Macroeconomics exam 1: topic 2

Example of normal goods

trip to Hawaii, steak normal (if income + demand go in the same direction)

Example of inferior goods

used clothing, bread, pasta, rice

Law of demand

when the price of a product increases, the demand for the same product will fall. When price decreases, demand will increase

Which of the following statements is correct? If demand increases and supply decreases, equilibrium price will fall. If supply increases and demand decreases, equilibrium price will fall. If demand decreases and supply increases, equilibrium price will rise. If supply declines and demand remains constant, equilibrium price will fall.

If supply increases and demand decreases, equilibrium price will fall

Predict the possible changes in D, S and P

Increase in Demand: D increases, P increases, S increases Decrease in Demand: D decreases, P decreases, S decreases Increase in supply: S increase, P decreases, Q increases Decrease in supply: S degreases, P increases, Q decreases

A decrease in S of a product is most likely would be caused by

an increase in business taxes

Changes in quantity demanded and change in demand

changes in quantity demanded - measured by the movement of the demand curve + changes in demand - measured by shifts in demand the curve

Normal or superior goods

if income increases, then demand decreases if income decreases, then demand decreases

A government subsidy to the producers of a product

increases product supply

What determines prices

market- demand (buyers) + supply (sellers)

The location of the product supply curve depends on the production technology. number of buyers in the market. tastes of buyers. location of the demand curve.

production technology

Which change will decrease the demand for a product?

a decrease in the number of buyers

Refer to the diagram. If this is a competitive market, price and quantity will move toward:

$40 and 150, respectively

If the demand curve for product B shifts to the right as the price of product A declines, then

A and B are complementary goods

In which of the following instances is the effect on equilibrium price dependent on the magnitude of the shifts in supply and demand? Demand rises and supply rises. Supply falls and demand remains constant. Demand rises and supply falls. Supply rises and demand falls.

Demand rises and supply rises

In which of the following statements are the terms "demand" and "quantity demanded" used correctly? When the price of ice cream rose, the demand for both ice cream and ice cream toppings fell. When the price of ice cream rose, the quantity demanded of ice cream fell, and the demand for ice cream toppings fell. When the price of ice cream rose, the demand for ice cream fell, and the quantity demanded of ice cream toppings fell. None of these statements use the terms correctly.

When the price of ice cream rose, the quantity demanded of ice cream fell, and the demand for ice cream toppings fell

In the past few years, the demand for donuts has greatly increased. This increase in demand might best be explained by

a change in buyer tastes

If the price of a product is below equilibrium price, the result will be

a shortage of the good

A surplus of a product will arise when price is

above equilibrium with the result that quantity supplied exceeds quantity demanded.

Markets, viewed from the perspective of the supply and demand model assume many buyers and many sellers of a standardized product. assume market power so that buyers and sellers bargain with one another. do not exist in the real-world economy. are approximated by markets in which a single seller determines price.

assume many buyers and many sellers of a standardized product

If Z is an inferior good, an increase in money income will shift the supply curve for Z to the left. supply curve for Z to the right. demand curve for Z to the left. demand curve for Z to the right.

demand curve for Z to the left

Individual demand

demand for a good or a service by an individual

The reason for the law of demand can be best explained in terms of

diminishing marginal utility

The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is _____

direct; inverse

Determinants of supply

input prices, technology, business taxes/ subsides, regulations, number of sellers

The income of a consumer decreases, and the consumer's demand for a particular good increases. It can be concluded that the good is

normal

The demand curve shows the relationship between

price and quantity demanded

Refer to the diagram. A government-set price floor is best illustrated by

price c

Price ceiling + price floor

price ceiling- legal maximum price of a good price floor- legal minimum price of a good

An improvement in production technology will

shift the supply curve to the right

In 2007, the price of oil increased, which in turn caused the price of natural gas to rise. This can best be explained by saying that oil and natural gas are

substitute goods and the higher price for oil increased the demand for natural gas

Suppose that in 2007, Ford sold 500,000 Mustangs at an average price of $18,800 per car; in 2008, 600,000 Mustangs were sold at an average price of $19,500 per car. These statements

suggest that the demand for Mustangs increased between 2007 and 2008

The income and substitution effects account for the upward-sloping supply curve. the downward-sloping demand curve. movements along a given supply curve. shifts in the demand curve.

the downward-sloping demand curve

Graphically, the market demand curve is

the horizontal sum of individual demand curves

Assume that the price of video game players falls. What most likely will happen to the equilibrium price and quantity of video games, assuming this market is competitive?

P will increase, Q will increase

Law of supply

Price + Quantity supplied move in the same direction either up or down, positivity related

Which of the following statements is true about productive and allocative efficiency? Realizing allocative efficiency implies that productive efficiency has been realized. Productive efficiency can only occur if there is also allocative efficiency. Society can achieve either productive efficiency or allocative efficiency, but not both simultaneously. Productive efficiency and allocative efficiency can only occur together; neither can occur without the other.

Realizing allocative efficiency implies that productive efficiency has been realized

If producers must obtain higher prices than before to produce a given level of output, then the following has occurred A decrease in demand. An increase in demand. A decrease in supply. An increase in supply.

a decrease in supply

If two products, A and B, are complements, then

an increase in the price of A will decrease the demand for B

Which of the following could cause a decrease in consumer demand for product X

an increase in the prices of goods that are good substitutes for product X

Bushels demanded Price per bushel Bushels supplied per month per month: 45 $5 77 50 $4 73 56 $3 68 61 $2 61 67 $1 57 Answer the question on the basis of the given supply and demand data for wheat: Refer to the data. If the price in this market was $4:

farmers would not be able to sell all their wheat

Determinants of demand + shifts in demand curve

income, prices of related goods, taste, expectations, number of buyers shift left (downwards), shift right (upwards)

One can say with certainty that equilibrium price will decline when supply and demand both decrease. increases and demand decreases. decreases and demand increases. and demand both increase.

increases and demand decreases

Demand

is a function (schedule) which shows the amount of a product consumers are willing and able to buy at each possible price (P)

Equilibrium price + quantity

is the market price where the quantity of goods supplied is equal to the quantity of goods demanded. Is the point at which the demand + supply curves in the market intersect

Market demand

is the sum of the individual demand for a product from buyers in the market

Individual supply

is the supply of an individual producer at each price

Market supply

is the total quantity of a good or service all producers are willing to provide at prevailing set of relative prices during a defined period of time

Quantity demanded Price Quantity supplied 52 $50 73 62 $45 62 52 $40 51 42 $35 42 32 $30 33 In this market, economists would call a government-set minimum price of $50 a

price floor

If we say that a price is too high to clear the market, we mean that

quantity supplied exceeds quantity demanded

The law of supply states that, other things being constant, as price increases,

quantity supplied increases

Change in supply + quantity supplied

supply- when the supplies of a given good or service alters production or output quantity supplied- is a change in the specific quantity of a good that sellers are willing and able to sell

Surplus + Shortage

surplus- when the quantity supplied of a good exceeds the quantity demanded at a specific price shortage- when the quantity demanded for a good exceeds the quantity supplied at a specific price

Effect of changes in both supply and demand

(a) change in S, (b) change in D, (c) effect of equilibrium price (d) effect of equilibrium quantity 1. increase, decrease, decrease, indeterminate 2. decrease, increase, increase, indeterminate 3. increase, increase, indeterminate, increase 4. decrease, decrease, indeterminate decrease