Macro Exam #1 Chapter 4

Describe the forces that move a market toward its equilibrium.

Forces: If the price is above the equilibrium price, sellers want to sell more than buyers want to buy, so there is a surplus. Sellers try to increase their sales by cutting prices. That continues until they reach the equilibrium price. If the price is below the equilibrium price, buyers want to buy more than sellers want to sell, so there is a shortage. Sellers can raise their price without losing customers. That continues until they reach the equilibrium price.

The discovery of a large new reserve of crude oil will shift the ___ curve for gasoline, leading to a _____ equilibrium price. a. supply, higher b. supply, lower c. demand, higher d. demand, lower

a. supply, higher

An increase in____ will cause a movement along a given demand curve, which is called a change in _________. a. supply, demand b. supply, quantity demanded c. demand, supply d. demand, quantity supplied

b. supply, quantity demanded

A change in which of the following will NOT shift the demand curve for hamburgers? a. the price of hot dogs b. the price hamburgers c. the price of hamburger buns d. the income of hamburger consumers

b. the price hamburgers

Movie tickets and DVDs are substitutes. If the price of DVDs increases, what happens in the market for movie tickets? a. The supply curve shifts to the left b. The supply curve shifts to the right c. The demand curve shifts to the left. d. The demand curve shifts to the right

d. The demand curve shifts to the right

Does a change in price lead to a movement along the demand curve or a shift in the demand curve?

movement

Variables that influence sellers

Input, Technology, Expectations, Number of Sellers

Decrease in supply, Decrease in demand

P ambiguous Q down

Increase in demand and supply

P ambiguous, Q up

No change in demand, No change in Supply. What is P and Q

P and Q are the same

Decrease in demand, Increase in supply

P down Q ambiguous

No change in supply, decrease in demand. What is P and Q

P down Q down

No change in Demand, Increase in supply. What is P and Q

P down, Q up

Increase in demand, Decrease in supply

P up Q ambiguous

No change in Demand, Decrease in Supply. What is P and Q

P up Q down

No change in supply, increase in demand. What is P and Q

P up Q up

If the economy goes into a recession and incomes fall, what happens in the markets for inferior goods? a. prices and quantities both rise. b. prices and quantities both fall. c. prices rise, quantities fall. d. prices fall, quantities rise.

a. Prices and quantities both rise.

Which of the following might lead to an increase in the equilibrium price of jelly and a decrease in the equilibrium quantity of jelly sold? a. an increase in the price of peanut better, a complement to jelly b. an increase in the price of marshmallow fluff, a substitute for jelly c. an increase in the price of gapes, an input into jelly d. an increase in consumers' incomes, as long as jelly is a normal good

c. an increase in the price of grapes, an input to jelly

change in the quantity demanded

movement along a fixed demand curve

change in the quantity supplied

movement along a fixed supply curve

Does a change in consumer's tastes lead to a movement along the demand curve or a shift in the demand curve?

shift

What are the supply schedule and the supply curve and how are they related? Why does the supply curve slope upward?

supply schedule/curve: a table/graph that shows the relationship between the price of a good and the quantity supplied. Curve slopes upward because a higher price increases the quantity supplied.

Beer and pizza are complements. When the price of beer rises, what happens to the supply? demand? quantity supplied? quantity demanded? price of the market for pizza?

supply-supply increases demand- the demand for pizza declines, because beer and pizza are complements and people want to buy less beer. quantity supplied-quantity supplied declines quantity demanded- quantity demanded declines price of the market for pizza- falls

Popeye's income declines and as a result he buys more spinach. Is spinach and inferior or a normal good? What happens to Popeye's demand curve for spinach?

-Inferior -Shifts to the right

What determines the quantity of a good that buyers demand?

-Price -Income -Price of related goods -Taste -Expectations -Number of buyers

What determines the quantity of a good that sellers supply?

-Price -Input prices -Technology -Expectations -Number of sellers

Does a change in producer's technology lead to a movement along the supply curve or a shift in the supply curve? Does a change in price lead to a a movement along the supply curve or a shift in the supply curve?

-shift -movement

What is a competitive market? Briefly describe the types of markets other than perfectly competitive markets.

A competitive market is a market in which there are many buyers and many sellers of an identical product each having a negligible (tiny) impact on the market price. Monopoly-has one seller and this seller sets the price. ie. Television company.

Variables that influence buyers

Price of Related Goods, Tastes, Expectations, Number of Buyers

Of the following which does not shift the demand curve? Income, Tastes, Expectations, Price of the good itself, Number of Buyers, Income

Price of the good itself

Of the following which does not shift the supply curve?Input prices, Technology, Price of the good itself, Expectations, Number of seller

Price of the good itself

Describe the role of prices in market economies.

Prices play a vital role in market economies because they bring markets into equilibrium. Price acts as a signal for shortages and surpluses which help firms respond to changing market conditions. If the price is different from its equilibrium level, quantity supplied and quantity demanded are not equal. The resulting surplus or shortage leads suppliers to adjust the price until equilibrium is restored. Prices serve as signals that guide economic decisions and allocate scarce resources.