Econ 2010 Final Chap 3
Refer to onenote. The equilibrium price and quantity for this market are
$6 and four units
Which of the following is not a characteristic of governmental rent controls?
Equitable distribution of apartments.
In a market where the government has set the maximum price below the equilibrium price, one might expect
A black market to develop as individuals try to take advantage of unexploited opportunities. This happens because of an increase in demand so people will seek out other ways to get the good.
Suppose that a disease that affects people who consume beef has been discovered in the United States. One likely result it
A decrease in the demand for beef.
"As the price of personal computers continue to fall, demand increases" The headline is incorrect because
A falling price for computers increases quantity demanded not the demand as a whole
The entire group of buyers and sellers of a particular good or service makes up
A market
Minimum wage laws are an example of
A regulated price
Which of the following is not a characteristic of a market in equilibrium
All consumers are able to purchase an amount equal to their quantity demanded (When a market is in equilibrium there is neither excess demand nor excess supply. Therefore, there is no pressure for price to change. However, some consumer will be either unwilling or unable to purchase as much of the item as they would like)
Why does your grocery store sell day-old bakery goods but not day-old canned goods?
An excess supply of bakery goods will quickly spoil, but excess canned goods will not.
Moving the demand curve to the left could be caused by
An increase in the price of a complement
Another reason for the demand curve to move to the right would be
An increase in the price of a substitute
What might cause a demand function to shift to the right?
An increase in the price of a substitute. (A substitute is a good for which demand will increase if the price of a related good increases)
A market compromised of a downward sloping demand curve that intersects an upward sloping supply curve is said to be stable because
At any price other than equilibrium, forces in the market move price towards the equilibrium (Equilibrium implies that opposing forces balance each other out)
When a slice of pizza at the student union sold for $2, Moe did not purchase any. When the price fell to $1.75, Moe purchased a slice each day for lunch. From this we can infer that the reservation price is
At least $1.75, but less than $2
You notice that your grocery store always has day-old bakery products at a reduced price. Why might that be?
At the original price, quantity supplied was greater than the quantity demanded.
When the price of an item increases, buyers tend to purchase less of that item:
Because of both the substitution and the income effects.
The equilibrium price and quantity of any good or service is established by
Both demanders and suppliers
Suppose you bought three tickets to a concert in advance at the university ticket window. At the last minute on friend cancelled, so you could use only two of the tickets. You scalped, or sold, the third ticket just outside the entrance to the concert for slightly more than the price you had originally paid. What transaction occurred in a market?
Both transactions, the one at the university ticket windows as well as the sale at the concert entrance, occurred in markets.
Suppose you notice that more and more people are driving gas-guzzling cars. Since you drive an economy car, their increased demand for gas
Causes the price you pay for gas to increase
In Cuba, a bureaucratic committee makes the production decisions for the country's firms and factories. Therefore, Cuba is a
Centralized economy
In the market for office workers
Computers are complements (A complement is a good for which demand will increase if more of a related good is purchased. When more workers are hired, the employer will need more desks and computers)
When the price of a good is below its equilibrium value
Consumers will bid up the price. (Consumer whose reservation price exceeds the low non-equilibrium price have an incentive to offer greater than the non-equilibrium price to obtain the good.
Suppose that the market price for hot dogs sold by street vendors has just risen from $4.50 to $5, and that Curly has now begun operating a hot dog cart. We can assume
Curly's reservation price is greater than $4.50, but no more than $5
In a fre market, if they price of a good is below the equilibrium price, then
Demanders to acquire the good, will bid the higher price
One reason for the ______ slope of the demand curve is that as the prices fall _______
Downward; More people find that the price is less than their reservation price
A demand curve is _____________ sloping because _________________
Downward; fewer people are willing to buy an item at higher prices
A market in disequilibrium would feature
Either excess supply or excess demand.
Suppose one knows two facts: first, the market for prescription drugs experiences chronic shortages and second, government sets the price for prescription drug. One can conclude then that the
Government has set the price below the equilibrium price.
Shelly purchases a leather purse for $400. One can infer that
Her reservation was at least $400
You can spend $5 for lunch and you would like to have two double cheeseburgers. When you get to the restaurant, you find out the price for a double cheeseburger has increased from $2.50 to $2.99. You decide to just have on double cheeseburger for lunch. This is best described as an
Income effect (You can no longer afford your desired lunch, and so you purchase less of the good)
The supply curve illustrates that firms
Increase the quantity supplied of a good when input prices fall
As consumers incomes increase, the demand for ground beef decreases. Ground beef is called an
Inferior good.
As consumers' incomes decrease, the demand curve for bologna sandwiches shifts to the right. Therefore bologna sandwiches are
Inferior goods. (An inferior good is one for which the demand curve shifts rightward when the incomes of the buyers decrease)
Which of the following is not true of an equilibrium price?
It is always a fair and just price
Which is not true of the demand curve
It shows how an increase in price leads to an increase in quantity demanded of a good.
Government price control fails because
Legislation cannot repeal basic economic motives.
A seller's reservation price is generally equal to their
Marginal cost
Buyers and sellers of a particular good comprise the
Market for the good
The buyer's reservation price of a particular good or service is the:
Maximum amount the buyer would be willing to pay for it
As the price of a good rises
More firms can cover their opportunity costs of producing the good
Sellers tend to offer _____ for sale as price increases, and so the supply curve is _____ sloping
More; upward
A good example of central planning at work in the US would be
New York's Rent control
If demand for a good decreases as income decreases, it is a
Normal good
Suppose one observes that when the price of peanut butter increases, the demand for jelly increases. One must conclude that
Peanut butter and jelly are subs.
In order to understand how the price of a good is determined in the free market, one must account for the desires of
Purchasers and sellers
A shortage occurs when
Quantity demanded exceeds quantity supplied.
Almost every holiday season at least one gift idea achieves fad status. When that happens, prices tend to increase dramatically. Why?
Quantity demanded exceeds quantity supplied. If suppliers don't anticipate the popularity of their product, they may produce fewer than are demanded at the market price. That generates a disequilibrium in which the quantity demanded is greater than the quantity supplied.
If the market for sport utility vehicles has excess supply, then one can say that
Quantity supplied is greater than the quantity demanded.
Jessica's marginal cost for producing a pitcher of lemonade is $0.25. Therefore $0.25 can also be called her
Reservation price
The quantity of Revlon nail polish demanded by Jen decreased after the price of Revlon nail polish increased. Jen decides to find a cheaper brand of nail polish. This is;
Substitution effect of a price change
In a free market, if the price of a good is above the equilibrium price, then
Suppliers, dissatisfied with growing inventories, will lower the price.
Suppose a news article surfaces about a potential infection to the entire Brazil coffee crop. What is the expected reaction for the demand of coffee?
The coffee demand would shift left because some people would stop drinking coffee in light of the health risk.
"Holding all other relevant factors constant, consumers will purchase more of a good as the price falls" This statement reflects the behavior underlying:
The demand curve
Suppose the price of gasoline increases and that sport utility vehicles get poor gas mileage compared to other available cars. One would expect
The demand for sports cars to decrease
Suppose that there is a news story about a storm that wiped out the entire coffee crop in Brazil. What is the expected reaction of the demand for coffee?
The demand would shift to the right in anticipation of prices increasing. People will have an incentive to purchase coffee before the prices rise.
When a market is not in equilibrium
The economic motives of sellers and buyers will move the market to its equilibrium
The tendency of markets to automatically gravitate toward equilibrium is an application of which core principle?
The incentive principle.
Which of the following would cause an increase in quantity supplied of wheat?
The price farmers receive for their wheat rises.
A seller's reservation price is generally equal to
The seller's opportunity cost (At higher prices, more sellers find that the price they can sell an item for is greater than their opportunity cost to produce them)
Whenever the quantity demanded is not equal to the quantity supplied, the quantity that is actually sold in the market is
The smaller of the quantity demanded and the quantity supplied (In disequilibrium, there is either excess demand or excess supply because the smaller-quantity side of the market determines the quantity sold)
As Coffee becomes more expensive, Joe starts drinking tea, therefore quantity demanded for coffee decreases. This is called:
The substitution effect
You have noticed that there is a persistent shortage of teachers in an inner-city school district in your state. Based on this observation, you suspect that:
The wage for teachers at those schools is lower than the equilibrium wage
When the price point on a supply demand chart is above the demand line,
There is an excess supply
Suppose you bought a concert ticket from ticketmaster for $50, but when you got to the concert scalpers were selling tickets in the same seating area as yours for $25. What is probably true?
There is an excess supply of tickets for this concert at the ticketmaster price.
Supply curves are generally _____ sloping because _____
Upward; of the principle of increasing opportunity costs
Last summer, real estate prices in your town soared. You started noticing more "for sale" signs in your neighbors' yards. You conclude that
When housing prices rose, they started to exceed some of your neighbor's reservation prices
For two goods x and y to be classified as substitutes, it must be the case that
When the price of x rises, the demand for y increases.
A regulated maximum price that is above the equilibrium price that is above the equilibrium price
Will have no effect on the market. (the only things that effect are maximums below equilibrium, or minimums above the equilibrium)
Moving the demand curve to the right indicates an
increase in demand
Suppose a company is selling a product for ten dollars higher than the equilibrium price. The most likely result is
they would feel pressure to lower their prices because at $45 there would be excess supply.
