Chapter 4 Reading and HW
According to the law of diminishing marginal benefit, as the consumption of a particular good increases:
marginal benefit decreases
When an individual's total benefit increases with the consumption of one more unit of an item, it must be true that the person's:
marginal benefit from consuming this unit is positive
Mary is a producer of water bottles. When the price is $10 per bottle, she supplies 100 bottles. 1. If the price falls to $7, she will _________ the quantity supplied to _______ bottles. 2. If the price rises to $15, she will _________ the quantity supplied to________ bottles. 3. The supply curve has a ________ slope.
1. decrease; 70 2. increase; 150 3. positive
As a firm produces more of a good, the cost of producing each additional unit ________. This implies that the marginal cost of producing a good _________ as you make more of that good.
1. increases 2. increases
A group of economic agents who are trading a good or service would define a _________. Price takers exist throughout _______ markets.
1. market 2. competitive
A demand curve has a ________ slope due to the Law of Demand. The Law of Demand is based off of a consumer's willingness to pay ________.
1. negative 2. less
A supply curve has a _______ slope due to the Law of Supply. The Law of Supply states that supplies ___________ as price increases.
1. positive 2. increases
The Law of Demand states that as the price of a good increases, ceteris paribus, the __________ decreases. This can be shown graphically with a ________ demand curve or numerically in a table using a _________.
1. quantity demanded 2. downward-sloping 3. demand schedule
An aggregated demand curve is created by summing the __________ on the individual demand _________.
1. quantity demanded at each price 2. curves
The table above indicates the demand schedules for four types of consumers: A, B, C, and D and the number of consumers in each group (top row). The quantity demanded by each type of consumer (QA, QB, QC, and QD) is shown for market prices ranging from $10 down to $4. What is the combined quantity demanded at a market price of $4?
10,400
Which of the following statements are true? (Check all that apply.)
A binding price ceiling will always cause the quantity demanded to exceed the quantity supplied. Equilibrium is attained when prices are allowed to respond to market pressure.
Which of the following will cause an outward (rightward) shift in supply?
A technological improvement.
Which of the following is consistent with the law of supply?
An increase in the market price of MP3 players causes an increase in the production of MP3 players.
Suppose the university is trying to determine the most efficient way to allocate the rooms such that those who value the rooms the most get them. Which of the following would you suggest as the most efficient?
Auctioning the rooms to the highest bidders.
In a perfectly competitive market, if one seller chooses to charge a price for its good that is slightly higher than the market price, then it will _________.
lose all or almost all of its customers.
Which of the following would not be considered a market by an economist?
All of the above are examples of a market.
Market price is determined by _________.
both supply and demand
Assume the cost of aluminum used by soft-drink companies increases. Which of the following correctly describes the resulting effects in the market for canned soft drinks? I. The demand for soft drinks decreases. II. The quantity of soft drinks demanded decreases. III. The supply of soft drinks decreases. IV. The quantity of soft drinks supplied decreases.
II and III
Consider the previous figure and assume that it is the market for health-care services. When the "baby boomer" generation retires, the number of people who require health care increases by 30%, and, as a result, the number of health-care providers also increases, but by only 25%. What is the effect on the price of health-care services over time?
It increases because demand increased by more than supply.
Which of the following statements is true if the supply curve is curve shaped (nondashlinear)?
It is difficult to expand production the higher the quantity supplied.
Two airlines serve the route between Tampa and Houston. What will happen to one airline if the other one raises its prices?
Its demand curve will shift to the right.
Which of the following is not a characteristic of a market?
Markets are physical locations where trading occurs
Are all markets perfectly competitive?
No, there are other market types where firms have considerable power to control the price.
The market for corn is initially in equilibrium. Suppose that the production of biofuels, which use corn as an input, increase, and at the same time, increases in the price of oil cause farm production costs to rise. Which of the following explains the effect on equilibrium price and quantity in the corn market?
The price of corn will rise, but the effect on equilibrium quantity cannot be determined without more information.
Which of the following is not one of the four major factors that shifts the supply curve when it changes?
The price of the good itself.
Washington state had a bumper apple crop this year, significantly increasing the supply of apples in the U.S. Given this information, choose the statement that correctly describes the effect on the U.S. apple market.
The quantity of apples demanded will increase as the price of apples falls.
The graph above shows the market for laptop computers. Suppose the price of memory chips used in laptop computers decreases. How will this event impact on the equilibrium quantity and the market price?
The supply increases, causing the equilibrium quantity to rise and the market price to fall.
Which of the following is common between the supply schedule and the supply curve?
They give information about the quantity supplied at different prices.
Which of the following represents an inferior good?
When consumer income increases, the demand for bologna decreases.
On the diagram shown above, a movement from A to B represents a:
a change in quality supplied
All of the following would cause a shift in the supply curve for orange juice, except
a new medical discovery about the benefits of citrus.
In response to a region-wide power outage cause by a hurricane, a retailer increases the price of generator from $350 to $2,900. The most likely purchaser would be
a restaurant owner, who has $3,500 worth of refrigerated food to save
Other things remaining equal, the law of demand says that higher prices will lead to:
a smaller quantity demanded and lower prices to a larger quantity demanded.
The condition that exists when quantity supplied exceeds quantity demanded at the current price is known as __________.
a surplus or excess supply
All of the following will decrease the supply of airline flights except:
a technological change that makes airplanes safer and more fuel-efficient.
Economists assume that when there is a change in demand and/or supply, that prices reach a new equilibrium:
after an adjustment period that varies.
On the diagram shown above, a movement from A to C represents __________.
an increase in demand
In a perfectly competitive market, sellers _________ and buyers _________.
cannot charge more than the market price; cannot pay less than the market price.
Economic models often simplify the real world by holding all things equal and changing one variable to determine the impact of the change. The "all things equal" assumption is also known as:
ceteris paribus
The figure shows the total utility (benefit) derived from consuming specific quantities of burgers. This graph of total utility (benefit) is also related to specific values of marginal utility (benefit) as you can see. Specifically, marginal utility (benefit) is:
greater at points u and v than at points w and x
A competitive market will
move towards equilibrium quantity because both producers and consumers act in their own best interest.
The relationship that exists between these two variables can be described as ________.
negatively related
Which change causes a movement along the demand curve?
price of the good itself
At the market equilibrium price:
quantity demanded equals quantity supplied.
Suppose a new off-campus university apartment complex could rent its rooms on the open market for $900 a month. If, instead, the university chooses to cap the price of rooms to $500 a month for students, the result would be that ____________.
quantity demanded would exceed the quantity supplied, resulting in a shortage.
The competitive equilibrium price equates
quantity supplied to quantity demanded.
In a price system:
relative prices change constantly to reflect changes in supply and demand.
When one of the four major factors changes, causing an increase in supply, the supply curve shifts _________.
rightward
If marginal benefit is positive, but falling, then total benefit:
rises at a decreasing rate
In the previous diagram, when supply decreases, a __________ develops at the original price. Equilibrium price will __________ and equilibrium quantity will __________ as a new equilibrium is established.
shortage; rise; fall
Holding all else constant, if the number of cell phone manufacturers suddenly decreased due to increased regulations, then
supply would shift leftwards, equilibrium price would increase, and equilibrium quantity would decrease.
In the previous diagram when the price is $65 per player, there is a _________ of _________ million players per month.
surplus; 40
If marginal benefit is negative, then:
total benefit falls
Given linear demand curves, if demand and supply both increase but demand increases by a greater amount than supply, then:
the equilibrium price and quantity both increase.
Given linear demand curves, if demand and supply increase by identical amounts, then:
the equilibrium price stays the same and the equilibrium quantity rises.
Given linear demand curves, if demand increases and supply decreases, then __________.
the equilibrium price will increase but the effect on the equilibrium quantity will be ambiguous
The supply curve represents ___________.
the minimum price sellers are willing to accept to sell an extra unit of a good.
The concept of diminishing marginal benefits states that
the more you consume of a good, your willingness to pay for an additional unit declines
The law of demand refers to ____.
the negative relationship between the price and the quantity demanded of a commodity
All of the following scenarios depict the characteristics of substitutes except:
the price of bacon increases and the demand for eggs decreases.
All of the following scenarios depict the characteristics of complements except:
the price of coffee increases and the demand for cream increases.
Which of the following scenarios represents the concept of diminishing marginal benefit?
Sam's willingness to pay for additional units of apples declines as he receives more of them.