HW 1.2
(Advanced analysis) The demand for commodity X is represented by the equation P = 10 - 0.2Q and supply by the equation P = 2 + 0.2Q. The equilibrium price for X is
$6
(Advanced analysis) The demand for commodity X is represented by the equation P = 10 - 0.2Q and supply by the equation P = 2 + 0.2Q. The equilibrium quantity is
20
If the demand curve for product B shifts to the right as the price of product A declines, then
A and B are complementary goods.
The term "laissez-faire" suggests that
government should not interfere with the operation of the economy.
A market is in equilibrium
if the amount producers want to sell is equal to the amount consumers want to buy.
If we say that a price is too high to clear the market, we mean that
quantity supplied exceeds quantity demanded.
When the price of a product increases, a consumer is able to buy less of it with a given money income. This describes the
income effect
Other things equal, which of the following might shift the demand curve for gasoline to the left?
the development of a low-cost electric automobile
Graphically, the market demand curve is
the horizontal sum of individual demand curves.
When the price of a product falls, the purchasing power of our money income rises and thus permits consumers to purchase more of the product. This statement describes
the income effect
The circular flow model illustrates
the interdependence of businesses and consumers.
The idea that the desires of resource suppliers and firms to further their own self-interest will automatically further the public interest is known as
the invisible hand.
In moving along a demand curve, which of the following is not held constant?
the price of the product itself
In moving along a supply curve, which of the following is not held constant?
the price of the product itself.
If there is a shortage of product X, and the price is free to change,
the price of the product will rise.
If a price ceiling is set below the equilibrium price in a market,
the quantity demanded will exceed the quantity supplied.
At the point where the demand and supply curves for a product intersect,
the quantity that consumers want to purchase and the amount producers choose to sell are the same.
When the price of Nike soccer balls fell, Ronaldo purchased more Nike soccer balls and fewer adidas soccer balls. Which of the following best explains Ronaldo's decision to buy more Nike soccer balls?
the substitution effect
When the price of a product rises, consumers with a given money income shift their purchases to other products whose prices are now relatively lower. This statement describes
the substitution effect
Suppose that corn prices rise significantly. If farmers expect the price of corn to continue rising relative to other crops, then we would expect
the supply to increase as farmers plant more corn.
At the equilibrium price,
there are no pressures on price to either rise or fall.
Increasing marginal cost of production explains
why the supply curve is upsloping.
Given a downsloping demand curve and an upsloping supply curve for a product, an increase in the price of a substitute good (from the buyer's perspective) will
increase equilibrium price and quantity.
Suppose product X is an input in the production of product Y. Product Y in turn is a substitute for product Z. An increase in the price of X can be expected to
increase the demand for Z.
If the demand and supply curves for product X are stable, a government-mandated increase in the price of X will
increase the quantity supplied of X and decrease the quantity demanded of X.
Assume product A is an input in the production of product B. In turn, product B is a complement to product C. We can expect a decrease in the price of A to
increase the supply of B and increase the demand for C.
At the current price, there is a shortage of a product. We would expect price to
increase, quantity demanded to decrease, and quantity supplied to increase.
Over time, the equilibrium price of a gigabyte of computer memory has fallen, while the equilibrium quantity purchased has increased. Based on this we can conclude that
increases in the supply of computer memory have exceeded increases in demand.
A government subsidy to the producers of a product
increases product supply.
Running shoes and staplers are
independent goods.
If there is a surplus of a product, its price
is above the equilibrium level.
A market
is an institution that brings together buyers and sellers.
The upward slope of the supply curve reflects the
law of supply
One reason that the quantity demanded of a good increases when its price falls is that the
lower price increases the real incomes of buyers, enabling them to buy more.
Which of the following will not cause the demand for product K to change?
a change in the price of product K
If producers must obtain higher prices than before to produce a given level of output, then the following has occurred.
a decrease in supply
If two goods are complements,
a decrease in the price of one will increase the demand for the other.
Which of the following would not shift the demand curve for beef?
a reduction in the price of cattle feed
Economists use the term "demand" to refer to
a schedule of various combinations of market prices and amounts/quantities demanded.
A surplus of a product will arise when price is
above equilibrium, with the result that quantity supplied exceeds quantity demanded.
The relationship between quantity supplied and price is _____, and the relationship between quantity demanded and price is _____.
direct; inverse
Which of the following statements is correct?
An increase in the price of C will decrease the demand for complementary product D.
In the past few years, the demand for donuts has greatly increased. This increase in demand might best be explained by
a change in buyer tastes
A recent study found that an increase in the federal tax on beer (which would increase the price of beer) would reduce the demand for marijuana. Based on this information we can conclude that
beer and marijuana are complementary goods.
According to the circular flow model, product markets are where
businesses earn their revenues from households.
In the circular flow model of the market system, households' major role is to
buy products and sell resources
If the price of Pepsi decreases, other factors constant, then we'd expect to see a consequent shift of the demand curve for
coke to the left
A shift to the right in the demand curve for product A can be most reasonably explained by saying that
consumer preferences have changed in favor of A so that they now want to buy more at each possible price.
An increase in the price of a product will reduce the amount of it purchased because
consumers will substitute other products for the one whose price has risen.
With a downsloping demand curve and an upsloping supply curve for a product, a decrease in resource prices will
decrease equilibrium price and increase equilibrium quantity.
Suppose an excise tax is imposed on product X. We expect this tax to
decrease the demand for complementary good Y and increase the demand for substitute product Z.
If products A and B are complements and the price of B decreases, the
demand for A will increase and the quantity of B demanded will increase.
Suppose that in the clothing market, production costs have fallen, but the equilibrium price and quantity purchased have both increased. Based on this information we can conclude that
demand for clothing has grown faster than the supply of clothing.
The construction of demand and supply curves assumes that the primary variable influencing decisions to produce and purchase goods is
price
The law of demand states that, other things equal,
price and quantity demanded are inversely related.
The supply curve shows the relationship between
price and quantity supplied.
The law of supply indicates that, other things equal,
producers will offer more of a product at high prices than at low prices.
An increase in product price will cause
quantity demanded to decrease.
In the circular flow model, households earn their incomes in the
resource markets
The simple circular flow model shows that workers and capital owners offer their services to firms through the
resource markets
In the circular flow model of the market system, business firms' major role is to
sell products and buy resources.
An improvement in production technology will
shift the supply curve to the right.
A leftward shift of a product supply curve might be caused by
some firms leaving an industry.
In 2007, the price of oil increased, which in turn caused the price of natural gas to rise. This can best be explained by saying that oil and natural gas are
substitute goods, and the higher price for oil increased the demand for natural gas.
Other things equal, if the price of a key resource used to produce product X falls, the
supply curve of product X will shift to the right.