macro econ chg4

When demand rises (increases) and supply stays the same,

equilibrium quantity increases and price equilibrium increases.

A shift from S1 to S2 represents

a decrease in supply. The supply curve in this scenario has shifted to the left. Pick any price on the vertical price line and then compare the points on both of the supply curves. You can see that the S2 supply curve at the price has less quantity supplied than the S1 supply curve at that price. Thus at EVERY price, the quantity supplied is less for S2 compared to S1.

The price of $10 in the graph above represents

a price floor.

According to the LAW OF DEMAND, the

quantity demanded increases when the price decreases. The demand curve is downward sloping from left to right. That means that as the price decreases, quantity demanded increases. When a merchant lowers the price of a product, people will buy more of that product. But this scenario is NOT an increase in demand. It is an increase in quantity demanded along the same demand curve. In order to have an increase in demand, there must be a shift of the demand curve to the right meaning that quantity demanded has increased at EVERY price. Merchants will prefer an increase in demand as opposed to lowering the price to increase quantity demanded.

When a price ceiling which had been set below equilibrium price is removed, what happens next?

quantity supplied increases When the ceiling (false market price) is removed, then the price mechanism will be allowed to work. In the price mechanism, the equilibrium price will be eventually reached where there is no surplus and there is no shortage. Since the ceiling causes a shortage, when it is removed the price will begin to be bid up by the buyers because they want the product. It will be bid up until the quantity demanded will equal the quantity supplied at the equilibrium price. That means that quantity supplied will increase (The Law of Supply) and quantity demanded will decrease (The Law of Demand)

A shift from D1 to D2 represents

an increase in demand An increase in demand means that at every price the quantity demanded has increased. An increase in demand is a shift of the demand curve to the right. Pick any price on the vertical price line and then compare the two demand curves at that price. You will see that the demand curve further to the right has more quantity demanded than at the same price for the demand curve on the left.

There is a surplus of quantity supplied over quantity demanded when

market price is above equilibrium price.

The reasons below would cause an immediate shift in the supply curve for corn EXCEPT for

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At equilibrium price,

quantity demanded is always equal to quantity supplied.

If we go from point J to point K, then we may conclude that there was

an increase in supply The move is from a point on the supply curve to a point on another supply curve. That means that there is a change in supply. Remember that a new curve means that there is a change in quantity supplied AT EVERY PRICE. Since point K is on a new supply curve to the right of the other original supply curve, we can say that it is an increase in supply. This is true because more is supplied AT EVERY PRICE.

What happens to quantity supplied when the price is lowered?

It decreases (falls). This is the Law of Supply. If the price is lowered, producers cannot produce as much. They will have to cut back on their production. This is because as a producer produces more, the cost of each new unit rises. This is called "The Law of Increasing Costs" which is discussed in microeconomics. So if the price falls, then units that would cost more than the price to produce will not be product

When the market price is lower than the equilibrium price, there is

a shortage.

Rent controls tend to __________ the supply of housing and the ________ the level of rents paid.

lower, lower

If the equilibrium price of lettuce is $.80 per head and the government imposes a price floor of $.70 per head, the price of lettuce will

remain at $.80. If the floor is below the equilibrium price, then it has no ability to control the price. The floor price must be above the equilibrium price in order for it to be a true floor.

An increase in demand occurs when

the demand curve shifts to the right. An increase in demand means that at the same price, quantity demanded has increased. This can happen when one of the reasons stated in the list of reasons occurs. It must be an external event like a larger population, higher consumer preference for the product, higher incomes. A movement horizontally at the same price is not a price issue. It is NOT The Law of Demand. The Law of Demand IS a price issue. Since we are just looking at the demand curve, we then can say that the quantity demanded increases at EVERY PRICE. This creates a new demand curve to the right of the old one.

In the graph shown above, at a price of $3.00

there is a shortage

When supply rises (increases) and demand stays the same,

equilibrium quantity increases and price equilibrium decreases. Draw out the supply and demand graph. Draw the supply curve and the demand curve. Then increase the supply by drawing a new supply curve to the right of the old supply curve. You will now have a new equilibrium. That new equilibrium will be further to the right. So that means that quantity equilibrium has increased and price equilibrium decreased.

If we go from point J to point I, then we may conclude that there was

a decrease in quantity supplied The movement is along the same supply curve so it is a change in quantity supplied. Point I is lower on the supply curve so it is a decrease in quantity supplied. In order to have an decrease in supply, movement would have to go from one curve to another curve to the left of the original curve. A change in supply means that it is a change in quantity supplied AT EVERY PRICE.

If the equilibrium price of an hour with a personal trainer is $45 and the market price is currently $55, then there is

a surplus of personal trainers If the market price is higher than the equilibrium price then the quantity supplied will be greater than the quantity demanded. The higher the price a product is, the more suppliers will supply. The higher the price of a product, the less consumers will demand. The equilibrium price is where the demand curve intersects the supply curve. At that point, there is no surplus and there is no shortage (scarcity). The equilibrium price clears the market.

Price ceilings have the effect of

decreasing quantity supplied and increasing quantity demanded. A ceiling price is a price below the equilibrium price. It is a ceiling from the point of view of the consumer. The price cannot go any higher than the price. It can never reach the equilibrium price which is above it. It is a ceiling. At a ceiling, you have a shortage because according to the law of demand a lower price increases quantity demanded and according to the law of supply a lower price lowers quantity supplied.

When the demand for a product falls (decreases) but the supply of the product remains unchanged,

the Law of Supply is triggered. In this scenario, the demand curve shifts to the left but the supply curve stays the same. When the demand curve shifts to the left, it will intersect the supply curve at a lower point on the supply curve. This new point will be the new equilibrium point. At this new equilibrium point, the price will be lower and the equilibrium quantity will be lower. This new equilibrium point further down the supply curve will trigger the Law of Supply. At this lower price, producers will cut back on the quantity supplied of the product. The Law of Supply states that when a price increases, the quantity supplied increases. Also, when the price decreases, the quantity supplied decreases.