Micro HW 1: CH3
Which of the following would cause a shift in the demand curve from point A to point B?
All of the following is correct: An increase in income (normal good). An increase in the price of a substitute good. A decrease in income (inferior good). [chart b, from D1 to D2]
Which of the following events would cause the supply curve to decrease from S1 to S2?
An increase in the price of inputs (a shift of the supply curve to the left - decrease)
Consider the figure to the right and assume that it is the market for health-care services. When the "baby boomer" generation retires, the number of people who require health care increases by 30%, and, as a result, the number of health-care providers also increases, but by only 25%. What is the effect on the price of health-care services over time?
It increases because demand increases by more than supply. (new equilibrium is a little higher because demand moves more to the right than supply)
According to the law of demand, there is an inverse relationship between price and quantity demanded. That is, the demand curve for goods and services slopes downward. Why?
When the price of a good increases, consumers' purchasing power falls, and they cannot buy as much of the good as they did prior to the price change.
The diagram in panel b is an example of
a demand curve
The diagram in panel b is an example of
a supply curve
Market price is determined by
both supply and demand.
On the diagram to the right, a movement from A to B represents a...
change in quantity demanded.
On the diagram to the right, a movement from A to B represents a
change in quantity supplied (movement along the supply curve)
In the diagram to the right, point A provides the _____, point B the _____, and point C the _____.
equilibrium price; market equilibrium; equilibrium quantity
In the diagram to the right, when the price is $29 per player, the amount of the ____ is ___ million players per month.
shortage, 56 >equilibrium price is set much lower, which causes excess demand and lack of supply. >find shortage by subtracting the Qd by the Qs (78-22=56)
In the diagram to the right, when demand increases, a ____ develops at the original price. Equilibrium price will ____ and equilibrium quantity will ____ as a new equilibrium is established.
shortage, rise, rise (there is a shift in demand to the right, which increases quantity demanded and supplied)
The distinction between substitutes and complements is
substitute goods are used for the same purposes while complementary goods are used together.
In the diagram to the right, when supply increases, a ____ develops at the original price. Equilibrium price will ____ and equilibrium quantity will ____ as a new equilibrium is established.
surplus, fall, rise (there is a shift in supply to the right, which increases demand but decreases supply)
According to the law of supply,
there is a positive relationship between quantity supplied and price AND as the price of a product increases, firms will supply more of it to the market.
According to the law of demand,
there is an inverse relationship between price and quantity demanded
The distinction between a normal and an inferior good is
when income increases, demand for a normal good increases while demand for an inferior good falls.
A perfectly competitive market is a market that meets the conditions of
(1) many buyers and sellers, (2) all firms selling identical products, and (3) no barriers to new firms entering the market.
Consider the following statement: "An increase in supply decreases the equilibrium price. The decrease in price increases demand." The statement is
false: decreases in price affect the quantity demanded, not demand.
