MICROECONOMICS Chapter 3 & 4 Homework

(Figure: Price and Quantity 1) In the diagram, at which price is quantity demanded equal to the quantity supplied?

$50

(Figure: Oil) To produce 30 million barrels of oil per day, the minimum price per unit that producers in the diagram require is:

$60.

(Figure: Chocolate) What is the equilibrium price per pound in the diagram?

$8

Demand for a good or service increases when the consumer's income rises, regardless of whether the good is a normal good or inferior good.

False

In order for the gains of trade to be maximized, everyone whose willingness to pay for the good is greater than zero must receive it.

False

There is a positive relationship between price and quantity demanded.

False

For each of the following changes, determine whether there will be a change in supply (i.e., a shift of the supply curve) or a change in quantity supplied (i.e., no shift of the supply curve).

I, II, IV, and V are all supply shifters; the example in III is a price change that corresponds to a new quantity supplied on the same supply curve.

If the market price is above the equilibrium price, which of the following will occur?

Quantity supplied will exceed quantity demanded, and the market price will eventually fall.

If a market has a surplus, how will the market respond?

The price will fall and the quantity supplied will fall.

If the demand increases, what happens with the supply curve?

There is a movement rightward along the supply curve.

An increase in income increases the demand for normal goods.

True

At the free market equilibrium, the quantity demanded minus the quantity supplied equals zero.

True

NAFTA increased the supply curve of lumber in the United States.

True

Other things being equal, total consumer surplus falls when the market price rises.

True

When a shortage occurs, the market price increases.

True

With an equilibrium price of $10, a price of $10.99 would create an excess supply.

True

In the long run, will the market price for a good/service always equal the equilibrium price? Explain why or why not.

Yes, due to the invisible hand. If prices are too high (i.e., above the equilibrium price), excess supply drives the price down. If prices are too low (i.e., below the equilibrium price), excess demand drives price up.

For an inferior good, higher income results in:

a decrease in demand.

An increase in the quantity supplied results in:

a movement upward and to the right along the supply curve.

A decrease in production costs at any given quantity ______ supply.

increases

A farmer can grow soy or sorghum. If the price of soy increases, the opportunity cost of growing sorghum ______, shifting the supply curve of sorghum ______.

increases; up and to the left

Which variable is NOT a demand shifter?

price of raw materials

If demand decreases, ceteris paribus, the quantity exchanged will be ______ at the new market equilibrium point.

smaller

If the demand for good A increases when the price of good B increases, then good A and good B are:

substitutes for each other.

Total producer surplus equals:

the area above the supply curve and beneath the market price.