase in demand the demand for a good falls when income falls

A decrease (leftward shift) in the supply for a good will tend to cause

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

An increase (rightward shift) in the demand for a good will tend to cause

an increase in the equilibrium price and quantity.

The movement from point A to point B on the graph is caused by

an increase in the price of the good

What are the characteristics of a perfectly competitive market?

(1) The goods offered for sale are all exactly the same, and (2) the buyers and sellers are so numerous that no single buyer or seller has any influence over the market price.

Supply Schedule:

A table showing the relationship between the price of a good and the amount of it that sellers are willing and able to supply at various prices

T/F A perfectly competitive market consists of products that are all slightly different from one another.

False a perfectly competitive market consists of goods offered for sale that are all exactly the same.

What are the variables that should affect the amount of a good that producers wish to sell, other than its price?

The variables are input prices, technology, expectations, and number of sellers in the market.

Suppose there is an increase in consumers' incomes. In the market for automobiles (a normal good), does this event cause an increase in demand or an increase in quantity demanded? Does this cause an increase in supply or an increase in quantity supplied? Explain.

There would be an increase in the demand for automobiles, which means that the entire demand curve shifts to the right. This implies a movement along the fixed supply curve as the price rises. The increase in price causes an increase in the quantity supplied of automobiles, but there is no increase in the supply of automobiles.

T/F The market supply curve is the horizontal summation of the individual supply curves.

True

Which of the following might cause the demand curve for an inferior good to shift to the left? a. a decrease in income b. an increase in the price of a substitute c. an increase in the price of a complement d. None of the above is correct.

an increase in the price of a complement

The shift from S to S ' in the market for peaches could be caused by a(n)

decrease in the labor costs of the workers who pick peaches.

A decrease in the price of a good will

decrease quantity supplied.

If the number of buyers in a market decreases, then

demand will decrease

Kari downloads 7 songs per month when the price is $1.29 per song and 10 songs per month when the price is $0.99 per song. Kari's behavior demonstrates the law of

demand.

Suppose there is an increase in both the supply and demand for personal computers. Furthermore, suppose the supply of personal computers increases more than demand for personal computers. In the market for personal computers, we would expect the

equilibrium quantity to rise and the equilibrium price to fall.

Furniture is a normal good if the demand

for furniture increases when income increases. Demand for normal goods increases when income increases. An increase in demand is a shift to the right

In this market for watermelons, a severe drought occurs which affects the watermelon crop. The equilibrium price

increases and the equilibrium quantity decreases

When all market participants are price takers who have no influence over prices, the markets have

numerous buyers and sellers

A monopolistic market has

only one seller.

In a competitive market, each seller has limited control over the price of his product because

other sellers are offering similar products.

An example of a perfectly competitive market would be the

soybean market

If an increase in the price of blue jeans leads to an increase in the demand for tennis shoes, then blue jeans and tennis shoes are

substitutes

If the number of sellers in a market increases, then the

supply in that market will increase

The discovery of a large new reserve of crude oil will shift the (?) curve for gasoline, leading to a (?) equilibrium price.

supply, lower

An increase in (?) will cause a movement along a given demand curve, which is called a change in (?)

supply, quantity demanded

Suppose roses are currently selling for $40 per dozen, but the equilibrium price of roses is $30 per dozen. We would expect a

surplus to exist and the market price of roses to decrease

A shortage exists in a market if

the current price is below its equilibrium price

A very snowy winter in Boston will cause

the demand curve for snow blowers to shift to the right. Consumers' tastes change in response to new conditions. More consumers will demand snow blowers during a very snowy winter. A shift to the right of the demand curve shows an increase in demand

Buyers are able to buy all they want to buy and sellers are able to sell all they want to sell at

the equilibrium price but not above or below the equilibrium price

Suppose there are five suppliers of ice cream in the town of Summerville. When the price of ice cream is $2 per scoop, Firm A is willing to sell 20 scoops, Firm B is willing to sell 50 scoops, Firm C is willing to sell 35 scoops, Firm D is willing to sell 100 scoops, and Firm E is willing to sell 40 scoops. From this information we can conclude that

the market quantity supplied is less than 250 scoops when the price is $2 per scoop. The market quantity supplied is the sum of the individual supplies. When the price is $2 per scoop, the market quantity supplied is 20+50+35+100+40 = 245 scoops, which is less than 250 scoops.

An increase in the number of orange growers causes

the market supply curve for oranges to shift to the right. An increase in the number of sellers causes an increase in the market supply for that good. A shift to the right is an increase in supply

A change in which of the following will NOT shift the demand curve for hamburgers? the price of hot dogs the price of hamburgers the price of hamburger buns the income of hamburger consumers

the price of hamburgers

If the price of a good is below the equilibrium price,

there is a shortage, and the price will rise.

If the price of a good is above the equilibrium price,

there is a surplus, and the price will fall.

If the supply of a product increases, then we would expect equilibrium price

to decrease and equilibrium quantity to increase.

For the general population, a 10 percent increase in the price of cigarettes leads to a

4 percent reduction in the quantity demanded of cigarettes.

Demand Curve:

A graphical object showing the relationship between the price of a good and the amount of the good that buyers are willing and able to purchase at various prices

Supply Curve:

A graphical object showing the relationship between the price of a good and the amount that sellers are willing and able to supply at various prices

Demand Schedule:

A table showing the relationship between the price of a good and the amount that buyers are willing and able to purchase at various prices

If the economy goes into a recession and incomes fall, what happens in the markets for inferior goods?

Prices and quantities both rise

If consumers often purchase muffins to eat while they drink their lattés at local coffee shops, what would happen to the equilibrium price and quantity of lattés if the price of muffins falls?

Both the equilibrium price and quantity would increase

True or False: The market for tomatoes does not exhibit the two primary characteristics that define perfectly competitive markets.

False Perfectly competitive markets are characterized by large numbers of buyers and sellers who cannot influence market prices and buy and sell identical products. Although in reality, most markets do not perfectly adhere to the assumptions of the perfectly competitive markets, some markets are very close to perfect competition. For example, the market for tomatoes has millions of consumers who buy tomatoes, as well as thousands of farmers producing and selling tomatoes. These consumers and producers take the market price as given and make their production and consumption decisions based on this prevailing price.

T/F If there is a shortage of a good, then the price of that good tends to fall.

False an excess demand causes the price to rise.

T/F An increase in the price of steel will shift the supply of automobiles to the right.

False an increase in the price of an input shifts the supply curve for the output to the left.

T/F When the price of a good is below the equilibrium price, it causes a surplus.

False it causes an excess demand.

T/F If apples and oranges are substitutes, an increase in the price of apples will decrease the demand for oranges.

False it will increase the demand for oranges.

T/F The law of demand states that an increase in the price of a good decreases the demand for that good.

False the law of demand states that an increase in the price of a good decreases the quantity demanded of that good (a movement along the demand curve).

T/F If there is an increase in supply accompanied by a decrease in demand for coffee, then there will be a decrease in both the equilibrium price and quantity in the market for coffee.

False there will be a decrease in the equilibrium price, but the impact on the equilibrium quantity is ambiguous.

Beef is a normal good. You observe that both the equilibrium price and quantity of beef have fallen over time. Which of the following explanations would be most consistent with this observation? a. The price of chicken has risen, and the price of steak sauce has fallen. b. The demand curve for beef must be positively sloped. c. Consumers have experienced an increase in income, and beef-production technology has improved. d. New medical evidence has been released that indicates a negative correlation between a person's beef consumption and life expectancy.

New medical evidence has been released that indicates a negative correlation between a person's beef consumption and life expectancy.

Law of demand:

Other things being equal, when the price of a good rises, the quantity demanded of the good falls, and when the price falls, the quantity demanded rises.

Explain the law of supply.

Other things equal, price and quantity supplied of a good are positively related.

Quantity Supplied:

The amount of a good that sellers are willing and able to supply at a given price

Which of the following statements is true about the impact of an increase in the price of lettuce? The demand for lettuce will decrease. The supply of lettuce will decrease. The equilibrium price and quantity of salad dressing will rise. The equilibrium price and quantity of salad dressing will fall. Both a and d are true.

The equilibrium price and quantity of salad dressing will fall.

What would happen to the equilibrium price and quantity of lattés if the cost to produce steamed milk, which is used to make lattés, increased, and scientists discovered that lattés cause heart attacks?

The equilibrium quantity would decrease, and the effect on equilibrium price would be ambiguous.

What are the two main characteristics of a perfectly competitive market?

The goods offered for sale are all the same, and the buyers and sellers are so numerous that no one buyer or seller can influence the price.

Which of the following events would cause a movement upward and to the right along the supply curve for mangos? a. The price of fertilizer decreases, and fertilizer is an input in the production of mangos. b. The price of mangos rises. c. The number of sellers of mangos increases. d. There is an advance in technology that reduces the cost of producing mangos.

The price of mangos rises.

Suppose suppliers of corn expect the price of corn to rise in the future. How would this affect the supply and demand for corn and the equilibrium price and quantity of corn?

The supply of corn in today's market would decrease (shift left) as sellers hold back their offerings in anticipation of greater profits if the price rises in the future. If only suppliers expect higher prices, demand would be unaffected. The equilibrium price would rise and the equilibrium quantity would fall.

Suppose consumer tastes shift toward the consumption of apples. Which of the following statements is an accurate description of the impact of this event on the market for apples? There is an increase in the demand for apples and an increase in the quantity supplied of apples. There is an increase in the demand and supply of apples. There is an increase in the quantity demanded of apples and in the supply for apples. There is an increase in the demand for apples and a decrease in the supply of apples. There is a decrease in the quantity demanded of apples and an increase in the supply for apples

There is an increase in the demand for apples and an increase in the quantity supplied of apples.

Suppose there is an advance in the technology employed to produce automobiles. In the market for automobiles, does this event cause an increase in supply or an increase in the quantity supplied? Does this cause an increase in demand or an increase in the quantity demanded? Explain.

There would be an increase in the supply of automobiles, which means that the entire supply curve shifts to the right. This implies a movement along the fixed demand curve as the price falls. The decrease in price causes an increase in the quantity demanded of automobiles, but there is no increase in the demand for automobiles.

T/F An advance in the technology employed to manufacture Rollerblades™ will result in a decrease in the equilibrium price and an increase in the equilibrium quantity in the market for Rollerblades™.

True

T/F If Coca-Cola and Pepsi are substitutes, an increase in the price of Coca-Cola will cause an increase in the equilibrium price and quantity in the market for Pepsi.

True

T/F If consumers expect the price of shoes to rise, there will be an increase in the demand for shoes today.

True

T/F If golf clubs and golf balls are complements, an increase in the price of golf clubs will decrease the demand for golf balls.

True

T/F If pencils and paper are complements, an increase in the price of pencils causes the demand for paper to decrease or shift to the left.

True

T/F The law of supply states that an increase in the price of a good increases the quantity supplied of that good.

True

What is the difference between a normal good and an inferior good?

When income rises, demand for a normal good increases or shifts right. When income rises, demand for an inferior good decreases or shifts left.

Which of the following events would unambiguously cause a decrease in the equilibrium price of cotton shirts? a. a decrease in the price of wool shirts and a decrease in the price of raw cotton b. an increase in the price of wool shirts and an increase in the price of raw cotton c. an increase in the price of wool shirts and a decrease in the price of raw cotton d. a decrease in the price of wool shirts and an increase in the price of raw cotton

a decrease in the price of wool shirts and a decrease in the price of raw cotton

Suppose a union successfully negotiates an increase in the wages of workers producing computer chips. This would lead to (?) in the supply of computers, causing the price of computers to (?). Because computers and computer software are (?), this change in price would cause the demand for computer software to (?). However, computers and typewriters are (?), so the change in the price of computers would (?) the demand for typewriters.

a decrease, rise, complements, decrease, substitutes, increase When a rise in the price of one good reduces the demand for another good, the two goods are called complements. Complements are often pairs of goods that are used together, such as computers and computer software. Because computer software is a complement to computers, the higher equilibrium price of computers causes the demand for computer software to decrease. As seen on the lower left-hand graph, this results in a decline in both the equilibrium price and the quantity of software. When a rise in the price of one good raises the demand for another good, the two goods are called substitutes. Substitutes are often pairs of goods that are used in place of each other, such as computers and typewriters. Because typewriters are substitutes for computers, the higher equilibrium price of computers increases the demand for typewriters. As seen on the lower right-hand graph, this causes a rise in both the equilibrium price and the quantity of typewriters.

Which of the following would cause price to increase? a. a decrease in demand b. a surplus of the good c. a shortage of the good d. an increase in supply

a shortage of the good

All of the following shift the supply of watches to the right except an increase in the price of watches. an advance in the technology used to manufacture watches. a decrease in the wage of workers employed to manufacture watches. manufacturers' expectations of lower watch prices in the future. All of the above cause an increase in the supply of watches.

an increase in the price of watches.

If an increase in consumer incomes leads to a decrease in the demand for camping equipment, then camping equipment is

an inferior good.

The law of demand states that an increase in the price of a good

decreases the quantity demanded for that good.

Cheese is a complement for hamburgers. If the price of hamburgers rises, the quantity of hamburgers demanded (?), which (?) the demand for cheese. Because of the change in the equilibrium quantity of cheese, the demand for milk by cheese producers (?), causing the equilibrium price of milk to (?). This means producers of butter face (?) input prices, and the supply of butter (?). The resulting (?) in the price of butter causes people to substitute (?), so the demand for jam (?).

falls, lowers, falls, decrease, lower, increases, fall, away from jam and toward butter, falls Cheese is a complement for hamburgers. Therefore, when the price of hamburgers rises, the quantity of hamburgers demanded falls, and this lowers the demand for cheese. The end result is that both the equilibrium price and quantity of cheese fall. Because the quantity of cheese falls, the demand for milk by cheese producers falls, so the equilibrium price and quantity of milk fall. When the price of milk falls, producers of butter face lower input prices, so the supply curve for butter shifts out, causing the price of butter to fall and the quantity of butter to rise. The fall in the price of butter causes people to substitute butter for jam, so the demand for jam declines, causing the price and quantity of jam to fall

A decrease in quantity supplied is different from shifting the supply curve to the left because a decrease in quantity supplied

is caused by a price decrease while a shift to the left is caused by a change in a nonprice determinant of supply. According to the law of supply, other things equal, the quantity supplied of a good increases when the price of the good increases. The supply curve shifts in response to a change in a nonprice determinant of supply.

An increase in quantity supplied is different from shifting the supply curve to the right because an increase in quantity supplied

is caused by a price increase while a shift to the right is caused by a change in a nonprice determinant of supply. According to the law of supply, other things equal, the quantity supplied of a good increases when the price of the good increases. The supply curve shifts in response to a change in a nonprice determinant of supply.

Suppose the market for cantaloupes is unregulated. That is, cantaloupe prices are free to adjust based on the forces of supply and demand. If a shortage exists in the cantaloupe market, then the current price must be (?) than the equilibrium price. For the market to reach equilibrium, you would expect (?)

lower, buyers to offer higher prices Prices below the equilibrium price generate excess demand because buyers are willing to purchase more cantaloupes than sellers are willing to sell—the quantity supplied is less than the quantity demanded at that price. Some buyers who wish to purchase cantaloupes at the current price will be unable to do so. In order to purchase cantaloupes, some buyers will offer higher prices. As buyers bid and drive prices upward, some sellers will be willing to sell additional cantaloupes. Therefore, the market will move toward the equilibrium price, where the quantity of cantaloupes demanded by buyers equals the quantity supplied by sellers.

Which of the following is not a determinant of demand? a. the price of a substitute good b. the price of a complementary good c. the price of a resource that is used to produce the good d. the price of the good next month

the price of a resource that is used to produce the good

Which of the following events must cause the equilibrium quantity to rise in the market for burritos? consumer incomes increase, assuming burritos are an inferior good, and the prices of rice and beans increase the price of pizza increases and the price of tortillas decreases a new study shows eating burritos prevents cancer and there are fewer burrito sellers in the market a new study shows eating burritos causes cancer and a new labor-saving technology is created for making burritos

the price of pizza increases and the price of tortillas decreases The equilibrium quantity in a market must rise when both demand and supply increase. When the price of pizza increases, the demand for burritos increases because pizza and burritos are substitutes. When the price of tortillas decreases, the supply of burritos increases because tortillas are an input into burritos

Assume the market for tennis balls is perfectly competitive. When one tennis ball producer exits the market,

the price of tennis balls does not change

If the price of a good is equal to the equilibrium price,

the quantity demanded is equal to the quantity supplied, and the price remains unchanged.

If buyers and sellers in a certain market are price takers, then individually

they must accept the price the market determines. Buyers and sellers are said to be price takers in perfectly competitive markets because they must accept the price the market determines. Buyers and sellers are price takers when the buyers and sellers are so numerous that no single buyer or seller has any influence over the market price.