CH 4- Market Forces of Supply and Demand

The claim that, with other things being equal, the quantity demanded of a good falls when the price of that good rises

Law of demand

Because you understand the law of supply, you can deduce that the correct graphical representation of the supply for CDs must be

S1 (upward)

The claim that, other things being equal, the quantity supplied of a good increases when the price of that good rises

law of supply

Suppose the market for cantaloupes is unregulated. That is, cantaloupe prices are free to adjust based on the forces of supply and demand. If a shortage exists in the cantaloupe market, then the current price must be _______ than the equilibrium price. For the market to reach equilibrium, you would expect ______ .

lower, buyers to offer higher prices

The market price of calzones in a college town decreased recently, and the students in an economics class are debating the cause of the price decrease. 1)The first group of students thinks the decrease in the price of calzones is due to the fact that a new type of pizza oven allows pizza shops to make a calzone in half the time. Adjust the supply and demand curves to illustrate the first group's explanation for the decrease in the price of calzones. 2)The second group of students attributes the decrease in the price of calzones to the decrease in college student enrollment. Adjust the supply and demand curves to illustrate the second group's explanation for the decrease in the price of calzones.

1) shift supply to the right 2) shift demand to the left

Because you understand the law of demand, you can deduce that the correct graphical representation of the demand for CDs must be

D1 (downward)

A graphical object showing the relationship between the price of a good and the amount of the good that buyers are willing and able to purchase at various prices

Demand curve

A table showing the relationship between the price of a good and the amount that buyers are willing and able to purchase at various prices

Demand schedule

The amount of a good that buyers are willing and able to purchase at a given price

Quantity demanded

Suppose that both of the events you have just analyzed are partly responsible for the decrease in the price of calzones. Based on your analysis of the explanations offered by the two groups of students, how would you figure out which of the possible causes was the dominant cause of the decrease in the price of calzones?

If the equilibrium quantity of calzones decreases, then the demand shift in the market for calzones must have been larger than the supply shift.

True or False: The market for public utilities, such as gas and electricity, does not exhibit the two primary characteristics that define perfectly competitive markets.

True

In a perfectly competitive market, all producers sell _____ goods or services. Additionally, there are _____ buyers and sellers. Because of these two characteristics, both buyers and sellers in perfectly competitive markets are price _____.

identical, many, takers

Now suppose Congress passes a tax cut that increases the income of New York City residents. If hot dogs are a normal good, this will cause the demand for hot dogs to ________ .

increase

The following graph shows the market for laptops in 2009. Between 2009 and 2010, the equilibrium quantity of laptops remained constant, but the equilibrium price of laptops increased. From this, you can conclude that between 2009 and 2010, the supply of laptops ______ and the demand for laptops ______.

increase, decrease

An increase in the price of donuts

movement along

An increase in the price of wine

movement along

Moreover, you know that at a price of $10 per CD, the _____ is five million CDs.

quantity demanded

Moreover, you know that at a price of $10 per CD, the ______ is five million CDs.

quantity supplied

The amount of a good that sellers are willing and able to supply at a given price

quantity supplied

A change in tastes of consumers that makes them desire more donuts

shift

A change in technology that makes it less costly to produce wine

shift

A decrease in income of consumers

shift

An increase in the number of producers

shift

A graphical object showing the relationship between the price of a good and the amount that sellers are willing and able to supply at various prices

supply curve

A table showing the relationship between the price of a good and the amount of it that sellers are willing and able to supply at various prices

supply schedule