Econ 202 Chp 4

Peaches and cream are complements. When the price of peaches falls, and the price of raw milk rises,

The equilibrium price of cream rises and the equilibrium quantity of cream might rise or fall.

Bananas and apples are substitutes. When the price of bananas rises, and a technological advance in apple production occurs at the same time,

The equilibrium quantity of apples rises and the equilibrium price of apples might rise or fall.

If a technological advance makes it possible to produce bananas at a lower cost.

The supply of bananas increases.

When Mary's income increases, she purchases less hamburger. We can conclude that hamburger is:

an inferior good

The income effect of a price change implies that

as the price of a good falls, people are likely to buy more of all normal goods.

The substitution effect of a price change implies that as the price of a good falls, people are likely to:

buy more of the good

Suppose that people expect that the price of orange juice will fall next month. We would predict that the equilibrium quantity of orange juice will _____ and the equilibrium price of orange juice will _____ this month.

fall; fall

Suppose that steak is a normal good. When income decreases the equilibrium quantity of steak will ______ and the equilibrium price of steak will _____.

fall; fall

PEaches and cream are complements. When the price of peaches rises the equilibrium quantity of cream will ______ and the equilibrium price of cream will ______.

fall;fall

The law of supply states that:

firms supply more of a product as the price of the product rises

Suppose that bananas and apples are normal goods, and that the price of bananas falls. If the income effect outweighs the substitution effect, we would predict that people will consume ______ bananas and ______ apples.

more; more.

Becky demands more raisins as her income increases. From this, we can conclude that:

raisins are a normal good

Suppose that the price of fertilizer, an input in the production of corn, falls. We would predict that the equilibrium quantity of corn will ______ and the equilibrium price of corn will ______.

rise; fall

Bananas and apples are substitutes. When the price of bananas rises, the equilibrium quantity of apples will _____ and the equilibrium price of apples will _____.

rise; rise

Suppose that a freeze in California reduces the suppl of avocados. Avocados are an input in the production of guacamole, and guacamole is in turn a substitute for salsa. The equilibrium price of guacamole will _____ and the equilibrium price of salsa will ____.

rise; rise

Suppose that the population of a country increases. We would predict that the equilibrium quantity of steak will _____ and the equilibrium price of steak will _____ in that country.

rise; rise

Which of the following doesn't affect the quantity demanded of a product?

the cost of producing the product

Two goods are complements if:

the demand for one good decreases when the prices of the other increases.

suppose that a product benefits from a successful advertising campaign. The result is that:

the demand for the product increases

Suppose that ramen noodles are an inferior good. When income increases, and at the same time the price of pasta, an input in the production of ramen noodles, falls,

the equilibrium price of ramen noodles falls and the equilibrium quantity of ramen noodles might rise or fall.

Suppose that in 1996, 12 million cars were purchases at $15,000 each, while in 1997, 10 million cars were purchased at $12,000 each. What might have caused this change?

the price of airplane tickets (a substitute for cars) fell.

Suppose that in October the price of a cup of caffee latte was $1.50 and 400 lattes were consumed. In November the price of a latte was $2.00 and 200 lattes were consumed. What might have caused this change?

the price of coffee beans (an input of production of caffe lattes) rose

Suppose that the quantity supplied of pizza exceeds the quantity demanded for pizza. We would expect that:

the price of pizza will decrease.

The law of demand states that quantity demanded of a product increases as:

the price of the product falls

When the prices of apples goes up:

the quantity demanded for apples will decrease