Economics topic 3 lessons 7-9 test

This diagram gives theoretical and real-life examples of how increased input costs affect markets. Analyze Information What is the real-life consequence of this supply shift to the left?

1. The price of steel rises 2. Carmaker A raises its prices 3. Consumers buy fewer cars from carmaker A 4. Consumers pay more, but carmaker A sells fewer cars

Market equilibrium is found at the price where quantity demanded equals quantity supplied. Analyze Data How many slices are sold at equilibrium?

200 pizza slices are sold at equilibrium

Why do stores offer low price guarantees?

Because they want their consumers to be confident in finding low prices

Which of the following describes a way that the minimum wage and rent control are similar?

Both involve government intervention in the marketplace

How has the Internet dramatically reduced search costs?

By eliminating the need to travel to stores to shop

How would a bicycle producer likely react to a shortage of its product?

By raising prices and increasing supply

Which of the following explains why a firm's decision to raise prices during a shortage helps lead to a return to equilibrium?

Higher prices decrease the quantity demanded.

Analyze Political Cartoons How would you describe the relationship between supply and demand shown here?

I would describe supply and demand to be competing in this sense

What caused the supply curve for digital cameras to keep moving to the right during the early 2000s?

Improved technology made them cheaper to produce

What would happen to the new equilibrium point if the demand for this product suddenly started decreasing?

It would gradually move toward the original equilibrium price and output level.

How can prices solve problems of surplus?

Lower prices increase quantity demanded and decrease quantity supplied.

How many equilibrium points can exist at the same time on a combined supply and demand graph? Explain.

One; the supply and demand curves intersect at one point.

Observe how a change in demand affects the original equilibrium point ( a ). Analyze Graphs a. What do points b and c on this graph represent? b. How has the increased demand affected price?

Point b represents the new demand while point c represents the equilibrium between the supply and new demand. Increased demand has led to an increase in price

What action by the government would most likely increase the supply of gasoline in the short term?

Reduced taxes on the refining of gasoline

In these graphs, a price ceiling of $600 for rent-controlled apartments is below the equilibrium price. Analyze Graphs Why does rent control lead to a shortage of desirable apartments?

Rent control leads to a shortage of desirable apartments because quantity supplied and demanded differ at $600 per month

If the cost of gasoline increases sharply and continues to rise, how does this development affect the demand curve for cars?

The demand curve for gas-guzzlers shifts to the left, and the demand curve for fuel-effificent cars shifts to the right

Many farmers in the United States rely on price supports or other government programs. Analyze Political Cartoons What seems to be happening to the farmer in this cartoon?

The farmer is waiting for a just price support while the republicans and democrats are debating.

When a team keeps selling out all the seats to its games, it reflects a shortage of seats. Check Understanding What might the owner do to resolve this shortage?

The owner might want to make the prices for the seats more expensive.

As digital cameras became cheaper and easier to produce, the supply increased. Draw Conclusions Why do you think the pace of the falling prices began to slow in 2004?

The pace of falling prices began to slow in 2004 because probably became a bit more difficult to produce

At a certain price, quantity supplied exceeds quantity demanded, creating a surplus. Analyze Graphs How might the pizzeria solve the problem of excess supply?

The pizzeria might want to solve this problem by making less pizzas to meet the equilibrium.

a. At equilibrium, how many slices will the pizzeria supply? b. At what price will the pizzeria supply it?

The pizzeria will supply 200 slices and sell them for $3

This is one of a shrinking number of consumers of old-fashioned photography supplies. Identify Cause and Effect What should be happening to the price of these products?

The price of these products should decrease

What is the purpose of the WW2 propaganda picture shown?

To encourage rationing

What is the consequence of excess demand in the pizza slice market?

a shortage of pizza slices

In a free enterprise economy, as opposed to a command economy, suppliers use prices to

respond to consumer demand.

At the point of equilibrium shown in the graph, how many slices of pizza will the pizzeria supply, and at what price?

200 slices at $3.00 apiece

What is a black market?

A black market is an illegal market that ignores government controls on price and quantity.

Shortages trigger a response that, in time, corrects the shortage and returns the market to equilibrium. Identify Cause and Effect What steps help correct this shortage?

A new equilibrium helps correct this shortage

A firm with a surplus of goods might sell them to a discount store. Draw Conclusions How do stores like this illustrate how a surplus leads to lower prices?

A surplus leads to lower prices because there's simply too much to sell. Lower prices will help clear this store out and keep people buying items.

In what way are items sold in a black market?

In short supply

If a business owner becomes aware of a shortage in the market for the good or service he or she produces, he or she is likely to

Increase supply more and raise the price

How can a cold snap affect the supply of oranges?

It can cause a sharp decline in the supply of oranges.

How does a minimum wage above the equilibrium rate affect the labor market?

It creates a surplus

What role does the profit incentive play when there is a surplus of a good?

It encourages producers to lower their prices

How does a price ceiling affect the quantity demanded and the quantity supplied?

It leads to an increase in quantity demanded and a decrease in quantity supplied

Which of the following explains what typically happens when a market is thrown into disequilibrium?

It moves toward a new equilibrium point as a results of the laws of supply and demand

As the supply curve shifts to the left, what happens to the equilibrium point?

It moves up the demand curve

Why has the demand curve for CDs shifted to the left in recent years?

New technology has caused demand to fall.

This graph shows how a change in supply affects the original equilibrium point ( a ). Analyze Graphs a. What does point b on this graph represent? b. What does point c represent?

Point b represents the new supply Point c represents the the equilibrium between the new supply and demand

Price changes can move markets back to equilibrium, solving shortages and surpluses. Analyze Graphs Which problem is price solving in this graph? Explain, using the points on the graph.

Price is decreasing in this graph

For producers and consumers all across the United States, a price of $10 has the same meaning. What advantage of prices does this represent?

Prices provide buyers and sellers with a common set of signals.

Rent control limits price increases for rental housing. Analyze Political Cartoons What does this cartoon suggest about how some renters view rent control?

Some people view rent control as a benefit for their lives as it sets a maximum price. This is shown through how the man refuses to kill himself because he has a rent control.

The U.S. government has supported milk prices by setting a price floor and buying the excess supply that results. Analyze Information What does the government do with the milk that it buys from farmers?

The government first stores the milk in dry, powered form. Then they distribute the milk to schools, food banks, and foreign aid programs.

The supply of art from this painter is severely limited. Express Problems Clearly Assuming significant demand, what effect would the limited supply have on the price for this art?

The limited supply would make this painting very expensive

The price system provides consumers and producers with many benefits. Explain How can the price system do all of this and still be "free"?

The price system can do all of this and be free because

A minimum wage law can set the price of labor above the equilibrium price. Analyze Graphs In this graph, what happens to the supply of labor with a minimum wage of $7.25 per hour?

The quantity supplied exceeds the quantity demanded at $7.25, which creates a surplus

Shortage results when quantity demanded in a market exceeds quantity supplied. Analyze Graphs What is the shortage when pizza is sold at $2 per slice?

The quantity supplied is 150 while the quantity demanded is 250

Early digital cameras combined high prices with low-quality. Predict Consequences What do you think will happen to the supply curve for digital cameras as technology improves?

The supply curve will shift to the right

Which of the following explains why agricultural price supports are inconsistent with free-market principles?

They allow government to influence farmers' decisions about what and how much to produce

What would someone do if they notice their house has a lot of demand?

They increase the price

What may owners of rent-controlled apartments do because low rents give them no incentive to attract renters?

They may neglect their own property

World War II placed many items in high demand in the United States. Analyze Charts Why might gasoline, kerosene, and other fuels be rationed during wartime?

They were rationed to help fuel and make weapons

What message is this price tag telling shoppers?

This price tag is signaling a discount

Under what conditions might a baker have to throw out many muffins at the end of the day?

a surplus, when quantity demanded is lower than quantity supplied

What might cause orders for microwave ovens to increase and the availability of microwave ovens to decrease?

falling prices