Econ 2113 Exam 1 Study Guide

When economists make normative statements, they are a. speaking as scientists. b. speaking as policy advisers. c. making claims about how the world is. d. making claims that can be either confirmed or refuted.

B - All other answers describe positive statements.

Consider the market for oranges. If the number of orange sellers increases and the price of apples falls (assuming apples and oranges are substitutes), what will be the change in equilibrium price and quantity? a. Equilibrium price will increase. It is not clear whether equilibrium quantity will increase or decrease. b. Equilibrium price will decrease. It is not clear whether equilibrium quantity will increase or decrease. c. Equilibrium quantity will increase. It is not clear whether equilibrium price will increase or decrease. d. Equilibrium quantity will decrease. It is not clear whether equilibrium price will increase or decrease.

B - More sellers means supply will increase, which will increase equilibrium quantity and decrease equilibrium price. Cheaper apples will decrease demand, which will decrease equilibrium quantity and decrease equilibrium price. Since both changes decrease price, we know that price will fall. Both changes push quantity in opposite directions, so the total change in quantity is unclear without knowing the relative size of the supply and demand shifts

Which of the following will not shift the supply curve for cat food? a. Input prices rise. b. The number of sellers in the market increases. c. The price of cat food rises. d. All of the above will shift the supply curve for cat food.

C - A change in the price of cat food will cause movement along the curve and a change in quantity supplied. It will not shift the entire supply curve.

Which of the following events would cause an increase in the supply of ceiling fans? a. The number of sellers of ceiling fans decreases. b. There is an increase in the price of air conditioners, and consumers regard air conditioners and ceiling fans as substitutes. c. There is a decrease in the price of the motor that powers ceiling fans. d. All of the above will cause an increase in the supply of ceiling fans.

C - A decrease in the number of sellers will decrease supply. A change in the price of air conditioners will shift demand, but not supply.

Which of the following might cause the supply curve for a good to shift to the right? a. An increase in input prices. b. A decrease in consumer income. c. An improvement in production technology that makes production of the good cheaper. d. A decrease in the number of sellers in the market.

C - An increase in input prices and a decrease in the number of sellers in the market will both decrease supply, shifting the curve to the left. A change in consumer income influences demand, not supply.

Consider the market for Coca-Cola. Which of the following events will increase the equilibrium quantity of Coca-Cola produced? a. Wages rise for workers at Coca-Cola. b. Buyers expect that the price of Coca-Cola will fall in the near future. c. The price of Pepsi increases, and Pepsi is a substitute for Coca-Cola. d. Incomes rise, and Coca-Cola is an inferior good.

C - An increase in wages will decrease supply, which decreases equilibrium quantity. If buyers expect the price to fall in the future, they will buy less today, decreasing demand. Similarly, if Coke is an inferior good, increasing income will also decrease demand. Decreasing demand will decrease equilibrium quantity

Which of these statements best represents the law of demand? a. When buyers' tastes for a good increase, they purchase more of the good. b. When income levels increase, buyers purchase more of most goods. c. When the price of a good increases, buyers purchase less of the good. d. When the price of a good increases, buyers purchase more of the good.

C - Answers a. and b. describe an increase in demand, while the law of demand refers to how price influences quantity demanded. Answer D is backwards

Consider the market for cars. If the number of car producers decreases and the price of gasoline (a complement to cars) rises, what will be the change in equilibrium price and quantity? a. Equilibrium price will increase. It is not clear whether equilibrium quantity will increase or decrease. b. Equilibrium price will decrease. It is not clear whether equilibrium quantity will increase or decrease. c. Equilibrium quantity will increase. It is not clear whether equilibrium price will increase or decrease. d. Equilibrium quantity will decrease. It is not clear whether equilibrium price will increase or decrease.

D - Fewer car producers will decrease supply, which decreases equilibrium quantity and increases equilibrium price. Increasing the price of a compliment decreases demand, which decreases equilibrium quantity and decreases equilibrium price. This means quantity certainly decreases but the effect on price depends on the relative size of the supply and demand shifts.

B. Incomes fall due to a recession, and jeans are a normal good.

Demand decreases, so price decreases and quantity decreases.

E. The New York Times reports that jean makers have been using slave labor to make their products.

Demand decreases, so price decreases and quantity decreases.

G. The price of denim jackets (which, somewhat inexplicably, are a complement of jeans) increases and wages jean makers must pay their workers falls.

Demand decreases, which causes price and quantity to decrease. Supply also increases, which causes price to decrease and quantity to increase. Both changes decrease price so we are sure price falls. Since the changes push quantity in opposite directions, the effect on quantity is unclear.

B. Sport utility vehicles (SUVs) become more expensive.

Demand increases, so price increases and quantity increases.

C. Cable news reports that minivans score higher on crash safety tests than any other vehicle category.

Demand increases, so price increases and quantity increases.

D. Angelina Jolie and Brad Pitt name their next adopted child Denim, which makes jeans cool for some reason.

Demand increases, so price increases and quantity increases.

F. The number of buyers in the minivan market rises.

Demand increases, so price increases and quantity increases.

F. The price of khakis increases and the number of sellers in the jean market decreases.

Demand increases, which causes price and quantity to increase. Supply also decreases, which causes price to increase and quantity to decrease. Both changes increase price so we are sure price rises. Since the changes push quantity in opposite directions, the effect on quantity is unclear.

Which of the following statements is true? a. If there is excess demand at the current price, the price will fall as it moves to equilibrium. b. If there is excess supply at the current price, the price will fall as it moves to equilibrium. c. When the price is set above equilibrium, there will be excess supply in the market. d. Excess supply is the same thing as a shortage, and excess demand is the same thing as a surplus. e. Both a. and c. are true. f. Both b. and c. are true. g. Both b. and d. are true. h. b., c., and d. are all true. i. a., c., and d. are all true.

F - Answer a. is incorrect because excess demand will put upward pressure on prices. Answer d. is incorrect because excess demand is the same as a shortage while excess supply is the same thing as a surplus.

C. The price of denim rises.

Supply decreases, so price increases and quantity decreases.

G. The price of gas rises. Gas is an input in the production of minivans. Gas and minivans are also complements for consumers.

Supply decreases, which causes price to increase and quantity to decrease. Demand also decreases, which causes price and quantity to decrease. Both changes decrease quantity so we are sure quantity falls. Since the changes push price in opposite directions, the effect on price is unclear.

E. Minivan producers expect that the price of minivans will rise in the near future and minivan buyers also expect that the price of minivans will rise in the near future.

Supply decreases, which causes price to increase and quantity to decrease. Demand also increases, which causes price and quantity to increase. Both changes increase price so we are sure price rises. Since the changes push quantity in opposite directions, the effect on quantity is unclear.

Consider the market for jeans. How would each event or series of events influence equilibrium price and quantity in this market? A. A new technology makes it less costly to produce jeans.

Supply increases, so price decreases and quantity increases.

Consider the market for minivans. How would each event or series of events influence equilibrium price and quantity in this market? A. The price of steel falls.

Supply increases, so price decreases and quantity increases.

D. The number of sellers in the minivan market increases and incomes rise (minivans are a normal good).

Supply increases, which causes price to decrease and quantity to increase. Demand also increases, which causes price and quantity to increase. Both changes increase quantity so we are sure quantity rises. Since the changes push price in opposite directions, the effect on price is unclear.