Econ 5

If both supply and demand decreased, but supply decreased more than demand, the result would be

a higher price and a lower equilibrium quantity.

An increase in the expected future price of a good by consumers would, other things being equal,

increase the current price and increase the current quantity exchanged.

Market prices communicate what important information to both buyers and sellers?

-relative value of resources -less valued to those that are more valued

Does an increase in demand create a shortage or surplus at the original price?

An increase in demand increases the quantity demanded at the original equilibrium price, but it does not change the quantity supplied at that price, meaning that it would create a shortage at the original equilibrium price.

Factors Affecting Supply

Price of inputs • Production technology • Number of producers • Expectations of producers • Prices of related goods and services

A price _____; is a legally established maximum price; a price _____ is a legally established minimum price.

ceiling; floor

A decrease in supply results in a(n)__________equilibrium price and a(n)_______equilibrium quantity.

higher;lower

Assume that airline travel is a normal good. Higher incomes would

increase both the price and the quantity of airline travel.

If supply decreases and demand increases, the equilibrium price will ______ and the equilibrium quantity will be ________

increase; indeterminate.

If a price floor was set at the current equilibrium price, which of the following would cause a surplus as a result?

-a decrease in demand -an increased in supply

Factors Affecting Demand

Price of a related good (complement or substitute) • Income of consumers • Tastes of consumers • Number of consumers • Expectations of consumers

The quality of rent-controlled apartments would tend to _____over time.

decline

An increase in demand results in a(n)_______equilibrium price and a(n)______equilibrium quantity.

greater;Greater

what do price floors and price ceilings reduce

the quantity exchanged in the market

Rent controls distort market signals and lead to ______ of rent-controlled apartments.

shortages

If the equilibrium price of wheat is $3 per bushel and then a price floor of $2.50 per bushel is imposed by the government,

there will be no effect on the wheat market.

Does an increase in supply create a shortage or surplus at the original price?

An increase in supply increases the quantity supplied at the original equilibrium price, but it does not change the quantity demanded at that price, meaning that it would create a surplus at the original equilibrium price.

Cold weather in the Midwestern and eastern United States increases the popularity of vacations in sunny California. At the same time, the hotel employees' union in California negotiates a significant pay increase for its members. The likely impact on the hotel market in California is:

An increase in the price of hotel rooms, but an uncertain effect on the quantity of hotel rooms rented

Assume a price floor is imposed at the current equilibrium price in the market for lettuce. If the demand for lettuce then increases:

The quantity of lettuce supplied will increase

What will happen if demand is greater than the current production schedule?

There will be shortages at the current price.

An increase in the minimum wage would tend to create _____ unemployment for low-skilled workers.

additional

Which of the following are true statements?

-Changes in demand will cause a change in the equilibrium price and/or quantity, ceteris paribus. -Changes in supply will cause a change in the equilibrium price and/or quantity, ceteris paribus. -Supply and demand curves can shift simultaneously in response to changes in both supply and demand determinants. -When simultaneous shifts occur in both supply and demand curves, we will be able to determine one, but not both, of the variables.

Which of the following will most likely occur with a 20 percent increase in the minimum wage?

-higher unemployment rates among young and low-skilled workers -the price floor (minimum wage) will be binding in the young and low-skilled labor market but not in the experienced and skilled labor market

Sellers compete to sell the surplus by reducing the price

As the price falls, the quantity demanded increases and the quantity supplied decreases along the new supply curve, until quantity supplied and quantity demanded are equal again at the new equilibrium quantity

What are the effects of a change in demand?

As the price increases, the quantity demanded decreases and the quantity supplied increases until quantity supplied and quantity demanded are equal again

Other things equal, a decrease in consumer income would

decrease the price and decrease the quantity of autos exchanged

when both demand and supply change

one of the two equilibrium values, price or quantity, will change in an indeterminate manner (increase or decrease), depending on the relative magnitude of the changes in supply and demand.

A current surplus is due to a price floor. If the price floor is removed,

price would decrease, quantity demanded would increase, and quantity supplied would decrease.

A current shortage is due to a price ceiling. If the price ceiling is removed,

price would increase, quantity supplied would increase, and quantity demanded would decrease

What would happen if a price ceiling is set below the equilibrium price?

quantity demanded will be greater than quantity supplied, resulting in a shortage at that price PRODUCERS WILL ONLY INCREASE THE QUANTITY SUPPLIED AT HIGHER PRICES

What would happen if a price floor is set above the equilibrium price?

quantity supplied will be greater than quantity demanded, causing a surplus at that price PRODUCERS WILL ONLY INCREASE THEIR QUANTITY DEMANDED AT LOWER PRICES

What would have to be true for both supply and demand to shift in the same time period?

, one or more of both the supply curve shifters and the demand curve shifters would have to change in that same time period.

What happens to the equilibrium price and quantity as a result of a demand increase?

Frustrated buyers unable to buy all they would like at the original equilibrium price will compete the market price higher, and that higher price will induce suppliers to increase their quantity supplied. The result is a higher market price and a larger market output.

Why are evening and weekend long-distance calls cheaper than weekday long-distance calls?

The demand for heating oil is higher in the cold winter months. The result of this higher winter heating oil demand, for a given supply curve, is higher prices for heating oil in the winter.

Assume that coffee and tea are substitutes for each other. If weather conditions cause a substantial portion of the available coffee crop to be destroyed, then

The price of tea will increase

What happens when both supply and demand shift in the same time period?

We can predict the change in one variable (price or quantity), but we are unable to predict the direction of the effect on the other variable with any certainty.

An increase in supply and a decrease in demand result in

a decrease in the equilibrium price because both the increase in supply and the decrease in demand work to push this price down

What does a binding price ceiling or binding price floor mean?

binding price ceiling occurs when the government sets a required price on a good or goods at a price below equilibrium. ... This results in an insufficient supply of those goods, creating a shortage in those goods. A binding price floor occurs when the government sets a required price on a good or goods at a price above equilibrium. Because the government requires that prices not drop below this price, that price binds the market for that good.

What is an indeterminate solution?

change in the second variable because it cannot be determined without additional information about the size of the relative shifts in supply and demand.

If you observed the price of a good decreasing and the quantity exchanged decreasing, it would be most likely caused by a(n)

decrease in demand.

If you observed the price of a good increasing and the quantity exchanged decreasing, it would be most likely caused by a(n)

decrease in supply.

If demand decreases and supply increases, but the decrease in demand is greater than the increase in supply, the equilibrium quantity will

decrease.