Econ 222 Chapter 4
Excess Demand
Occurs when consumers want more than suppliers provide at a given price. This situation results in a shortage.(below equilibrium)
Excess Supply
Occurs where the price of a good is higher than the equilibrium price, such that the quantity supplied is greater than the quantity demanded.
The price of insulin injection kitsinsulin injection kits, used by diabetic patientsused by diabetic patients, increased from $45 to $52, but consumption has still remained the same. In this situation, the Law of Demand __________.
does not hold, since the product sold is required for survival, so increasing the price did not affect consumption.
The concept of diminishing marginal benefits means that __________.
each additional unit consumed is worth less to you than the previous one.
Aggregation
economy-wide sums of individual behavior
Perfect Competitive Market
(1) sellers all sell an identical good or service, and (2) any individual buyer or any individual seller isn't powerful enough on his or her own to affect the market price
diminishing marginal benefit
As you consume more of a good, your willingness to pay for an additional unit declines
Which of the following statements are true? (Check all that apply.) A. A government price control will always cause the quantity demanded to exceed the quantity supplied. B. A binding price ceiling will always cause the quantity demanded to exceed the quantity supplied. C. A government price control can be used to bring markets into equilibrium. D. Equilibrium is attained when prices are allowed to respond to market pressure
B and D
Which of the following statements is true if the supply curve is curve shaped (nondash-linear)?
It is easier to expand production the higher the market price.
Which change causes a movement along the demand curve?
Price of the good itself
What does it mean to say that we are running out of "cheap oil"?
That oil reserves are becoming more expensive to find and extract over time.
What does this imply for the price of oil in the future?
The supply of oil will decrease, which will lead to higher prices in the future.
Which of the following is common between the supply schedule and the supply curve?
They give information about the quantity supplied at different prices.
If widespread unemployment leads to a drop in income, then the demand for the Toyota Rav4 SUV would __________.
decrease
competitive equilibrium
demand curve slopes down and the supply curve slopes up, the two curves have only one crossing point.
Suppose you have a flashlight that takes three batteries to power it. If you buy the batteries one at a time, for which purchase will diminishing benefits set in?
When you buy the fourth battery.
Market
a group of economic agents who are trading a good or service plus the rules and arrangements for trading.
Quantity Supplied
amount of a good or service sellers are willing to sell at a given price
Quantity Demanded
amount of a good that buyers are willing to purchase at a given price
Law of Demand
as the price of goods increase, quantity demanded decreases
The concept of diminishing marginal benefits ______ for goods that you like a lot.
holds true
A drought in the grape growing regions of the countrydrought in the grape growing regions of the country increases the cost of producing jellyjelly. At the same time, we see the price of peanut butterpeanut butter falls. Suppose that after both of these events the consumption of jellyjelly is left unchanged. In this situation, the Law of Demand __________.
holds, since the demand curves for both jellyjelly and peanut butterpeanut butter are downward-sloping; it is their shifts that are determining the impact on the quantity consumed.
If Honda decided to increase the price of its Honda CRV SUV, then the demand for the Toyota Rav4 SUV would __________.
increase
As a firm produces more of a good, the cost of producing each additional unit _______ This implies that the marginal cost of producing good _____ as you make more of that good.
increases decreases
Shifts in Supply Curve
input prices technology expectations number of sellers
Demand Curve
plots the relationship between prices and quantity demanded (again, holding all else equal). (negative slope)
Supply curve
plots the relationship between prices and quantity supplied (again, holding all else equal). (positive slope)
Law of Supply
price of a good or service increases, the quantity of goods or services that suppliers offer will increase
Aggregation consists of fixing the_________ and adding up the _____________ by each buyer
price of the good; quantity demanded
Market demand curve
sum of the individual demand curves of all potential buyers
Shifts in Demand curve
tastes and preferences income and wealth availability and prices of related goods (compliments and substitutes) number and scale of buyers buyers expectation about the future
The supply curve represents ___________.
the minimum price sellers are willing to accept to sell an extra unit of a good.
If Jay's Fruit Stand is able to charge considerably higher prices than other fruit stands with the same produce, it is likely that
there are no fruit stands in close proximity to Jay's.
