micro chapter 3

A price ceiling will result in a shortage only if the ceiling price is......the equilibrium p

less than

Refer to the above graph with three demand curves. A "decrease in demand" would be illustrated as a change from

line A to C. (line C is on the left side of line A)

The demand curve shows the relationship between

price and quantity demanded

How will an increase in state subsidies to public colleges affect the market for public and private colleges?

public: Supply will shift to the right (down) private: : Demand will shift to the left (down)

An increase in consumer incomes will cause a decrease in the demand for an inferior good.

true

Refer to the table below. Fill in the surplus-shortage column (gray-shaded cells).

(1) take quantity supplied in table and subtract quantity demanded ex. 65-88=-23 is the correct answer (a) equilibrium price is when the market demand equals market supply (that is, there is neither surplus, nor shartage). As the table show, equilibrium price is $4 (b) The graph asks for a specific graphical tool which cannot be used in this Q&A Board. However, equilibrium price = $4 & quantity = 75 (c) When price = 3,4, demand = 88 & supply = 65, so there is a shortage of 23. If price is 4.90, Surplus = 18 (d) Here, Price = 4.6, so Surplus = 14 (e) Here, price = 3.70, so Shortage = 10

Which of the following characteristics lead to a downward-sloping demand curve?

- An increase in purchasing power as market price decreases -Diminishing marginal utility

What effect will each of the following have on the demand for small automobiles such as the Mini-Cooper and Fiat 500?

. Small automobiles become more fashionable: Increase . The price of large automobiles rises (with the price of small autos remaining the same): Increase Income declines and small autos are an inferior good: Increase Consumers anticipate that the price of small autos will greatly come down in the near future: Decrease . The price of gasoline substantially drops: Cannot be determined

Critically evaluate: "In comparing the two equilibrium positions in the diagram below, I note that a smaller amount is actually demanded at a lower price. This refutes the law of demand."

A decrease in demand from D1 to D2 results in surplus b. This causes the price to fall c. This change in price results in an increase tin quantity demanded along the D2 demand curve. d. This change in price results in a decrease in quantity supplied. e. The new equilibrium has a lower price and a lower quantity when compared to the original equilibrium. f. Does this refute the law of demand: No .g. Why: Because there was a change in demand

Which statement is consistent with the law of demand?

A reduction in market price will lead to an increase in quantity demanded.

How is a market demand curve derived from individual demand curves?

Add up quantities demanded by all individual consumers for each price.

How do you derive a market supply curve from individual supply curves?

Add up quantities supplied by all individual producers for each price

In which of these two statements are the terms "supply" and "demand" used correctly? A. "In the corn market, demand often exceeds supply and supply sometimes exceeds demand." B. "The price of corn rises and falls in response to changes in supply and demand."

B.

b. Indicate whether a change in the value of each of the following determinants of demand leads to a movement along the demand curve or a shift in the demand curve.

Change in market price: Movement along demand curve Change in income: Shift in demand curve Change in consumer expectations: Shift in demand curve Change in the price of a related good: Shift in demand curve Change in the price of an unrelated good: No change Change in preferences for this good: Shift in demand curve A change from point A to point B = A change in quantity demanded A change from point A to point C = A change in demand Correct.

ADVANCED ANALYSIS Assume that demand for a commodity is represented by the equation P=10−0.2Qd.P=10−0.2Qd. Supply is represented by the equation P=2+0.2Qs,P=2+0.2Qs, where Qd and Qs are quantity demanded and quantity supplied, respectively, and P is price.Instructions: Enter your answers as whole numbers. a. Using the equilibrium condition Qs = Qd, determine equilibrium price.

Explanation:Consider the following equations: Demand for a commodity is: P=10−0.2Qd.P=10−0.2Qd. Supply of the commodity is: P=2+0.2Qs.P=2+0.2Qs. To solve this system of equations, we use the fact that the equilibrium price in both equations must be the same. Therefore, we can equate the two (eliminate P from the system). This gives us: 10−0.2Qd=2+0.2Qs.10−0.2Qd=2+0.2Qs. We now use the equilibrium condition for quantity: Qs = Qd = Q. We substitute Q for Qd and Qs. This gives us: 10−0.2Q=2+0.2Q.10−0.2Q=2+0.2Q. Solving for Q: 0.2Q+0.2Q=80.2Q+0.2Q=8 0.4Q=8.0.4Q=8. The equilibrium quantity is: Q=8/0.4=20.Q=8/0.4=20. 20 To find the equilibrium price, we substitute the equilibrium quantity Q = 20 into either the demand function or supply function. The demand function is: P=10−0.2QP=10−0.2Q P=10−0.2×20P=10−0.2×20 P=10−4=6.P=10−4=6. The supply function is: P=2+0.2QP=2+0.2Q P=2+0.2×20P=2+0.2×20 P=2+4=6.P=2+4=6. The answers are the same; this is the equilibrium price, or P = 6.

a. What are the determinants of demand?

Income, Price of related goods, A good's own price,Tastes and preferences, Number of consumers

Suppose that in the market for computer memory chips, the equilibrium price is $50 per chip. If the current price is $55 per chip, then there will be ........ a surplus a shortage an equilibrium quantity of memory chips.

a surplus

What effect will each of the following have on the supply of auto tires (keeping all else constant)?

a. A technological advance in the methods of producing tires: Increase . A decline in the number of firms in the tire industry: Decrease An increase in the prices of rubber used in the production of tires: Decrease \ . The expectation that the equilibrium price of auto tires will be lower in the future than currently: Increase A decline in the price of large tires used for semi trucks and earth-hauling rigs, a substitute in production (with no change in the price of auto tires): Increase The levying of a per-unit tax on each auto tire sold: Decrease The granting of a 50-cent-per-unit subsidy for each auto tire produced: Increase

a. Which statement is consistent with the law of supply? b. Which of the following characteristics leads to an upward-sloping supply curve?

a. An increase in market price will lead to an increase in quantity supplied b. Increasing opportunity costs- Increasing marginal costs

How will each of the following changes in demand and/or supply affect equilibrium price and equilibrium quantity in a competitive market; that is, do price and quantity increase or decrease, or are the answers indeterminate because they depend on the magnitudes of the shifts? a. Supply decreases and demand is constant. b. Demand decreases and supply is constant. c. Supply increases and demand is constant. d. Demand increases and supply increases. e. Demand increases and supply is constant f. Supply increases and demand decreases. g. Demand increases and supply decreases. h, Demand decreases and supply decreases.

a. Price: Increases quantity: decreases b. both decrease c. price: decrease quantity: increase d. price: indeterminate quantity: increases e. price: increase quantity: increase f. price: decreases quantity: indeterminate g. price: increases quantity: indeterminate h. price: indeterminate quantity: decreases

a. What are the determinants of supply? b. Indicate whether a change in the value of each of the following determinants of supply leads to a movement along the supply curve or a shift in the supply curve.

a. Resource Prices• Technological Advances• Taxes and Subsidies• Prices of Other Goods• Price Expectations (the producer expects)• Number of Sellers b. Change in market price: Movement along the supply curve Change in factor productivity: A shift in the supply curve Change in producer expectations: A shift in the supply curve Change in the price of other goods: A shift in the supply curve Change in technology: A shift in the supply curve Change in resource prices: A shift in the supply curve Change in taxes: A shift in the supply curve A change from point A to point B = A change in quantity supplied, diagonal A change from point A to point C = A change in supply, horizontal

Suppose there are three buyers of candy in a market: Tex, Dex, and Rex. The market demand and the individual demands of Tex, Dex, and Rex are shown below. Which buyer demands the least at a price of $5? The most at a price of $7? c. Which buyer's quantity demanded increases the most when the price is lowered from $7 to $6? d. Which direction would the market demand curve shift if Tex withdrew from the market? What if Dex doubled his purchases at each possible price? e. Suppose that at a price of $6, the total quantity demanded increases from 19 to 38. Is this a "change in the quantity demanded" or a "change in demand"?

a. dex b. tex c. tex d. shifts to the left e. shifts to the right f. change in demand

Label each of the following scenarios with the correct combination of price change and quantity change. In some scenarios, it may not be possible from the information given to determine the direction of a particular price change or a particular quantity change. We will symbolize those cases as, respectively, "P?" and "Q?". a. On a hot day, both the demand for lemonade and the supply of lemonade increase. b. On a cold day, both the demand for ice cream and the supply of ice cream decrease c. When Hawaii's Mt. Kilauea erupts violently, the demand on the part of tourists for sightseeing flights increases but the supply of pilots willing to provide these dangerous flights decreases. d. In a hot area of Arizona where they generate a lot of their electricity with wind turbines, the demand for electricity falls on windy days as people switch off their air conditioners and enjoy the breeze. But at the same time, the amount of electricity supplied increases as the wind turbines spin faster.

a. price: P? can't determine quantity: increase b. price: P? can't determine quantity: decrease c. price: increase quantity: Q?, cannot be determined d. price: decrease quantity: Q? cannot be determined

Suppose that the government establishes a price ceiling of $3.70 for wheat. a. What might prompt the government to establish this price ceiling? c. Next, suppose that the government establishes a price floor of $4.60 for wheat. What will be the main effect of this price floor?

a. to control food prices c. It will create a surplus..

The figure below shows the supply curve for tennis balls, S1, for Drop Volley Tennis, a producer of tennis equipment. If production costs were to increase, the quantities supplied at each price would be as shown by the third column of the table ("S2 Quantity Supplied"). a. Use the figure to fill in the quantity supplied given the supply curve S1 for each price in the table below (second column, gray-shaded cells). Did the increase in production costs cause a "decrease in supply" or a "decrease in quantity supplied"?

d. a decrease in supply

True or False: A "change in quantity demanded" is a shift of the entire demand curve to the right or to the left.

false

If the supply and demand curves for a product both decrease, then equilibrium

quantity must decline, but equilibrium price may rise, fall, or remain unchanged.

An effective price floor will

result in a product surplus.