Learnsmart Chapter 2

If the price of a good rises, this will cause:

an upward movement along the demand curve.

When a price floor is applied to a product and the government buys and discards the resulting surplus, the dead weight loss from the price floor______.

becomes larger.

A price ceiling is considered effective if it is set ______ the equilibrium price.

below

Select all that apply: In the following linear demand function, Qxd = α0 + αxPx + αyPy + αMM + αHH where Py is the price of related goods, M is income, and H is other factors, the value of αM is:

negative if good X is inferior and positive if good X is normal.

In the following linear demand function, Qxd = α0 + αxPx + αyPy + αMM + αHH where Py is the price of related goods, M is income, and H is other factors, the value of αy is:

negative if goods X and Y are complements, positive if goods X and Y are substitutes.

According to the law of supply, as the price of a good decreases:

quantity supplied decreases.

1. If the price of a good or service is less than the equilibrium price, a _______ exists. As a result, the price tends to _____

shortage; rise.

1. If the price of a good or service exceeds the equilibrium price, a _____exists. As a result, price tends to: _____.

surplus; fall

The demand function indicates that the quantity of a good consumed depends on:

the effect of the demand shifters, Price of the good, and Income of the buyers.

The following function, Qxs = f (Px, Pr, W, H), shows that the quantity produced in a market depends on the price of the good, Px, and:

the price of inputs such as labor costs, the value of other variables that affect supply such as taxes, and the price of technologically related goods.

In labor markets, an effective price floor creates:

unemployment.

Demand is given by: Qd = 20 - 3P. Supply is given by: Qs = 2 + 3P. If the government sets a price floor of $4 in this market and then agrees to buy up any surplus that exists, then the cost to the government will be equal to:

$24. (Cost to government: PFloor *(Quality S- Quantity D)

Demand is given by: Qd = 20 - 3P. Supply is given by: Qs = 2 + 3P. If the government imposes a $2.50 price ceiling on this market, then the full economic price paid by the consumers is equal to:

$3.50.

Which of the following describes supply and demand analysis?

A forecasting tool, A qualitative tool, and use to predict pricing trends.

Which of the following correctly depicts an increase in demand?

A rightward shift of the demand curve.

Which of the following is true according to the law of demand?

As market price increases, quantity demanded decreases and as market price decreases, quantity demanded increases.

What type of analysis studies the movement from one equilibrium to another?

Comparative static analysis.

What do economists use to describe the amount of good X that will be purchased at different prices of good X, at different prices of related goods, and at alternative income levels?

Demand function.

Which of the following expressions best describes full economic price?

Dollar price + Nonpecuniary price.

Other things remaining constant, when demand for a good or service decreases, which of the following occur(s)?

Equilibrium price decreases and equilibrium quantity decreases.

Suppose there is a drastic decrease in excise taxes levied against the suppliers of baseball equipment. What can we expect to see in the market for baseball bats?

Equilibrium price decreases and supply increases.

Other things remaining constant, when demand for a good or service increases, which of the following occur(s)?

Equilibrium price increases and equilibrium quantity increases.

Indicate which of the following events occur(s) in the market for dark chocolate when the government imposes a strict tariff on imported cocoa AND researchers release a credible study identifying huge health benefits to moderate, dark-chocolate consumption.

Equilibrium price increases and the effect on equilibrium quantity is unclear.

Which of the following occur(s) when the supply of a good or service decreases and demand remains the same?

Equilibrium quantity decreases and equilibrium price increases.

What can we predict about the market for craft beer if both demand and supply decrease simultaneously?

Equilibrium quantity decreases.

Which of the following occur(s) when the supply of a good or service increases but the demand remains the same?

Equilibrium quantity increases and equilibrium price decreases.

What is the economic condition where there is neither a surplus nor a shortage:

Equilibrium.

True or false: When a price floor applies to a product, rather than labor, the dead weight loss will always be less.

False.

Which of the following is an example of a price floor?

Minimum wage.

Comparative static analysis assumes which of the following?

No price ceilings, goods are allocated by price, and no price floors.

Consider the following demand function: Qd = 900 - 15P. Solve for the inverse demand function.

P = 60 - 1/15Qd

Consider the following demand function: Qd = 210 - 3P. Solve for the inverse demand function:

P = 70 - 13Qd

What type of price control will the government impose if it considers the equilibrium price to be too high?

Price ceiling.

Consider the following function: Qxs = 15Px - 300. Determine the inverse supply function:

Px = 20 + 115Qxs

Consider the following function: Qxs = 5Px - 200. Determine the inverse supply function.

Px = 40 + 15Qxs.

A binding price ceiling tends to create what type of condition in the market?

Shortage.

What happens to the supply of canned craft beer if brewers adopt a new technology that allows them to can more craft beer at a lower cost?

Supply increases.

What is the effect of a decrease in an ad valorem tax?

Supply increases.

Graphically, what area represents producer surplus?

The area above the supply curve and below the price.

Which area forms consumer surplus?

The area below the demand curve and above the price.

Which of the following does a market supply curve show?

The quantity that all producers are willing and able to produce at all prices.

True or false: Supply and demand analysis enables managers to see the "big picture".

True

The difference between what consumers are willing to pay for a good or service and the market price is known as:

consumer surplus.

1. According to the law of demand, as market price increases, quantity demand _______.

decreases.

1. When a surplus exists, there is a tendency for price to _______ in order to equate quantity demanded and quantity supplied.

fall

As input prices rise, producers are willing to produce ____ goods and services at all prices. As a result, supply ______.

less; decreases.

A price ceiling is defined as the ____ legal price that can be charged in the market.

maximum

A price floor is defined as the______ legal price that a firm can charge in a market.

minimum

Consider the following linear demand function where Py is the price of related goods, M is income, and H is other factors: Qxd = α0 + αxPx + αyPy + αMM + αHH, according to the law of demand, the value of αx is:

negative.

The difference between the market price and the amount at which producers are willing and able to sell a good is called ________ surplus.

producer

A function that describes the relationship between output and various prices of that output, prices of inputs, and values of other variables is called:

the supply function.