Ch. 4 Hw

What does a decrease in supply result in?

a lower equilibrium quantity **A decrease in supply is represented by a leftward shift of the supply curve.

An increase in quantity supplied is a:

movement up along a fixed supply curve caused by a rightward shift in the demand curve. **Quantity supplied changes when price changes.

Unexploited gains from trade exist at:

quantities below the equilibrium. **At quantities below the equilibrium, there remain buyers who value the good highly enough, and sellers who can produce the good at low enough cost, that additional mutually beneficial trades could be made.

As more hairstylists move to New York, the equilibrium price of haircuts in New York _____ and the equilibrium quantity of haircuts in New York increases.

decreases **An increase in the number of hairstylists leads to an increase in supply. This shift the supply curve to the right along a fixed demand curve.

The _____ price occurs when the quantity demanded is equal to the quantity supplied.

equilibrium **When quantity demanded and quantity supplied are equal, sellers have the precise amount available that buyers want to buy. Therefore, there will be no incentive for price to rise or fall.

When quantity supplied equals quantity demanded, there is a(n):

equilibrium, and the price will not change. **In equilibrium, quantity supplied and quantity demanded are the same amount. Because sellers are selling the precise amount that buyers want to buy, there is no incentive for sellers or buyers to change the price.

What would happen if the demand for oil increased?

The demand curve would shift to the right. **A rightward shift is an increase.

Suppose that when good X is free, buyers will demand 200 units of it, but the quantity demanded falls by 5 units for every $2 increase in the price. If the price is $30 and the quantity supplied is 125 units:

there is no pressure for the price to change. **The quantity demanded is 200 − (5 × ($30 ÷ $2)) = 125. This is equal to the quantity supplied, 125. A market is in balance when quantity supplied and quantity demanded are equal. There is no reason for price to change when a market is in equilibrium.

The financial crisis of 2007-2010 had a huge impact on the U.S. housing market, causing the number of uninhabited houses to be far greater than the number of people able and willing to buy a house. What probably happened in the housing market?

Housing prices fell. **Housing prices dropped over 25% between 2006 and 2010.

Imagine that a major car company is producing large, fuel-inefficient SUVs during a period of rising gas prices. As a result, dealerships are overstocked with inventory that is not selling. How can we BEST describe this phenomenon?

This is a surplus, because the quantity supplied is greater than the quantity demanded. **A surplus occurs because there are more SUVs sellers have available than buyers want to buy. Therefore, dealerships will usually cut their price for SUVs to sell more SUVs and reduce inventory

Which economist began testing the supply and demand model by running experiments with his undergraduate students in 1956?

Vernon Smith **For his pioneering work in experimental economics, he was awarded the Nobel Memorial Prize in Economic Sciences in 2002.

"According to the supply and demand model, all else equal, if the inputs used to produce a good become less costly, supply will increase, causing the price to rise, which causes the quantity demanded to fall." This statement is:

false, because the price will fall. **When supply shifts right, the equilibrium point moves down along the demand curve, toward a lower price.

A surplus occurs when the quantity supplied is _____ the quantity demanded.

greater than **A surplus will usually lead to a decrease in the price of a good because sellers have more of a good to sell than buyers want to buy.

Benny is a seller in Vernon Smith's classroom experiment of the market model. Which does he know?

his own willingness to sell **The seller does know his own willingness to sell.

A shift in the demand curve to the right is best described as a(n):

increase in demand. **An increase in demand means the curve has shifted to the right along a fixed supply curve. Buyers now want a larger quantity demanded at every price.

A decrease in supply along a fixed demand curve results in:

lower equilibrium quantity. **A decrease in supply is represented by a leftward shift of the supply curve.

Suppose that when good Z is free, buyers will demand 200 units of it, but the quantity demanded falls by 5 units for every $2 increase in the price. If the price is $24 and the quantity supplied is 125 units:

the price will eventually rise above $24. **The quantity demanded is 200 − (5 × ($24 ÷ $2)) = 140. The difference in quantity demanded and quantity supplied is 140 − 125 = 15. The shortage should lead to price increases until the shortage is eliminated.

Which illustrates an increase in quantity demanded?

a movement up along a fixed demand curve **This is the definition of an increase in quantity demanded.

Suppose that when good M is free, sellers will not supply any, but quantity supplied rises by 20 units for every $6 increase in the price. If the quantity demanded is fixed at 150 units, the equilibrium price will be:

$45. **At $45, the quantity supplied would be 20 × ($45 ÷ $6) = 150. In other words, quantity supplied will be equal to quantity demanded.

From the early twentieth century to the 1970s, the demand for oil:

increased steadily.