Chapter 3 Assignment

How will each of the following changes in demand and/or supply affect equilibrium price and equilibrium quantity in a competitive market; that is, do price and quantity increase or decrease, or are the answers indeterminate because they depend on the magnitudes of the shifts?

-Supply decreases and demand is constant. Price: Increases Correct Quantity: Decreases -Demand decreases and supply is constant. Price: Decreases Correct Quantity: Decreases -Supply increases and demand is constant. Price: Decreases Correct Quantity: Increases -Demand increases and supply increases. Price: Indeterminate Correct Quantity: Increases -Demand increases and supply is constant Price: Increases Correct Quantity: Increases -Supply increases and demand decreases. Price: Decreases Correct Quantity: Indeterminate -Demand increases and supply decreases. Price: Increases Correct Quantity: Indeterminate -Demand decreases and supply decreases. Price: Indeterminate Correct Quantity: Decreases

How is a market demand curve derived from individual demand curves?

Add up quantities demanded by all individual consumers for each price.

How do you derive a market supply curve from individual supply curves?

Add up quantities supplied by all individual producers for each price

Which statement is consistent with the law of supply?

An increase in market price will lead to an increase in quantity supplied.

True or False: A "change in quantity demanded" is a shift of the entire demand curve to the right or to the left.

False

Suppose that in the market for computer memory chips, the equilibrium price is $50 per chip. If the current price is $55 per chip, then there will be a (surplus) Correct of memory chips.

surplus

What are the determinants of supply?

-Technology -Resource prices -Number of producers

What effect will each of the following have on the supply of auto tires (keeping all else constant)?

- A technological advance in the methods of producing tires: Increase -A decline in the number of firms in the tire industry: Decrease -An increase in the prices of rubber used in the production of tires: Decrease -The expectation that the equilibrium price of auto tires will be lower in the future than currently: -A decline in the price of large tires used for semi trucks and earth-hauling rigs, a substitute in production (with no change in the price of auto tires): Increase -The levying of a per-unit tax on each auto tire sold: Decrease -The granting of a 50-cent-per-unit subsidy for each auto tire produced: Increase

Indicate whether a change in the value of each of the following determinants of demand leads to a movement along the demand curve or a shift in the demand curve.

-Change in market price: Movement along demand curve -Change in income: Shift in demand curve -Change in consumer expectations: Shift in demand curve -Change in the price of a related good: Shift in demand curve -Change in the price of an unrelated good: No change -Change in preferences for this good: Shift in demand curve

Which of the following characteristics lead to a downward-sloping demand curve?

-Diminishing marginal utility -An increase in purchasing power as market price decreases

Which of the following characteristics leads to an upward-sloping supply curve?

-Increasing opportunity costs -Increasing marginal costs -Increase labor productivity ?

What effect will each of the following have on the demand for small automobiles such as the Mini-Cooper and Fiat 500?

-Small automobiles become more fashionable: Increase -The price of large automobiles rises (with the price of small autos remaining the same): Increase - Income declines and small autos are an inferior good: Increase -Consumers anticipate that the price of small autos will greatly come down in the near future: -The price of gasoline substantially drops: Cannot be determined

In 2001 an outbreak of hoof-and-mouth disease in Europe led to the burning of millions of cattle carcasses. What impact do you think this had on the following?

-The supply of cattle hides: Decrease -Hide prices: Increase -The supply of leather goods: Decrease -The price of leather goods: Increase

Which statement is consistent with the law of demand?

A reduction in market price will lead to an increase in quantity demanded.

For each stock in the stock market, the number of shares sold daily equals the number of shares purchased. That is, the quantity of each firm's shares demanded equals the quantity supplied. So, if this equality always occurs, why do the prices of stock shares ever change?

Prices change in reaction to a mismatch between quantity demanded and quantity supplied.

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

Statement B

A price ceiling will result in a shortage only if the ceiling price is (less than) the equilibrium price.

less than