Ch. 3 - Supply and Demand

If people tend to go swimming more in the summer than in the winter, then we would expect _____.

1. The quantity of swimsuits bought and sold to be higher in the summer 2. The price of swimsuits to be higher in the summer 3. The demand for swimsuits to be higher in the summer The supply of swimsuits would be lower in the summer.

A shift of the entire supply curve is considered ______.

A change in supply

An increase in the supply of corn (a rightward shift in the supply curve) could be the result of _____ in the price of an input to the production of corn.

A decrease Reason: A decrease in the price of an input to production leads to an increase in supply.

A supply curve is ___.

A graph or schedule showing the quantity of a good that sellers wish to sell at each price.

Price ceiling is:

A maximum allowable price, specified by law.

A change in the quantity demanded is:

A movement along the demand curve that occurs in response to a change in price.

A change in quantity demanded is represented by

A movement along the demand curve. Reason: a shift in the entire demand curve represents a change in demand.

A change in demand is:

A shift of the entire demand curve.

If the price of butter increases, the quantity of butter demanded will ___.

Decrease

A maximum allowable price specified by law is a ___ ___.

Price ceiling

Suppose that as the price of movie tickets increases, people go to the movies less often and instead rent movies at home. The resulting reduction in the quantity of movies demanded is known as the _____ of a price change.

Substitution effect

Buyer's reservation price is?

The largest dollar amount the buyer would be willing to pay for a good.

An increase in the price of cotton is likely to shift the supply curve for clothing (that uses cotton as an input) to

The left Reason: An increase in the price of an input will lead to a decrease in supply (a leftward shift)

Income Effect is?

When the change in the quantity demanded of a good that results because a change in the price of a good changes the buyer's purchasing power.

If bagels and cereal are substitutes, then a decrease in the price of bagels will lead to ___ in the demand for cereal.

a decrease

If butter and popcorn are complements, then an increase in the price of butter will lead to ___ in the demand for popcorn.

a decrease

If torrential rains wipe out this year's corn crop, this should lead to ___ in the supply of corn.

a decrease

A change in the quantity supplied is represented by

a movement along the supply curve.

A change in supply is represented by ___.

a shift in the entire supply curve. Reason: a movement along the supply curve represents a change in quantity supplied, not a change in supply.

Economic efficiency occurs when

all goods and services are produced and consumed at their socially optimal levels

If Netflix and Hulu Plus are substitutes, then an increase in the price of Netflix will lead to _____ in the demand for Hulu Plus.

an increase

If Ramen Noodles are an inferior good, then a fall in income should lead to _____ in the demand for Ramen Noodles.

an increase

If butter and popcorn are complements, then a decrease in the price of butter will lead to ___ in the demand for popcorn.

an increase

Two good are complements if

an increase in the price of one good, leads to a decrease (leftward shift) in the demand for the other.

two goods are substitutes if

an increase in the price of one good, leads to an increase (rightward shift) in the demand for the other.

If an increase in the price of one good, causes a decrease (leftward shift) in the demand for another good, then the two goods are _____.

compliments

You observe that the price of books has gone down at the same time that the number of books bought and sold in the market has decreased. The best explanation for this is that the:

demand for books has decreased.

A buyer's reservation price is the

largest dollar amount the buyer would be willing to pay for a good.

A change in demand is represented by a:

shift in the entire demand curve.

Total surplus is

the difference between the buyer's reservation price and the seller's reservation price.

Seller's surplus is:

the difference between the price the seller receives and the seller's reservation price.

Complements are

two goods are complements in consumption if an increase in the price of one causes a leftward shift in the demand curve for the other (or if a decrease causes a rightward shift)

Substitutes are

two goods for which an increase (rightward shift) in the price of one leads to an increase in the demand for the other

If Zach's reservation price for a gallon of milk is $5.53, and the market price for milk is $4.90, then Zach

will buy a gallon of milk.

If bread and peanut butter are complements, then a decrease in the price of peanut butter will lead to:

1. An increase in the amount of bread that people buy. 2. An increase in the price of bread. Reason: As the price of peanut butter falls, the demand for bread will increase, leading to an increase in the equilibrium price and quantity of bread.

Prozac and Wellbutrin are both prescription medications to treat depression. If the price of Prozac increases, then this should lead to:

1. An increase in the number of people who use Wellbutrin 2. An increase in the price of Wellbutrin. Reason: As the price of Prozac increases, the demand for Wellbutrin will increase, leading to an increase in the equilibrium price and quantity of Wellbutrin.

True or false: The socially optimal quantity is that level for which the marginal cost and marginal benefit of the good are the same.

True

A movement along the supply curve is considered ___.

A change in the quantity supplied.

If an increase in the price of one good, causes a increase (rightward shift) in the demand for another good, then the two goods are ___.

substitutes

Given that hops are an important input to the production of beer, a sharp increase in the price of hops should lead to:

1. a decrease in the amount of beer bought and sold in the market. 2. an increase in the price of beer. Reason: if the price of hops increases, the supply of beer should decrease (a leftward shift in the supply curve), leading to an increase in the equilibrium price and a decrease in the equilibrium quantity of beer.

If hot dogs and ketchup are complements, then an increase in the price of ketchup wil lead to:

1. a decrease in the price of hot dogs 2. a decrease in the number of hot dogs bought and sold in the market. Reason: As the price of ketchup increases, the demand for hot dogs will fall, leading to a decrease in the equilibrium price and quantity of hot dogs.

Suppose that as the price of coffee increases, consumers purchase less coffee in part because they can no longer afford to buy as much coffee as they used to. This reduction in the quantity of coffee demanded is known as the _____ of a price change.

Income effect

Substitution Effect is?

When the change in the quantity demanded of a good that results because buyers switch to or from substitutes when the price of the good changes.

When a new technology reduces the cost of production, supply ___.

Will shift to the right (increase)

A shift in the entire demand curve is considered ___.

a change in demand

If the demand for wine increases as people's incomes go up, then wine is ___.

a normal good

If Jason's reservation price for a pound of apples is $1.40, and the market price for a pound of apples is $1.52, then Jason

will not buy a pound of apples. Reason: A buyer will only buy a good if his or her reservation price for that good is greater than the market price of that good.

If Hulu Plus and Netflix are substitutes, then an increase in the price of Netflix should lead to:

1. An increase in the price of Hulu Plus. 2. An increase in the number of people who subscribe to Hulu Plus. Reason: As the price of Netflix increases, the demand for Hulu Plus will increase, leading to an increase in the equilibrium price and quantity of Hulu Plus.

Given that college professors are an important input to the production of a college education, a decrease in the salaries of college professors would:

1. Increase the number of students attending college 2. Decrease college tuition Reason: if the salaries of college professors decrease, the supply of a college education should increase (a rightward shift in the supply curve), leading to a decrease in equilibrium price (tuition) and an increase in equilibrium quantity (the number of students attending college.

Suppose that as the price of movie tickets increases, people stop going to the movies as often because they can no longer afford to do so. This reduction in the quantity of movie tickets demanded is known as the _____ of a price change.

Income effect

Relative to the summer months, people have less exposure to the sun during the winter. Thus, relative to the summer, we can expect ___.

1. The price of sunscreen to be lower in the winter. 2. The demand for sunscreen to be lower in the winter. 3. The amount of sunscreen bought and sold in the market to be lower in the winter. Reason: During winter the demand for sunscreen will be lower than in the summer, leading to a fall in the equilibrium price and quantity of sunscreen. Though the quantity of sunscreen supplied should fall, there is no reason to think the supply of sunscreen will change (that is, the supply curve won't shift).

A technological innovation that reduces the cost of extracting natural gas from the earth's surface should:

1. Increase the quantity of natural gas bought and sold in the market. 2. Decrease the price of natural gas.

all else equal, the introduction of tractors into farming in the early 1900s is likely to have:

1. Increased the quantity of agricultural products bought and sold in the market. 2. Decreased the price of agricultural products. Reason: Technological improvements such as the introduction of tractors lead to an increase supply (a rightward shift in the supply curve), thereby decreasing equilibrium price and increasing equilibrium quantity.