MACRO 4

Consumers expect the price of bicycles to fall in the future.

demand, shifts left, equilibrium price and quantity fall

Consumers' incomes decrease, and bicycles are a normal good.

demand, shifts left, equilibrium price and quantity fall

An environmental movement shifts tastes toward bicycling.

demand, shifts right, equilibrium price and quantity rise

Consumers' incomes decrease, and bicycles are an inferior good.

demand, shifts right, equilibrium price and quantity rise

The price of automobiles increases.

demand, shifts right, equilibrium price and quantity rise

The prices of bicycle helmets and shoes are reduced.

demand, shifts right, equilibrium price and quantity rise

What would happen to the equilibrium price and quantity in the bicycle market if the demand for bicycles increases more than the increase in the supply of bicycles?

equilibrium price and quantity will rise

What would happen to the equilibrium price and quantity in the bicycle market if there were an increase in both the supply and the demand for bicycles?

equilibrium quantity will rise, equilibrium price is ambiguous

The price of steel used to make bicycle frames increases.

supply, shifts left, equilibrium price rises and equilibrium quantity falls

A technological advance in the manufacture of bicycles occurs.

supply, shifts right, equilibrium price falls and equilibrium quantity rises

What are the variables that should affect the amount of a good that consumers wish to buy, other than its price?

Income, prices of related goods, tastes, expectations, and number of buyers in the market.

Explain the law of demand.

Other things equal, price and quantity demanded of a good are negatively related.

Explain the law of supply.

Other things equal, price and quantity supplied of a good are positively related.

What are the two main characteristics of a perfectly competitive market?

The goods offered for sale are all the same, and the buyers and sellers are so numerous that no one buyer or seller can influence the price.

If there is a surplus of a good, is the price above or below the equilibrium price for that good?

The price must be above the equilibrium price.

Suppose suppliers of corn expect the price of corn to rise in the future. How would this affect the supply and demand for corn and the equilibrium price and quantity of corn?

The supply of corn in today's market would decrease (shift left) as sellers hold back their offerings in anticipation of greater profits if the price rises in the future. If only suppliers expect higher prices, demand would be unaffected. The equilibrium price would rise and the equilibrium quantity would fall.

What are the variables that should affect the amount of a good that producers wish to sell, other than its price?

The variables are input prices, technology, expectations, and number of sellers in the market.

Suppose there is an increase in consumers' incomes. In the market for automobiles (a normal good), does this event cause an increase in demand or an increase in quantity demanded? Does this cause an increase in supply or an increase in quantity supplied? Explain.

There would be an increase in the demand for automobiles, which means that the entire demand curve shifts to the right. This implies a movement along the fixed supply curve as the price rises. The increase in price causes an increase in the quantity supplied of automobiles, but there is no increase in the supply of automobiles.

Suppose there is an advance in the technology employed to produce automobiles. In the market for automobiles, does this event cause an increase in supply or an increase in the quantity supplied? Does this cause an increase in demand or an increase in the quantity demanded? Explain.

There would be an increase in the supply of automobiles, which means that the entire supply curve shifts to the right. This implies a movement along the fixed demand curve as the price falls. The decrease in price causes an increase in the quantity demanded of automobiles, but there is no increase in the demand for automobiles.

What is the difference between a normal good and an inferior good?

When income rises, demand for a normal good increases or shifts right. When income rises, demand for an inferior good decreases or shifts left.