ECON 130 Chapter 3
Suppose that in a recent market period, an industrywide survey determined the following relationship between the price of prerecorded movie Blu-rays and the quantity supplied and quantity demanded. 1. What is the equilibrium price? 2. What is the equilibrium quantity? 3. If the industry price of DVDs is $19, there is a _________. 4. How much is the shortage or surplus?
1. The price at which the supply and demand curves intersect 2. the quantity at which the supply and demand curves intersect 3. Find $19 on the graph. If the supply is less than the demand, there is a shortage. If the supply is more than the demand, there is a surplus. 4. Take the difference between supply at $19 and the demand at $19.
1. If the demand and supply curves increase (shift outward) by identical proportions then... 2. What if the increase in demand were larger than the increase in supply? 3. What if the increase in demand were smaller than the increase in supply?
1. equilibrium price stays the same and quantity rises. 2. The equilibrium price and quantity increase. 3. Equilibrium price falls and quantity rises.
Demand curves are drawn with determinants other than the price of the good held constant. These other determinants, called ceteris paribus conditions, are (1) ________, (2) ________, (3) _________, (4) ________, and (5) ________ at any given price. If any one of these determinants changes, the demand curve will shift to the right or to the left.
1. income 2. tastes and preferences 3. prices of related goods 4. expectations about future prices and incomes 5. the number of potential buyers in the market
Suppose that the price of a pair of shoes is $5 and the price of a jar of jelly is $3. What is the relative price of a pair of shoes? What is the relative price of a jar of jelly?
1.667; 0.600 Use division. 5/3 = 1.667; 3/5 = 0.600
Which of the following would cause a decrease in the demand for beef?
A decrease in the price of fish, a substitute for beef.
Suppose that at first the price of a bag of coffee is $15 and the price of a box of tea is $9. . Then, the price of a bag of coffee changes to $30 and the price of a box of tea changes to $21. What has happened the money prices and relative prices of these two goods?
The money price of a bag of coffee and a box of tea have risen and the relative price of a bag of coffee has fallen while relative price of a box of tea has risen.
A market demand curve is derived by summing (at each price) the individual quantities demanded by all buyers in the market.
True
A market supply curve is derived by summing the individual producers' supply curves.
True
At equilibrium, there is neither excess quantity supplied nor excess quantity demanded.
True
The price at which quantity demanded equals quantity supplied and at which the demand curve intersects the supply curve is called the market clearing price.
True
Which of the following describes an inferior good?
When consumer income increases, the demand for eggs decreases.
All of the following will decrease the supply of airline flights except
a technological change that makes airplanes safer and more fuel-efficient.
Assume that the cost of aluminum used by soft-drink companies increases. Indicate which of the following statements describing the resulting effects in the market for soft drinks distributed in aluminum cans are true (T) or false (F). a. The demand for soft drinks decreases. b. The quantity of soft drinks demanded decreases. c. The supply of soft drinks decreases. d. The quantity of soft drinks supplied decreases.
a. F b. T c. T d. F
In the market for wireless earbuds (a normal good), indicate whether the following events would cause an "increase or a decrease in demand" or an "increase or a decrease in the quantity demanded." a. There is an increase in the price of carry cases for wireless earbuds. b. There is a decrease in the price of devices used to charge wireless earbuds. c. There is an increase in the number of consumers of wireless earbuds. d. A booming economy increases the income of the typical buyer of wireless earbuds (this is a normal good). e. Consumers of wireless earbuds anticipate that the price of this good will decline in the future.
a. decrease in demand -- Equilibrium quantity would [decrease]. Equilibrium price would [decrease]. b. increase in demand -- Equilibrium quantity would [increase]. Equilibrium price would [increase]. c. increase in demand -- Equilibrium quantity would [increase]. Equilibrium price would [increase]. d. increase in demand -- Equilibrium quantity would [increase]. Equilibrium price would [increase]. e. decrease in demand -- Equilibrium quantity would [decrease]. Equilibrium price would [decrease].
Indicate whether the following events would cause an "increase or a decrease in demand or an "increase or a decrease in the quantity demanded" for cable-based Internet access service, which is a normal good. a. Firms providing wireless(an alternative tocable) Internet access services reduce their prices. b. Firms providing cable-based Internet access services reduce their prices. c. There is a decrease in the incomes earned by consumers of cable-based Internet access services. d. Consumers' tastes shift away from using wireless Internet access in favor of cable-based Internet access services.
a. decrease in demand b. increase in quantity demanded c. decrease in demand d. increase in demand
Consider the market for economics textbooks. Explain whether the following events would cause an increase or a decrease in supply or an increase or a decrease in the quantity supplied. a. The market price of editorial services increases. b. The market price of economics textbooks increases. c. The number of publishers of economics textbooks increases. d. Publishers expect that the market price of economics textbooks will increase next month.
a. decrease in supply. b. increase in quantity supplied. c. increase in supply. d. decrease in supply.
Consider the market for smartphones. Explain whether the following events would cause an increase or a decrease in supply or an increase or a decrease in the quantity supplied. a. The price of touch screens used in smartphones declines. This will cause a(n) b. The price of machinery used to produce smartphones increases. This will cause a(n) c. The number of manufacturers of smartphones increases. This will cause a(n) d. There is a decrease in the market demand for smartphones. This will cause a(n)
a. increase in supply -- Equilibrium quantity would [increase]. Equilibrium price would [decrease]. b. decrease in supply -- Equilibrium quantity would [decrease]. Equilibrium price would [increase]. c. increase in supply -- Equilibrium quantity would [increase]. Equilibrium price would [decrease]. d. decrease in quantity supplied. -- Equilibrium quantity would [decrease]. Equilibrium price would [decrease].
Consider the following cases. a. If the price of bacon rises, and as a result the demand for sausage increases, this implies that these two goods are __________. b. If the price of tennis racquets falls, and as a result the demand for tennis balls _________, this implies that these two goods are complements. c. If the price of coffee rises, and as a result the demand for sugar falls, this implies that these two goods are ________. d. If the price of automobiles ________, and as a result the demand for motorbikesfalls, this implies that these two goods are substitutes.
a. substitutes b. increases c. complements d. falls
A demand schedule gives a schedule of ________ quantities demanded per time dimension at ________.
alternative; different possible prices
The relative price of any commodity is its price in terms of
another commodity.
The law of demand states that
as price increases, quantity demanded decreases, all other things equal.
A change in demand comes about only because of a change in the ________ conditions of demand. This change in demand is a shift in the demand curve to the left or to the right.
ceteris paribus
According to the text, firms encounter rising costs when they attempt to produce more in the same time period. As a consequence, they must be offered a higher price to be willing to incur these higher costs. The resulting relationship between price and quantity supplied is
direct (or positive) and is called the law of supply.
According to the law of demand, the quantity demanded of any commodity is ________ related to its price, other things being equal.
inversely
A change in the quantity demanded comes about when there is a change in the price of the good (other things held constant). Such a change in quantity demanded involves a _________ a given demand curve.
movement along
The law of supply then implies that a ________ the supply curve occurs due to a change in market price.
movement along
At the market equilibrium price,
quantity demanded equals quantity supplied.
If a decrease in the price of soft drinks leads to a decrease in demand for bottled water, the two goods must be
substitutes.
A demand schedule shows
various quantities of a good or service demanded at various prices.
Identify which of the following would generate a decrease in the market demand for e-book readers, which are a normal good. I. An increase in the price of downloadable apps utilized to enhance the e-book reading experience, which are complements. II. An increase in the number of consumers in the market for e-book readers. III. A decrease in the price of tablet devices, which are substitutes. IV. A reduction in the income of consumers of e-book readers.
I, III and IV.
A supply schedule gives a schedule of ________ quantities supplied per time dimension at ________.
alternative; different possible prices
A shortage occurs when quantity demanded is ________ than quantity supplied at a price ________ the market clearing price.
greater; below
Which of the following is an implication of the law of supply?
Producers will offer more units at a higher price and fewer units at a lower price.
Identify which of the following would generate an increase in the market demand for tablet devices, which are a normal good. I. A decrease in the incomes of consumers of tablet devices. II. An increase in the price of ultrathin computers, which are substitutes. III. An increase in the price of online apps, which are complements. IV. An increase in the number of consumers in the market for tablet devices.
Both II and IV.
The graph on the right shows the demand for automobiles. Suppose that there is a decrease in the price that people expect to pay for cars next year. Using the line drawing tool, show the effect on the current demand curve. Label it 'D2'.
D2 would be shifted to the left of D.
Shortages and scarcity are the same thing.
False
The following table indicates the demand schedules for four types of consumers: A, B, C, and D and the number of consumers in each group (top row). The quantity demanded by each type of consumer (QA, QB, QC, and QD) is shown for market prices ranging from $10 down to $4. What is the combined quantity demanded at a market price of $6?
For the solution, sum the product of QA, QB, QC, and QD and their respective number of consumers corresponding to the given market price.
