Econ 210 Chapter 4

Movement along a curve:

"(de)increase in quantity supplied" or "(de)increase in quantity demanded." The good's own price changing.

Shifts:

"(de)increases in supply" or "(de)increases in demand." Something other than the good's own price changing.

How does a surplus affect prices?

A surplus will push prices down.

A shift in the supply curve to the right is best described as a(n):

Increase in supply.

A(n) _____ occurs when the quantity supplied is greater than the quantity demanded

Surplus

Lower production costs result in:

a lower equilibrium price.

A decrease in demand along a fixed supply curve results in:

a lower equilibrium quantity.

Which happened in Vernon Smith's test of the market model? -The experiment worked well on paper but not in practice. -The experiment worked best when buyers and sellers had extensive training in economics. -The market quickly converged to equilibrium. -The theories were too simple to be tested scientifically

The market quickly converged to equilibrium

A(n) _____ occurs when the quantity demanded is equal to the quantity supplied.

equilibrium

Which economist began testing the supply and demand model by running experiments with his undergraduate students in 1956?

Vernon Smith

A surplus occurs when the quantity:

supplied is greater than the quantity demanded.

Assume that plastic lawn furniture is an inferior good. If the incomes of consumers increase, the equilibrium price of plastic furniture would _____, and the equilibrium quantity of plastic furniture would decrease.

decrease

A decrease in demand _____ the equilibrium price and _____ the equilibrium quantity.

decreases; decreases

"According to the supply and demand model, all else equal, if the price of one of a good's complements increases, the price of the good will increase." This statement is:

false, because if the price of one of its complements increases, the price of a good will decrease

An increase in demand is a:

shift in the demand curve up and to the right.

OPEC, the Organization of the Petroleum Exporting Countries, was formed in

1960

As consumer income increases, the equilibrium price of a normal good _____, and the equilibrium quantity of a normal good increases.

increases

A decrease in supply along a fixed demand curve:

increases the equilibrium price and reduces the equilibrium quantity.

If the price of Coffee-mate decreases,

it matters acutely whether the demand for coffee increases or whether the supply of "coffee drinks" increases.

An increase in quantity supplied is a:

movement up along a fixed supply curve.

Equilibrium occurs when:

the quantity demanded equals the quantity supplied.

From the early twentieth century to the 1970s:

there were modest declines in oil price.

Vernon Smith began his laboratory experiments expecting:

to prove that the supply and demand model was wrong.

When the free market maximizes the total gains from trade, there are no:

unexploited gains from trade or wasted resources.

If the supply of oil decreased in the United States, then:

Quantity demanded would decrease in the United States.

If chinos and khakis are substitute goods, what happens to the equilibrium price and equilibrium quantity of khakis if chinos become less expensive?

Both the equilibrium price and equilibrium quantity decrease.

Jean is a seller in Vernon Smith's classroom experiment of the market model. Which does she know?

her own willingness to sell

A movement along a fixed demand curve caused by a rightward shift in the supply curve is best described as a(n):

increase in quantity demanded.

When the free market maximizes the total gains from trade, goods are sold by the sellers:

with the lowest costs.

What illustrates an increase in quantity demanded?

a movement along a fixed demand curve

If consumers view cappuccinos and lattés as substitutes, what would happen to the equilibrium price and quantity of lattés if the price of cappuccinos falls? • a. Both the equilibrium price and quantity would increase. • b. Both the equilibrium price and quantity would decrease. • c. The equilibrium price would increase, and the equilibrium quantity would decrease. • d. The equilibrium price would decrease, and the equilibrium quantity would increase.

Both the equilibrium price and quantity would decrease

What did Vernon Smith's laboratory experiments reveal about the supply and demand model?

It successfully predicts real-life behavior.

Which is true regarding the use of laboratory experiments in economics? -It was pioneered by Vernon Smith, who used his undergraduate economics students as his first test subjects in the 1950s. -It was extensive until the 1950s, when Vernon Smith disproved their reliability. -It was proposed by Vernon Smith in the 1950s, but still no economists have been able to design workable experiments. -It has never been explored because, as Vernon Smith pointed out in the 1950s, economic models are not scientific enough for laboratory experiments.

It was pioneered by Vernon Smith, who used his undergraduate economics students as his first test subjects in the 1950s.

How would a global fall in income affect oil prices?

Oil prices would fall as the demand for oil dropped

Equilibrium

QS = QD = Q∗. Or "willingness to pay" of marginal consumer equals reservation price of marginal seller.

An increase in the quantity demanded of a good would be graphically represented by a:

movement along a fixed demand curve.

The supply curve shifts to the left, but

the demand curve does not

A decrease in the demand for apple juice will result in a(n):

decrease in the equilibrium price and quantity supplied.

What would happen to the equilibrium price and quantity of lattés if coffee shops began using a machine that reduced the amount of labor necessary to produce them? a-Both the equilibrium price and quantity would increase. b- Both the equilibrium price and quantity would decrease. c- The equilibrium price would increase, and the equilibrium quantity would decrease d-The equilibrium price would decrease, and the equilibrium quantity would increase.

The equilibrium price would decrease, and the equilibrium quantity would increase.

Which statement about Vernon Smith's laboratory experiments is correct?

The participants were sorted into two groups, buyers and sellers

Suppose that when good K is free, sellers will not supply any, but the quantity supplied rises by 10 units for every $5 increase in the price. If the quantity demanded of good K is fixed at 75 units, the equilibrium price in this market will be:

The quantity supplied would be 10 × ($37.50 ÷ $5) = 75. In other words, quantity supplied will be equal to quantity demanded.

What happened to the supply of oil from the early twentieth century to the 1970s?

The supply of oil increased at an even faster pace than the demand for oil.

A shortage occurs when the quantity:

demanded is greater than the quantity supplied.