ECON 200 Market Equilibrium and Policy

Consider the market for labor. Firms demand labor, and workers supply labor.

True *Firms demand labor and workers supply labor.

Using the demand and supply curves for classical music album downloads, answer the question below. a) The equilibrium price is $_________ b) The equilibrium quantity is _____________ units.

$6 30 units

Which of the following statements is true?

-A decrease in price is beneficial to consumers because they do not have to pay as much. -A decrease in price is detrimental to consumers since less will be produced.

Which of the following statements are true? *Check ALL that apply>

-A decrease in supply is a shift to the left -An increase in supply is a shift to the right.

__________ and __________ are usually the result of price controls that do not allow markets to adjust (or of) to unforeseen events that disrupt supply.

-A shortage -A surplus

Consider the market for jobs. Firms demand jobs, and workers supply jobs.

False *Firms supply jobs and workers demand jobs.

A price floor will:

change the incentives that both buyers and sellers face.

Nonprice determinants are held _____________ for any given supply curve.

constant

Nonprice determinants are held ________________ for any given demand curve.

constant

A minimum legal price that is not set above equilibrium price is a ____________ price floor.

nonbinding

Other factors remaining constant, when the _____________ of a good increases, the quantity supplied increases.

price

Other things remaining constant, when a good's __________ falls, its quantity supplied falls.

price

The federal minimum wage is an example of a

price floor.

The primary determinant of the quantity demanded by consumers is the:

price of a good or service.

The market demand and supply of an economics textbook is shown below. Assume the price is fixed at $450. There is a ___________ of __________ books.

surplus, 3,250 Price = $450 Quantity Supplied = 4,000 Quantity Demanded = 750 4,000 - 750 = 3,250 *There is a surplus of 3,250

When both demand and supply change simultaneously,

we can determine the effect on either price or quantity, but not both.

Suppose demand and supply both shift simultaneously. If we know the direction of the shifts, but not the relative magnitude of the shifts, then

we will know the effect on either the price *or* the quantity but not both.

The lowest wage firms can legally pay employees in the labor market is

the minimum wage.

A surplus occurs when:

the quantity of output supplied is greater than quantity of output demanded at the current market price.

The equilibrium quantity increases and the equilibrium price is indeterminate when

the supply curve shifts and there is a movement along the demand curve.

When there is a change in a nonprice determinant of supply

the supply curve shifts and there is a movement along the demand curve.

When a nonprice determinant of supply changes: *Check ALL that apply.

-an entirely new supply relationship is created. -the market adjusts to a new equilibrium price and quantity. -the supply curve shifts to the left or right.

Theaters do not lower the price for bad movies and raise the price for good ones because

-consumers might view a lower price as a signal that the movie is of poor quality. -the movie studio that produced the movie would believe that the price is sending customers negative information about the movie.

Market disequilibrium results in

-inefficiency in the production of a good or service. -scarcity of resources. -either a shortage or a surplus.

When there is a change in a nonprice determinant of supply, the *Check ALL that apply.

-supply curve shifts and there is a change in the quantity demanded -supply curve shifts and there is a movement along the demand curve.

When there is a change in the nonprice determinant of supply, the

-supply curve shifts and there is a movement along the demand curve -supply curve shifts and there is a change in the quantity demanded.

Other factors remaining constant, if a nonprice determinant of supply changes *Check ALL that apply.

-the market will not be in equilibrium. -the supply curve shifts to the left or right. -an entirely new supply relationship is created.

Informal labor markets are problematic because *Check ALL that apply.

-there are few protections from abuse. -there can be no formal contract to guarantee payment. -the workers cannot participate in retirement funds or Social Security -the workers are at a significant disadvantage relative to the employers. -no tax revenues are generated via income or employment taxes.

When a binding price ceiling is in effect *Check ALL that apply.

-there is a shortage. -there is a reduction in the prices received by producers. -market participants have a string incentive to work around the laws.

Which of the following is an example of a shortage in the market for snow shovels?

No snow shovels are available when a blizzard is forecast.

The characteristics of equilibrium include: *Check ALL that apply.

Q(S) = Q(D*) Quantity supplied = Quantity demanded*

Consider the market for jobs. Which of the following statements is true?

Workers are the demanders of jobs, and firms are the suppliers of jobs.

A binding price floor is

a minimum legal price set above the equilibrium price.

The graph below represents the market for bottled water. a) What is the equilibrium price? $ _________ What is the equilibrium quantity? __________ bottles b) If a price ceiling is imposed at $3 per bottle, how large will the shortage in the market be? _____________ bottles c) If a price ceiling is imposed at $1.50 per bottle, firms will produce _______ fewer bottles, relative to the initial market equilibrium. d) If a price ceiling is imposed at $1.50 per bottle, consumers will want to purchase __________ more bottles relative to the initial market equilibrium. e) If a price ceiling is imposed at $1.50 per bottle, the total shortage will be ___________ bottles.

a) $2, 600 b) 0 *A price ceiling at $3 is nonbinding because it is above the equilibrium price, so the market equilibrium will remain at a price of $2 and a quantity of 600 bottles There will be no shortage since the market will be at equilibrium. c) 300 *Calculate the difference between the equilibrium quantity and the quantity supplied at $1.50. Q(s) = 300 d) 100 *Calculate the difference between the equilibrium quantity and the quantity demanded at $1.50 Q(d) = 100 e) 400 *Calculate the difference between the quantity supplied at $1.50 and the quantity demanded at a$1.50. Q(d) = 700 Q (s) = 300 700 - 300 = 400

Consider the market for coal, with quantities in tons: a) What is the equilibrium market price? b) What is the equilibrium quantity? c) Now suppose supply increases by 200 additional units at every price. What is the new equilibrium price? d) What is the new equilibrium quantity?

a) $60 b) 400 c) $50 d) 500

The graph below represents the market for bottled water. a) What is the equilibrium price? $________ What is the equilibrium quantity? ________ b) If a price floor is imposed at $1.50 per bottle, how large will the surplus in the market be? __________ bottles c) If a price floor is imposed at $2.50 per bottle, consumers will demand ________ fewer bottles relative to the initial market equilibrium. d) If a price floor is imposed at $2.50 per bottle, firms will want to supply ________ more bottles relative to the initial market equilibrium. e) If a price floor is imposed at $2.50 per bottle, the total surplus will be __________ bottles.

a) 2, 600 b) 0 (Zero) *A price floor at $1.50 is non-binding, so the market equilibrium will remain at a price of $2 and a quantity of 600. * The price floor in lower than the equilibrium price and quantity demanded, thus it has no effect on the market. c) 100 d) 300 e) 400

For each of the following scenarios, determine (i) if the equilibrium price will increase, will decrease, or cannot be determined, and (ii) whether the equilibrium quantity will increase, will decrease, or cannot be determined. a) In the market for eggs, there is an improvement in packaging technology that leads to fewer broken eggs, and there is also an increase in the price of bacon and sausage (complementary goods). b) In the market for new automobiles (a normal good), there is a decrease in the average incomes earned by the general population, but there is an increase in the wages paid to automobile workers. c) In the market for avacados, there is a change in preferences in favor of using guacamole instead of salsa, and changes in climate in an exceptionally large harvest of avacados this year.

a) Equilibrium Price = decrease Equilibrium Quantity = cannot be determined b) Equilibrium Price = cannot be determined Equilibrium Quantity = decreases c) Equilibrium Price = cannot be determined Equilibrium Quantity = increases

When the participants of a market that is in disequilibrium respond to rising prices, the market will return to equilibrium, resulting in:

an elimination of a shortage.

Shortages:

are usually the product of price controls.

A minimum legal price that is set above the market price is called a

binding price floor.

We can determine how price or quantity will change, but not both, when

both demand and supply change.

A maximum legal price at which a good, service, or resource can be sold is called a price ____________.

ceiling

The equilibrium quantity increases and the equilibrium price is indeterminate when

demand and supply both increase

The equilibrium price is indeterminate when

demand and supply change in the same direction.

The equilibrium price decreases and the equilibrium quantity is indeterminate when

demand decreases and supply increases.

The equilibrium price increases and the equilibrium quantity is indeterminate when

demand increases and supply decreases.

When both demand and supply shift, the direction of change in price or quantity

depends on the relative magnitudes of the changes in demand and supply.

The demand for a good changes when the nonprice __________ of demand changes.

determinant

The market adjusts to a new equilibrium price and quantity when a non-price _________________ of supply changes.

determinant

__________________ results in increased scarcity and inefficiency in the production of a good or service.

disequilibrium

The price that balances demand and supply is called the _______________price.

equilibrium

The quantity supplied of a good, service, or resource equals the quantity demanded at the ____________ quantity.

equilibrium

Incentives faced by both buyers and sellers change in the face of a price ______________.

floor

When a shortage occurs in a competitive market, there is an incentive for suppliers to _______________ (increase/decrease) the quantity of a good or service supplied to the market.

increase

The statement "Households are on the supply side, and firms are on the demand side." is with reference to which market?

labor

When the market in in equilibrium, the price that consumers pau and that producers receive exactly balance the ___________ benefit and marginal cost of consuming and producing a good or service.

marginal

A change in a nonprice determinant of supply will

results in a shift of the supply curve.

When a shortage is eliminated, the market

returns to an equilibrium where the quantity supplied equals the quantity demanded.

Price floors are designed to make sure that

sellers receive a minimum price that is greater than what would be available at the market equilibrium.

When a ________________ exists in a competitive market, buyers want to purchase more of a good or service than is supplied.

shortage

Suppose the market demand and supply of wheat grass is shown below. Assume the price is fixed at $2. There is a __________ of _________ units.

shortage, 20

When there is a decrease in both demand and supply

the equilibrium quantity falls, but the change in the equilibrium price is indeterminate.

When the supply of a good increase

the good becomes less expensive, ceteris paribus. *Ceteris Paribus: *(Latin Phrase)*: all other things remaining constant

When the supply curve shifts to the left or right

there has been a change in the nonprice determinants of supply.

When the supply curve shifts to the right or left

there has been a change in the nonprice determinants of supply.

The equilibrium price is indeterminate when

there is an increase or a decrease in both demand and supply.

Consider the market for jobs. ________ are the demanders of jobs, and _________ are the suppliers of jobs.

workers; firms

If price was not allowed to adjust, a shortage

would persist, and the market would not return to equilibrium.