Economics Unit 2

1ST GRAPH ON PG 90 Refer to the graph provided. A price floor set at $5 will result in a. a shortage of 100 units b. a surplus of 100 units c. a shortage of 200 units d. a surplus of 200 units e. a surplus of 50 units

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Draw a correctly labeled graph illustrating hypothetical supply and demand curves for the U.S. automobile market. Label the equilibrium price and quantity. Suppose the government institutes a quota to limit automobile production. Draw a vertical line labeled Qineffective to show the level of a quota that would have no effect on the market. Draw a vertical line labeled Qeffective to show the level of a quota that would have an effect on the market. Shade in and label the deadweight loss resulting from the effective quota.

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GRAPH PG 91 Refer to the graph to answer the following questions. A. what are the equilibrium wage and quantity of workers in this market? B. For it to have an effect, where would the government have to set a minimum wage? C. If the government set a minimum wage at $8, 1. how many workers would supply their labor? 2. How many workers would be hired? 3. How many workers would want to work that did not want to work for the equilibrium wage? 4. How many previously employed workers would no longer have a job?

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Quotas lead to which of the following? 1. Inefficiency due to missed opportunities 2. Incentives to evade or break the law 3. A surplus in the market a. 1 b. 2 c. 3 d. 1 and 2 e. 1, 2, and 3

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To be effective, a price ceiling must be set l. above the equilibrium price ll. in the housing market lll. to achieve the equilibrium market quantity. a. l b. ll c. lll d. l, ll, and lll e. None of the above

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True or False? Explain your answer. A price ceiling below the equilibrium price in an otherwise efficient market does the following; A. increases quantity supplied B. makes some people who want to consume the good worse off C. makes all producers worse off

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USE FIGURE 9.1 PG93 Again replicate the graph. Suppose that the quota is 8 million rides and that demand decreases due to a decline in tourism. Show on your graph the smallest parallel leftward shift in demand that would result in the quota no longer having an effect on the market

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USE FIGURE PG 93. Sply and demand for taxi rides is given by figure 9.1 and a quota is set at 6 million rides. Replicate the graph from figure 9.1 and identify each of the following on your graph: A. the price of a ride B. the quota rent C. the deadweight loss resulting from the quota. Suppose the quota on taxi rides is increased to 9 million. D. What happens to the quota rent and the deadweight loss?

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In the following three situations, the market is initially in equilibrium. After each event described below, does a surplus or shortage exist at the original equilibrium price? What will happen to the equilibrium price as a result? A. in 2014 there was a bumper crop wine grapes B. After a hurricane, Florida hoteliers often find that many people cancel their upcoming vacations, leaving them with empty hotel rooms. C. After a heavy snowfall, many people want to buy second-hand snowblowers at the local tool shop.

A. Shortage, equilibrium price will increase. B. Surplus, equilibrium price will decrease. C. Shortage, the price increases.

Create a table with two hypothetical prices for a good and two corresponding quantities demanded. Choose the prices and quantities so that they illustrate the law of demand. Using your data, draw a correctly labeled graph showing the demand curve for the good. Using the same graph illustrate an increase in demand for the good.

As the price rises the quantity demanded lowers so at $2, the quantity demanded would be 3 billion and at $2.50 the quantity demanded would be like 2 billion. the curve would be sloped downward, high on the left and low on the right. If their was an increase in demand the entire graph would shift to the right and the prices wouldn't change.

Which of the following is true? A. A surplus occurs when the quantity demanded is greater than quantity supplied and price is above equilibrium its level. B. A shortage occurs when the quantity demanded is grater than the quantity supplied and price is above equilibrium its level C. A surplus occurs when the quantity supplied is greater than the quantity demanded and price is above its equilibrium level. C. A surplus occurs when the quantity supplied is greater than the quantity demanded and price is above its equilibrium level. D. A shortage occurs when the quantity supplied is greater than the quantity demanded and price is below its equilibrium level. E. Shortages and surpluses rarely happen in markets.

C. A surplus occurs when the quantity supplied is greater than the quantity demanded and price is above its equilibrium level.

Which of the following is certainly true if demand and supply increase at the same time? A. the equilibrium price will increase B. The equilibrium price will decrease C. The equilibrium quantity will increase. D. The equilibrium quantity will decrease E. The equilibrium quantity may increase, decrease, or stay the same.

C. The equilibrium quantity will increase. More people want the good and more is available to be bought.

Explain whether each of the following events represents (i) a change in supply or (ii) a movement along the supply curve. A. during a real estate boom that causes house prices to rise, more homeowners put their houses up for sale B. Many strawberry farmers open temporary roadside stands during harvest season, even though prices are usually low at that time. C. immediately after the school year begins, fewer young people are available to work. Fast-food chains must raise wages, which represents the price of labor, to attract workers. D. Many construction workers temporarily move to areas that have suffered hurricane damage, lured by higher wages. E. since new technologies have made it possible to build larger cruise ships (which are cheaper to run per passenger) Caribbean cruise lines have offered more cabins, at lower prices, than before.

A. (ii) a movement along the supply curve because their is an increase in prices leading to an increase in quantity supplied. B. is (i) a change in supply because the amount of strawberries supplied changed shifting the graph outward regardless of the price C. The number of producers decreased so the graph would shift to the left D. (ii) a movement along the supply curve because the quantity demanded increased at the same time as the price. E. (i) a change in supply because the number of cruise ships increased regardless of price.

The equilibrium price will rise, but the equilibrium quantity may increase, decrease, or stay the same if A. Demand increases and supply decreases B. Demand increases and supply increases C. demand decreases and supply increases D. demand decreases and supply decreases E. Demand increases and supply does not change

A. Demand increases and Supply decreases

If a price is below equilibrium, which of the following will result A. Quantity demanded will increase quantity supplied will decrease and a shortage will exist. B. Quantity demanded will decrease, quantity supplied will increase and a shortage will exist. C. Quantity demanded will increase and quantity supplied will decrease and a surplus will exist. D. Quantity demanded will decrease and quantity supplied will increase and a surplus will exist. E. Quantity demanded will decrease and quantity supplied will decrease and a shortage will exist.

A. Quantity demanded will increase quantity supplied will decrease and a shortage will exist.

What is key to assure that all sales and purchases in a market will arrive at the equilibrium price? A. The market should be a tourist market B. The consumers are not aware of the different sellers in the market C. The market is well established and ongoing D. There is no communication in the market E. The market is online

C. The market is well established and ongoing

A decrease in technology, a decrease in input prices, and a decrease in the number of sellers in the marketplace will lead to which of the following? A. an increase in the quantity supplied B. a decrease in the quantity supplied C. AN increase in demand D. an increase in supply E. A decrease in supply

E. A decrease in supply

Draw a correctly labeled graph showing the demand for apples. On your graph, illustrate what happens to the demand for apples if a new report from the Surgeon General finds that an apple a day really does keep the doctor away.

The whole graph would shift to the right.

The Law of demand and downward sloping demand curve tell us what?

There is an inverse relationship between price and quantity demanded.

USE GRAPH PG 97 If the government established a quota of 1000 in this market, the demand price would be a. less than $4 b. $4 c. $6 d. $8 e. more than $8

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If an increase in income leads to a decrease in demand. the good is a. a complement b. a substitute c. inferior d. abnormal e. normal

c. inferior

An increase in demand is shown on a graph by

shifting the demand curve to the right

2ND GRAPH PG 90 Refer to the graph provided. If the government establishes a minimum wage at $10, how many workers will benefit from the higher wage? a. 30 b. 50 c. 60 d. 80 e. 110

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2ND GRAPH PG 90 Refer to the graph. With a minimum wage of $10, how many workers are unemployed (would like to work, but are unable to find a job)? a. 30 b. 50 c. 60 d. 80 e. 110

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Draw a correctly labeled graph of a housing market in equilibrium. On your graph, illustrate an effective legal limit (ceiling) on rent. Identify the quantity of housing demanded, the quantity of housing supplied, and the size of the resulting surplus or shortage.

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Draw a correctly labeled graph of the market for taxicab rides. On the graph, draw and label a vertical line showing the level of an effective quota. Label the demand price, the supply price, and the quota rent.

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Effective price ceilings are inefficient because they a. create shortages b. lead to wasted resources c. decrease quality d. create black markets e. do all of the above

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What causes a change in quantity demanded?

Price of the good.

Draw a correctly labeled graph showing the market for cups of coffee in equilibrium. On your graph, show the effect of a decrease in the price of coffee beans on the equilibrium price and the equilibrium quantity in the market for cups of coffee.

Supply would increase leading to a decrease in equilibrium price and an increase in equilibrium quantity.

Explain whether each of the following events represents (i) a change in demand (a shift of the demand curve) or (ii) a movement along the demand curve (a change in the quantity demanded) a. A store owner finds that customers are willing to pay more for umbrellas on rainy days. b. When XYZ Telecom, a long-distance telephone service provider, offered reduced rates on weekends, its volume of weekend calling increased sharply. c. People buy more long-stem roses the week of Valentine's Day, even though the prices are higher than at other times during the year. d. a sharp rise in the price of gasoline leads many commuters to join carpools in order to reduce their gasoline purchases.

A. (I) There would be a rightward shift in the demand curve because people are willing to pay anything for the umbrellas and their is an increased desire for production. B. (ii) There would be a shift on the curve because as the price went down the quantity of demand increased. C. (I) there would be a rightward shift because regardless of the price demand increases at Valentine's day. D. (ii) There would be movement along the curve because as the price increased the quantity of demand decreased.

When demand decreases and supply increases by differing degrees, what do we know is true? A. Equilibrium price rises and quantity decreases B. Equilibrium price decreases and quantity change is indeterminate C. Equilibrium quantity increases and price is indeterminate D. Equilibrium price and quantity stay the same E. Equilibrium price and quantity always rise

B. Equilibrium price decreases and quantity change is indeterminate

Which of the following will lead to an increase in the equilibrium price of "X" A "(n) A. increase in consumer income if product "X" is an inferior good B. increase in the price of machinery used to produce product "X" C. technological advance in the production of good "X" D. decrease in the price of good "Y" (a substitute for good "X") E. expectation by consumers that the price of good "X" is going to fall

B. The price of making the good goes up because the input machinery is more expensive. This means supply will shift to the left increasing the equilibrium price and decreasing the equilibrium quantity.

Which of the following is true of supply? A. An increase in technology will lead to a decrease in supply causing the supply curve to shift left. B. A decrease in the number of sellers in the market will lead to an increase in supply leading to a shift of the supply curve to the right. C. A change in price will lead to a change in quantity supplied and movement along the existing supply curve. D. An increase in price will lead to a decrease in supply causing a shift of the supply curve to the left. E. A decrease in the price of a good will lead to an increase in supply causing a shift of the supply curve to the right.

C. A change in price will lead to a change in quantity supplied and movement along the existing supply curve.

Expectations among hiking boot makers that boot prices will rise significantly in the future will lead to which of the following now? A. an increase in boot supply B. No change in boot supply C. A decrease in boot supply D. a movement to the left along the boot supply curve. E. a movement to the right along the boot supply curve

C. A decrease in boot supply today

All of the following would decreased demand for the latest style furry boots except: A. The price of shoes goes down B. People prefer boots without fur C. The price of the furry boots goes up D. People expect the boots to go out of style soon E. The weather forecast is for a very warm winter.

C. The price of the furry boots goes up because this would be movement along the curve not a shift. (also not a because remember shoes are a substitute)

On the way to the supermarket the tractor trailer carrying peaches tips over and spills peaches all over the highway. The result will be A. The quantity supplied of peaches goes down and the price of peaches goes down. B. The quantity demanded of peaches goes up and the price of peaches goes down. C. The supply of peaches goes down and the price of peaches goes up. D. The supply of peaches goes down and the price of peaches goes down. E. The demand for peaches goes up and the price of peaches goes up.

C. The supply of peaches goes down and the price of peaches goes up.

A decrease in the price of toothpaste in a tube can lead to a decrease in the purchases of toothpaste in a pump. This means A. Toothpaste in a tube and in a pump are substitute goods and the demand curve for toothpaste in a tube will shift right. B. Toothpaste in a tube and in a pump are complimentary goods and the demand curve for toothpaste in a tube will shift right. C. Toothpaste in a tube and a pump are substitute goods and the demand curve for toothpaste in a pump will shift left. D. Toothpaste in a tube and in a pump are complimentary goods and the demand curve for toothpaste in a tube will shift left. E. Toothpaste in a tube and complimentary goods and the demand curve for both toothpastes will shift left.

C. Toothpaste in a tube and a pump are substitute goods and the demand curve for toothpaste in a pump will shift left

When the price in a market is above equilibrium the likely result is

a surplus

A decrease in the price of butter would most likely decrease the demand for a. margarine b. bagels c. jelly d. milk e. syrup

a. margarine because they are substitutes.

USE GRAPH PG 89On game days, homeowners near Middletown University's stadium used to rent parking spaces in their driveways to fans at a going rate of $11. A new town ordinance now sets a maximum parking fee at $7. Use the accompanying supply and demand graph to show how each of the following can result from the price ceiling. A. Some homeowners now think it's not worth the hassle to rent out spaces. B. Some fans who used to carpool to the game now drive alone. C. Some fans can't find parking and leave without seeing the game. Explain how each of the following adverse effects arises from the price ceiling. D. some fans now arrive several hours early to find parking. E. Friends of homeowners near the stadium regularly attend games, even if they aren't big fans. But some serious fans have given up because of the parking situation. F. Some homeowners rent spaces for more than $7 but pretend that the buyers are nonpaying friends or family.

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USE GRAPH PG 97 If the government established a quota of 1000 in this market, the quota rent would be a. $2 b. $4 c. $6 d. $8 e. more than $8

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USE GRAPH PG 97 If the government established a quota of 1000 in this price market, the supply price would be a. less than $4 b. $4 c. $6 d. $8 e. more than $8

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USE THE GRAPH ON PAGE 89 The state legislature mandates a price floor for gasoline of PsubF per gallon. Assess the following statements and illustrate your answer using the figure provided. A. proponents of the law claim it will increase the income of gas station owners. Opponents claim it will hurt gas station owners because they will lose customers. B. proponents claim consumers will be better off because gas stations will provide better service. Opponents claim consumers will be generally worse off because they prefer to buy gas at cheaper prices. C. Proponents claim that they are helping gas station owners without hurting anyone else. Opponents claim that consumers are hurt and will end up doing things like buying gas in a nearby state or on the black market.

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Which of the following would decrease the effect a quota has on the quantity sold in a market? a. decrease in demand b. increase in supply c. increase in demand d. price ceiling above the equilibrium price e. none of the above

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Suppose that the Food and Drug Administration has written an article stating green tea reduces heart disease and many illnesses. What might be the immediate effect seen in the economy? A. The demand for green tea would increase, forcing the price to go up. B. The quantity demanded for green tea would increase, forcing the price to go up. C. The quantity supplied of green tea would increase, forcing the price to go up. D. The supply of green tea would increase, forcing the price to go down E. The quantity supplied for green tea would go down, forcing the price to go up.

A. The demand for green tea would increase, forcing the price to go up.

Tesla Moters makes sports cars powered by lithium batteries. A. Draw a correctly labeled graph showing a hypothetical supply curve for Tesla sports cars. B. On the same graph, show the effect of a major new discovery of lithium that lowers the price of lithium C. Suppose Tesla Motors expects to be able to sell its cars for a higher price next month. Explain the effect that will have on the supply of Tesla cars this month.

A. The graph would have an upward slope with price on the vertical axis and quantity supplied on the horizontal. The quantity supplied would increase as the price of the cars went up. B. The supply curve would shift to the right because the price of the input decreased so production would increase. C. The graph will shift to the left because the supply will decrease for today as tesla will hold some of their cars to sell at a higher price in the future.

Which of the following will increase the demand for disposable-diapers? a. a new "baby-boom" b. concern over the environmental effects of landfills c. a decrease in the price of cloth diapers d. a move toward earlier potty training of children e. a decrease in the price of disposable diapers

A. a new "baby-boom". This is an increase in demand (not quantity demanded) regardless of the price of the diapers.

An increase in the number of buyers and a technological advance will cause A. demand to increase and supply to increase B. demand to increase and supply to decrease C. demand to decrease and supply to increase D. demand to decrease and supply to decrease E. No change in demand and an increase in supply

A. demand to increase and supply to increase

Suppose AP Economics students at your school offer tutoring services to students in regular economics courses. A. Draw a correctly labeled graph showing the supply curve for tutoring services measured in hours. Label the supply curve S1. B. Suppose the wage paid for babysitting, an alternative activity for AP Economics students, increases. Show the effect of this wage increase on the graph you drew for part a. Label the new supply curve S2. C. suppose instead that the number of AP Economics students increases. Show the effect of this increase of AP Economics students on the same graph you drew for parts A and B. Label the new supply curve S3.

A. the graph would be upward sloping with number of hours on the horizontal and price on the horizontal. The more hours of tutoring purchased the higher the cost per hour. B. The graph will shift to the left to because fewer producers C. The graph would shift to the right due to the increased producers.

Periodically, a computer chip maker like Intel introduces a new chip that is faster than the previous one. In response, demand for computers using the older chip decreases as customers put off purchases in anticipation of machines containing the new chip. Simultaneously, computer makers increase their production of computers containing the earlier chip in order to clear out their stocks of those chips. Draw two diagrams of the market for computers containing the earlier chip: (a) one in which the equilibrium quantity falls in response to these events and (b) one in which the equilibrium quantity rises. What happens to the equilibrium price in each diagram?

A. the shift in the demand curve must be bigger than the supply curve for equilibrium quantity to decrease. The equilibrium price will be lower. B. The shift in the supply curve must be much larger than the demand curve. The equilibrium price will decrease.

After each of the following events, will the supply curve for the good that is mentioned shift to the left, shift to the right, or remain unchanged? A. the coffee berry borer beetle destroys large quantities of coffee berries. B. Consumers demand more bike helmets than ever. C. the number of tea-producers increases D. The price of leather, an input in wallet production, increases

A. the supply curve will shift to the left because the price for the input (berry) will increase and producers will make less of it. B. The graph won't shift but the point will move along the curve because the quantity demanded increased ?????????????????????????????????????? C. The supply curve will shift to the right because the number of producers increases. D. The supply curve will shift to the left because the cost to make the good will go up so they will produce less.

For each of the following examples, explain how the indicated change affects supply or demand for the good in question and how the shift you describe affects the equilibrium price and quantity. A. As the price of gasoline fell in the United States during the 1990's, more people bought large cars. B. Technological innovation in the use of recycled paper has lowered the cost of paper production. C. When a local cable company offers cheaper pay-per-view films, local movie theaters have more unfilled seats.

A. the supply stayed the same and the demand increased. The equilibrium price increased and the equilibrium quantity increased for large cars. B. Supply increased making the equilibrium price decrease and quantity increase. C. Demand decreased so the equilibrium price decreased and the equilibrium quantity decreased.

A technological advance in textbooks production will lead to which of the following? A. A decrease in textbook supply B. An increase in textbook demand C. An increase in textbook supply D. A movement along the supply curve for textbooks E. An increase in textbook prices

C. an increase in textbook supply

Starch from the stalks of potato plants is used to make packing peanuts, a complement in production. A decrease in potato demand that lowers potato prices will cause which of the following in the package-peanut market? A. an increase in supply and no change in demand B. An increase in supply and a decrease in demand C. A decrease in both demand and supply D. A decrease in supply and no change in demand E. A decrease in supply and an increase in demand

D. A decrease in supply and no change in demand. (If you make less potatos you will make fewer packing peanuts)

An increase in technology, a decrease in input prices, and in increase in the number of sellers in a marketplace will lead to which of the following? A. An increase in the quantity supplied B. A decrease in the quantity supplied C. An increase in demand D. An increase in supply E. A decrease in supply

D. An increase in supply

Which of the following describes what will happen in the market for tomatoes if a salmonella outbreak is attributed to tainted tomatoes? A. Supply will increase and Price will increase. B. Supply will decrease and price will decrease. C. Demand will decrease and price will increase. D. Demand will decrease and price will decrease. E. Supply and Demand will both decrease.

D. Demand will decrease and price will decrease.

When the demand for a good or service increases, the result is which of the following? A. Equilibrium price decreases and quantity increases. B. Equilibrium price increases and quantity decreases. C. Equilibrium price and quantity both decrease D. Equilibrium price increases and quantity increases. E. Equilibrium price and quantity remain the same.

D. Equilibrium price increases and quantity increases.

What has to occur for a market to be in equilibrium? A. S>D B. S<D C. Operate on the PPC Curve D. Qs=Qd E. There is no market clearing price

D. Qs=Qd

If price is above equilibrium, which of the following will result? A. Quantity demanded will increase, quantity supplied will decrease and a shortage will exist. B. Quantity demanded will decrease, quantity supplied will increase and a shortage will exist C. Quantity demanded will increase and quantity supplied will decrease a surplus will exist D. Quantity demanded will decrease and quantity supplied will increase and a surplus will exist. E. Quantity demanded will decrease and quantity supplied will decrease and a shortage will exist.

D. Quantity demanded will decrease and quantity supplied will increase and a surplus will exist.

Which of the following will decrease the supply of rice? A. There is a technological advance that affects the production of all goods. B. the price of rice falls C. The price of corn (which consumers regard as a substitute for rice) decreases. D. The wages of workers producing rice increase. E. the demand for rice decreases

D. The wages of workers producing rice increases becuase they represent an increase in input cost resulting in less product being made. Not B because that would be a movement along the curve.

An increase in the demand for steak, which increases the price of steak, will lead to an increase in which of the following? A. The supply of steak B. the supply of hamburger (a substitute in production) C. The supply of chicken (a substitute in consumption) D. the supply of leather (a compliment in production) E. the demand for leather

D. the supply of leather (a compliment in production) because cow farmers or whatever are increasing the number of cows slaughtered so they can make more steak and as a result more leather as well

Which of the following would increase demand for a normal good? A decrease in a. price b. income c. the price of a substitute d. consumer taste for a good e. the price of a complement

E. the price of a complement. since the price of the compliment decreased people are more willing to buy the other good.

Which of the following will occur if consumers expect the price of a good to fall in the coming months? a. the quantity demanded will rise today b. the quantity demanded will remain the same today c. demand will increase today d. demand will decrease today e. no change will occur today

d. demand will decrease today