Microeconomics Exam 1 - Chapter 3

A

After discovering that flash-steaming tuna before using mechanical processes to extract meat removes more tuna flesh, more cans of tuna arrive on the shelves at all major grocers. shift or movement of supply curve?

B

Americans sell their gold and silver jewelry as a result of rising prices. shift or movement of supply curve?

A

Amplitude decides to join the smartphone market. shift or movement of supply curve?

Market Clearing

An assumption that prices are flexible, adjust to equate supply and demand.

A

Billy's mom increases his weekly allowance by $55. As a result, Billy increases the number of apps he downloads on his smartphone. normal or inferior good?

A

Hair stylist Molly loses a few of her clients. Molly cuts back on the number of smoothies she buys during the week. normal or inferior good?

B

Mike is an appliance salesman. Refrigerator sales in his store have fallen and so has his commission. Mike decides to switch from name brand cereal to generic cereal. normal or inferior good?

5 Shifters of Demand

NITER (# of buyers, increase in income, tastes and preferences, expectations of future prices, related G/S prices)

Demand Shifters for Supply Curve

NITER (# of sellers, input prices of LLC, Technology change, expectations of future, related G/S prices)

Substitute Goods

Products or services that can be used in place of each other. When the price of one falls, the demand for the other product falls; conversely, when the price of one product rises, the demand for the other product rises.

A

Students eat out more often as the federal government increases how much grant money it provides students. A)shift in demand curve B)movement along demand curve

C

Suppose the cost of lithium-ion batteries, an input into the production of electric vehicles, has dropped more steeply than expected. The accompanying graph depicts a market for electric vehicles. Demonstrate the effect of a reduction in the price of lithium-ion batteries by adjusting the accompanying diagram. Equilibrium price A)increases. B)may increase or decrease, but it is impossible to now for sure. C)decreases. D)does not change.

C

Suppose the cost of lithium-ion batteries, an input into the production of electric vehicles, has dropped more steeply than expected. The accompanying graph depicts a market for electric vehicles. Demonstrate the effect of a reduction in the price of lithium-ion batteries by adjusting the accompanying diagram. Equilibrium quantity A)may increase or decrease, but it is impossible to now for sure. B)does not change. C)increases. D)decreases.

B

Susan gets a 15 percent performance bonus at work. She can finally stop eating so many frozen pizzas and eat something more tasty. normal or inferior good?

Law of Supply

Tendency of suppliers to offer more of a good at a higher price

B

The U.S. government has subsidized ethanol production since 1978. With the advent of affordable electric cars, policymakers are considering whether to allow the subsidy to expire. The accompanying graph represents the market for ethanol. Move the supply and/or demand curves to show how reducing the subsidy will affect the ethanol market. Equilibrium price A)remains constant. B)increases. C)decreases. D)may increase or decrease, but it is impossible to know for sure.

D

The U.S. government has subsidized ethanol production since 1978. With the advent of affordable electric cars, policymakers are considering whether to allow the subsidy to expire. The accompanying graph represents the market for ethanol. Move the supply and/or demand curves to show how reducing the subsidy will affect the ethanol market. Equilibrium quantity A)may increase or decrease, but it is impossible to know for sure. B)increases. C)remains constant. D)decreases.

rightward shift of demand curve

The accompanying supply and demand graph represents a hypothetical market for spaghetti pasta. Demonstrate how an increase in the price of penne, a different type of pasta, and a decrease in the price of meatballs will affect the supply and demand of spaghetti pasta. Assume that producers of spaghetti pasta do not also produce penne.

B

The demand curve A)determines equilibrium price in a market. B)is a graphical representation of the relationship between price and quantity demanded. C)depicts the relationship between production costs and output. D)is a graphical representation of the relationship between price and quantity supplied.

Movement along a Demand curve

a change in the quantity demanded of a good that is the result of a change in that good's price

Movement of Supply Curve

a change in the quantity supplied of a good that is the result of a change in that good's price

Inferior Good

a good that consumers demand less of when their incomes increase

Normal Good

a good that consumers demand more of when their incomes increase

Shift in Demand curve

movement of a demand curve right or left resulting from a change in one of the determinants of demand other than the price of the good

Quantity Demanded

the amount of a good that buyers are willing and able to purchase

Quantity Supplied

the amount of a good that sellers are willing and able to sell

Market Demand

the sum of all the individual demands for a particular good or service

Equilibrium Market

when the quantity supplied is equal to the quantity demanded

Competitive Markets

markets that have many buyers and sellers so that no single buyer or seller can influence the price

Price Ceiling

A legal maximum on the price at which a good can be sold

Price Floor

A legal minimum on the price at which a good can be sold

B

A national consumer products company produces less of its premium quality soap as a result of lower soap prices. shift or movement of supply curve?

Shortage

A situation in which quantity demanded is greater than quantity supplied

Surplus

A situation in which quantity supplied is greater than quantity demanded

C

According to the law of demand, A)an increase in income increases demand. B)an increase in price decreases demand. C)a decrease in price increases quantity demanded. D)a decrease in price increases demand.

A

College students purchase many more energy drinks during finals week than during the rest of the semester. A)shift in demand curve B)movement along demand curve

B

College students reduce how much detergent they use for each load of laundry in response to higher detergent prices. A)shift in demand curve B)movement along demand curve

B

College students rush and buy discount furniture to take advantage of an unexpected price drop. A)shift in demand curve B)movement along demand curve

A

During the Obama administration, the development of low-cost batteries for electric cars received large amounts of federal funding in terms of subsidies. Meanwhile, American households gave a higher priority towards minimizing their environmental impact. Consider the market for zero-emissions electric vehicles where there is an upward-sloping supply curve and a downward-sloping demand curve. What will happen to the equilibrium price? A)The change is ambiguous. B)The price remains constant. C)The price decreases. D)The price increases.

C

During the Obama administration, the development of low-cost batteries for electric cars received large amounts of federal funding in terms of subsidies. Meanwhile, American households gave a higher priority towards minimizing their environmental impact. Consider the market for zero-emissions electric vehicles where there is an upward-sloping supply curve and a downward-sloping demand curve. Which direction will demand and supply shift? A)Demand will shift left and supply will shift right. B)Demand will shift right and supply will shift left. C)Both curves will shift right. D)Both curves will shift left.

Law of Demand

consumers buy more of a good when its price decreases and less when its price increases

Compliment Goods

goods that are purchases together; demand for the goods is related