Principles of Economics

After the price of revlon nail polish increased, Jen stopped buying revlon nail polish and started buying a cheaper brand of nail polish instead. This is called:

Substitution

Shelby purchsases a leather purse for $400. One can infer that:

She paid too much OR her reservation price was at least $400.

Refer to the figure below. The equilibrium price is _______, and the equilibrium quantity is ________

$6; 4 (where the two points cross)

Suppose you bought three tickets to a concert in advance at the University ticket window. At the last minute one friend cancelled, so you could use only two of the tickets. You sold the third ticket just outside the entrance to the concert for more than the price you had originally paid. Which transaction occurred in a market?

Both the purchase at the university ticket window and the sale at the concert entrance were market transactions.

To understand how the price of a good is determined in a free market, one must account for the interests of:

Buyers and sellers

If a country's economic decisions are made by an individual or a small number of individuals then it has:

Centralized Economy

Suppose you camped out in front of an electronics store to be one of the 200 lucky people able to purchase the latest gaming system. You bought the system for $350. Two weeks later you see that the same system can be sold on e-Bay for $600, so you sell your system. Your market role was as a:

Consumer at the electronics store and a seller on e-Bay.

Gertie saw a pair of jeans that she was willing to buy for $35. The price tag said they were $29.99 therefore:

Gertie should buy the jeans because the price is less than her reservation price.

The quantity that sellers wish to sell tends to ________ as price increases, and so the supply curve is ________ sloping.

Increase; upward

Which of the following is NOT true of the equilibrium price?

It is fair in the sense that everyone can afford basic goods and services.

Which of the following is NOT true of a demand curve?

It reflects sellers reservation prices.

As the price of a good rises:

More firms can cover their opportunity cost of producing the good. OR Firms generally increase the supply of the good

Which of the following is NOT a characteristic of a market in equilibrium?

Neither buyers nor sellers want the price to change.

A good example of central planning at work in the U.S. is:

New York City's rent control problem

"All else constant, consumers will purchase more of a good as the price falls."This statement reflects the behavior underlying:

The demand curve

Refer to the figure below. At a price of $9, there will be:

The excess supply of 5 units. (You subtracts the demand quantity from the supply quantity so 6-1=5 or 5 units)

The entire group of buyers and sellers of a particular good or service make up:

The market

As coffee becomes more expensive, uncle Joe starts drinking tea instead of coffee. This is called:

The substitution effect of a price change.

Excess demand occurs

When price is below the equilibrium price.

When a slice of pizza at the student union sold for $2, Moe did not purchase any. When the price fell to $1.75, Moe purchased a slice each day for lunch. Thus, we can infer that Moe's reservation price for a slice of pizza is:

at least $1.75 but less than $2.

In a free market, if the price of a good is above the equilibrium price, then:

buyers, hoping to ensure they acquire the good will bid the price lower.

A normal good

demand for a normal good increase with an increase in income

Suppose that when the price of oranges is $3 per pound, the quantity demanded is 4.7 tons per day and the quantity supplied is 3.9 tons. In this case:

excess demand will lead the price of oranges to rise

If price is above the equilibrium price, then there will be:

excess supply

Giffen good

in economics and consumer theory a giffen good is a product that people consume more of as the price rises and vice versa - violating the basic law of demand in Economics

The buyers reservation price for a particular good or service is the:

largest price the buyer would be willing to pay for it.

Jessica's marginal cost for producing a pitcher of lemonade is $0.25. Therefore $0.25 is her:

reservation price

In a free market, if the price of a good is below the equilibrium price, then:

sellers, dissatisfied with growing inventories, will raise their prices.

Suppose one knows two facts: first, the market for prescription drugs experiences chronic shortages and second, the government sets the price for prescription drugs.

set the price below the equilibrium price

an inferior good

the demand for an inferior good decrease with an increase in income.

You can spend $10 for lunch and you would like to purchase two cheeseburgers. When you get to the restaurant, you find out the price for cheeseburgers has increased from $5 to $6, so you decide to purchase just one cheeseburger. This is best described as:

the income effect of a price change.

When a market is in equilibrium:

there is neither excess demand nor excess supply

A price ceiling that is set above the equilibrium price:

will have no effect on the market