MICRO ECON EXAM 2 CHPT 3

Suppose that there are only three consumers of a product. At a price of $3 per unit, the first consumer would buy 6 units of the product, the second consumer would buy 7 units of the product. If you drew a market demand curve for this product, the quantity demanded at a price of $3 would be:

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demand schedule/curve

a table/curve that shows the relationship between the price of a product and the quantity of the product demanded

determinant of demand: change in consumer expectation explanation

expectation of increased future price = increase in current demand

A price ceiling means that:

government is imposing a legal price that is typically below the equilibrium price.

A price floor means that:

government is imposing a minimum legal price that is typically above the equilibrium price.

A market is in equilibrium

if the amount producers want to sell is equal to the amount consumers want to buy.

To prevent gas stations from passing the burden of a new 4.3 cents per-gallon tax, a price ceiling of $3 per gallon is imposed. Given the demand and supply curves show below, what will the effect of the price ceiling be?

no shortage, no surplus, market equilibrium

An inferior good is

not accurately defined by any of these statements.

Demand

the amount consumers are willing and able to purchase at a given price

other things equal assumption

the assumption that factors other than those being considered do not change

Law of Supply

the claim that, other things equal, as the price rises, the quantity supplied rises and the price falls, the quantity supplied falls

market demand

the demand by all the consumers of a given good or service

If there is a shortage of product X, and the price is free to change:

the price of the product will rise.

By an "increase in demand," economists mean that:

the quantity demanded at each price in a set of prices is greater.

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.

individual demand

the relation between the price of a good and the quantity purchased by an individual consumer per period, other things constant

market supply

the sum of the quantities supplied by each seller in the market at each price

individual supply

the supply of an individual producer

Productive efficiency refers to:

the use of the least-cost method of production

A product market is in equilibrium:

where the demand and supply curves intersect.

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.

determinant of demand: change in income example

increase income, increase of demand of normal goods decrease demand for inferior goods

A demand curve:

indicates the quantity demanded at each price in a series of prices

market

interaction between buyers and sellers

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

buy low=

law of demand

Sell high=

law of supply

Markets may be

local, national, international

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.

If two goods are complements:

a decrease in the price of one will increase the demand for the other.

inferior good

a good for which, other things equal, an increase in income leads to a decrease in demand

normal (superior) goods

a good for which, other things equal, an increase in income leads to an increase in demandPork a

Economists use the term "demand" to refer to:

a schedule of various combinations of market prices and amounts/quantities demanded.

Supply

a schedule or curve showing the various amounts of a product that producers are willing and able to make available for sale at each of a series of possible prices during a specific period

Because of unseasonably cold weather, the supply of oranges has substantially decreased. This statement indicates the:

amount of oranges that will be available at various prices has declined.

Law of Demand

as price falls, the quantity demanded rises, and as price rises, the quantity demanded falls

"In the corn market, demand often exceeds supply and supply sometimes exceeds demand." "The price of corn rises and falls in response to changes in supply and demand." In which of these two statements are the terms demand and supply being used correctly?

In the second statement

law of supply explanation

Price acts as an incentive to producers At some point, costs will rise

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.

A normal good is one

for which the consumption varies directly with income.

Trevor demands motor chocolate as his income increases. From this, we can conclude that, for Trevor:

Chocolate is a normal good

market equilibrium

Equilibrium occurs where the demand curve and supply curve intersect

substitute goods

Products or services that can be used in place of each other. When the price of one falls, the demand for the other product falls; conversely, when the price of one product rises, the demand for the other product rises.

Buy low

Sell high

In moving along a demand curve, which of the following is not held constant?

The price of the product for which the demand curve is relevant.

In moving along a supply curve, which of the following is not held constant?

The price of the product for which the supply curve is relevant

complementary goods

Two goods that provide more utility when consumed together than when consumed separately

A firm's supply curve is upsloping because:

beyond some point the production costs of additional units of output will rise.

Black markets are associated with:

ceiling prices and the resulting product shortages.

Determinants of supply

change in resource price technology number of sellers taxes and subsides prices of other goods producer expectations

determinents of demand

change in consumer tastes and preferences change in number of buyers change in income change in prices of related goods change in consumer expectations

determinant of demand: change in price example

decrease price for plane ticket = decrease demand of inferior goods

Pork and beef are substitutes. Other things being equal, an increase in the price of beef will:

decrease the demand for pork

determinant of demand: change in number of buyers example

decreased birthrate reduces demand for children's tools

If X is a normal good, a rise in money income will shift the:

demand curve for X to the right.

If Z is an inferior good, an increase in money income will shift the:

demand curve for Z to the lef

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.

determinant of demand: change in buyer taste example

physical fitness rise in popularity = increase demand for tennis shoes

law of demand explanation

price acts as an obstacle for buyers

The law of demand states that, other things equal:

price and quantity demanded are inversely related.

economists would call a government-set maximum price of $40 a

price ceiling

An increase in the quantity demanded means that:

price has declined and consumers therefore want to purchase more of the product.

market price

price is discovered in the interactions of buyers and sellers

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.

price goes up

quantity goes down

An effective ceiling price will

result in a product shortage.

An effective price floor will:

result in a product surplus.

A decrease in the price of digital cameras will:

shift the demand curve for memory cards to the right.

If products C and D are close substitutes, an increase in the price of C will:

shift the demand curve of D to the right.

An improvement in production technology will:

shift the supply curve to the right

If the price of product L increases, the demand curve for close-substitute product J will:

shift to the right.

A leftward shift of a product supply curve might be caused by:

some firms leaving an industry.

Relate the following table that shows a hypothetical supply and demand schedule for a product. If a price floor set by the government is established at $4.20, there will be a:

surplus of 450 pounds