chapter 3

factors that cause a change in demand

-income -number of consumers -prices of related goods -expectations -demographics -tastes and preferences

Which of the following best represents the effects of a decrease in the price of belts, other things being equal?

A downward movement along the demand curve for belts.

Suppose demand decreases and supply increases. Which of the following will happen?

Equilibrium quantity will rise, fall, or stay the same while equilibrium price will decrease.

Which of the following observations was made famous by Adam Smith in his book The Wealth of Nations?

Households and firms interacting in markets are guided by an "invisible hand" that leads them to desirable market outcomes.

Suppose both the equilibrium price and quantity rise for a particular product. Which of the following best explains this situation?

Supply and demand simultaneously increased and the shift in supply was less than the shift in demand.

a major study indicating that a 30-minute workout each day improved health more than was previously thought to be the case

Supply would increase, leading to a reduction in price and an increase in quantity sold.

How will an increase in lumber prices influence the home construction market?

The supply of newly constructed homes will decrease.

At a price of $5, Tyrone buys 10 units of a product; when the price increases to $6, Tyrone buys 8 units. Which of the following is correct about Tyrone's behavior?

Tyrone's quantity demanded has decreased, and his demand has not changed.

equilibrium

a balance of forces permitting the simultaneous fulfillment of plans by buyers and sellers

If the United Auto Workers union can obtain a substantial wage increase for auto workers, there will be

a decrease in the supply of automobiles, which is a shift to the left of the supply curve.

losses

a deficit of sales revenue relative to the opportunity cost of production

Which of the following would increase the price of fitness equipment?

a major study indicating that a 30-minute workout each day improved health more than was previously thought to be the case

law of demand

a principle that states there is an inverse relationship between the price of a good and the quantity of it buyers are willing to purchase

economic efficiency

a situation that occurs when all activities generating more benefit than cost are undertaken and no activities are undertaken for which the cost exceeds the benefit

Which of the following would most likely cause the supply of wheat to increase?

a technological advance that lowers the cost of producing wheat

If a surplus exists in a market we know that the actual price is

above equilibrium price and quantity supplied is greater than quantity demanded.

market

an abstract concept encompassing the forces of demand and supply and the interaction of buyers and sellers with the potential for exchange to occur

profit

an excess of sales revenue relative to the opportunity cost of production

what is the difference between demand and quantity demanded?

demand is the actual curve quantity demanded is the actual amount demanded by the people

If the number of consumers in a market increases, the market demand curve will

increase, which is a shift to the right of the demand curve.

when the price of a good increases, why do you usually buy less of it?

it is not a high demand product

When economists say the quantity demanded of a product has decreased, they mean the

price of the product has risen, and consequently, consumers are buying less of it.

complements

products that are usually consumed jointly (for example, bread and butter, hot dogs and hot dog buns); a decrease in the price of one will cause an increase in demand for the other

substitutes

products that serve similar purposes

what is the role of profits and losses in a market economy?

profits direct producers toward activities that increase the value of resources; losses impost a penalty on those who reduce the value of resources

Consider the market for grapes. An increase in the wage paid to grape pickers will cause the

supply curve for grapes to shift to the left, resulting in a higher equilibrium price for grapes and a decrease in the quantity consumed.

law of supply

the positive relationship between price and quantity supplied; when price rises, quantity supplied rises; when price falls, quantity

opportunity cost of production

the total economic cost of producing a good or service.

Profits and losses play an important role in helping

to allocate scarce resources in a manner that maximizes the value created to society