Quiz 3

Define consumer surplus, producer surplus, and social surplus.

The amount that individuals would have been willing to pay minus the amount that they actually paid is called consumer surplus. Producer surplus is the amount that a seller is paid for a good minus the seller's actual cost. Social surplus is the sum of consumer surplus and producer surplus.

Interpret the following statement: "An increase in the price of wheat will encourage farmers to increase the quantity of wheat supplied to the market."

The statement is correct.

If the price is below the equilibrium level, then the quantity demanded will exceed the quantity supplied. This is known as ___________________

excess demand (shortage)

The downward slope of the demand curve again illustrates the pattern that as _____________ rises, _________________ decreases.

price, quantity demanded

A supply curve is a graphical illustration of the relationship between price, shown on the vertical axis, and ____________, shown on the horizontal axis.

quantity

What are five things that will shift a supply curve to the right?

A decrease in the price of a substitute in production; An decrease in input prices which make production less expensive; A change in technology; An expected decrease in future price; An increase in the number of producers; Deregulation; A reduction in taxes or an increase in subsidies; Weather.

After widespread press reports about the dangers of contracting "mad cow disease" by consuming beef from Canada, the likely economic effect on the U.S. demand curve for beef from Canada is:

After widespread press reports about the dangers of contracting "mad cow disease" by consuming beef from Canada, the likely economic effect on the U.S. demand curve for beef from Canada is:

Wheat and oats are both used to make cereal and both are grown on the prairies. What would happen to the supply and demand of oats if the price of wheat were to rise?

An increase in the price of wheat would reduce the quantity demanded of wheat, and decrease the quantity supplied of wheat. Since wheat and oats are substitutes on the demand side, the increase in the price of wheat increases the demand for oats. Wheat and oats are also substitutes on the supply side, so the increase in the price of wheat reduces the supply of oats.

Andy views beer and pizza as complements to one another. If the price of pizza decreases, economists would expect:

Andy's demand for beer to increase.

The demand schedule for a good:

indicates the quantities that will be purchased at alternative market prices.

Economists refer to the relationship that a higher price leads to a lower quantity demanded as the _____________.

law of demand

If a firm faces ________________________, while the prices for the output the firm produces remain unchanged, a firm's profits will increase.

lower costs of production

A severe freeze has once again damaged the Florida orange crop. The impact on the market for orange juice will be a leftward shift of:

the supply curve.