Microeconomics Ch. 3 Homework

In the figure to the right, what is the equilibrium price?

$3 per gallon Reason: The equilibrium price is the price at which the supply curve and demand curve intersect.

Select all that apply Which of the following is likely to lead to an increase in the supply of pumpkins? -An increase in the demand for pumpkins at Halloween. -A decrease in the cost of growing pumpkins. -Weather that is beneficial to the pumpkin crop.

-A decrease in the cost of growing pumpkins. -Weather that is beneficial to the pumpkin crop.

Select all that apply Which of the following factors will lead to an increase in supply? -An expectation of higher prices in the future. -A decrease in the number of suppliers. -A decrease in the cost of inputs to the production process. -A technological advance that lowers production costs.

-A decrease in the cost of inputs to the production process. -A technological advance that lowers production costs.

Select all that apply Which of the following factors will lead to a decrease in demand? -A decrease in the population of potential buyers. -A decrease in the price of a substitute. -An expectation of higher prices in the future. -An increase in consumers' income if the good is a normal good.

-A decrease in the population of potential buyers. -A decrease in the price of a substitute.

Select all that apply Which of the following factors will lead to an increase in the demand for a good? -A decrease in the price of a complement -An increase in price -A decrease in income (for normal goods) -An expectation of higher prices in the future

-A decrease in the price of a complement -An expectation of higher prices in the future

Select all that apply If Hulu Plus and Netflix are substitutes, then an increase in the price of Netflix should lead to: -a decrease in the price of Hulu Plus. -an increase in the number of people who subscribe to Hulu Plus. -an increase in the price of Hulu Plus. -a decrease in the number of people who subscribe to Hulu Plus.

-an increase in the number of people who subscribe to Hulu Plus. -an increase in the price of Hulu Plus.

Select all that apply Prozac and Wellbutrin are both prescription medications to treat depression. If the price of Prozac increases, then this should lead to: -an increase in the number of people who use Wellbutrin. -an increase in the price of Wellbutrin. -a decrease in the price of Wellbutrin. -a decrease in the number of people who use Wellbutrin.

-an increase in the number of people who use Wellbutrin. Reason: As the price of Prozac increases, the demand for Wellbutrin will increase, leading to an increase in the equilibrium price and quantity of Wellbutrin. -an increase in the price of Wellbutrin. Reason: As the price of Prozac increases, the demand for Wellbutrin will increase, leading to an increase in the equilibrium price and quantity of Wellbutrin.

Select all that apply Given that hops are an important input to the production of beer, a sharp increase in the price of hops should lead to: -an increase in the price of beer. -a decrease in the amount of beer bought and sold in the market. -a decrease in the price of beer. -an increase in the amount of beer bought and sold in the market.

-an increase in the price of beer. Reason: If the price of hops increases, the supply of beer should decrease (a leftward shift in the supply curve), leading to an increase in the equilibrium price and a decrease in the equilibrium quantity of beer. -a decrease in the amount of beer bought and sold in the market. Reason: If the price of hops increases, the supply of beer should decrease (a leftward shift in the supply curve), leading to an increase in the equilibrium price and a decrease in the equilibrium quantity of beer.

Select all that apply Given that college professors are an important input to the production of a college education, a decrease in the salaries of college professors would:

-decrease college tuition. Reason: If the salaries of college professors decrease, the supply of a college education should increase (a rightward shift in the supply curve), leading to an decrease in equilibrium price (tuition) and an increase in equilibrium quantity (the number of students attending college). -increase the number of students attending college. Reason: If the salaries of college professors decrease, the supply of a college education should increase (a rightward shift in the supply curve), leading to an decrease in equilibrium price (tuition) and an increase in equilibrium quantity (the number of students attending college).

Select all that apply Given that paper is made from wood, a decrease in the price of wood should: -increase the price of paper. -decrease the price of paper. -decrease the quantity of paper bought and sold in the market. -increase the quantity of paper bought and sold in the market.

-decrease the price of paper. Reason: A decrease in the price of wood will increase the supply of paper (a rightward shift in the supply curve), leading to a decrease in the equilibrium price and in increase in the equilibrium quantity of paper. -increase the quantity of paper bought and sold in the market. Reason: A decrease in the price of wood will increase the supply of paper (a rightward shift in the supply curve), leading to a decrease in the equilibrium price and in increase in the equilibrium quantity of paper.

Select all that apply Failure to achieve economic efficiency means that _____. -the market is not in equilibrium -everyone in the economy could be made better off -total economic surplus is not maximized

-everyone in the economy could be made better off -total economic surplus is not maximized

Select all that apply In the figure to the right, when the price of milk is $3 per gallon -the quantity supplied equals the quantity demanded. -buyers would like to buy more than 5,000 gallons of milk per day. -suppliers would like to sell more than 5,000 gallons of milk per day. -the market is in equilibrium.

-the quantity supplied equals the quantity demanded. -the market is in equilibrium.

Select all that apply In the figure to the right, when the price of milk is $3 per gallon -the quantity supplied equals the quantity demanded. -buyers would like to buy more than 5,000 gallons of milk per day. -the market is in equilibrium. -suppliers would like to sell more than 5,000 gallons of milk per day.

-the quantity supplied equals the quantity demanded. -the market is in equilibrium.

Given the figure on the right, if the government of Pleasantville makes it unlawful to charge more than $500 per month for a one-bedroom apartment, how many apartments would landlords be willing to supply?

15,000 units per month Reason: When the price is $500, the quantity supplied is 15,000 units per month.

Given the picture on the right, if the price of milk is $2 per gallon, how many gallons per day do sellers wish to sell? ______ gallons

3,000

Refer to the graph as shown. If the price of milk is $3 per gallon, how many gallons per day are consumers willing to purchase?

5,000

Which of the following factors will lead to a decrease in supply?

An expectation of higher prices in the future.

The most John is willing to pay for a slice of pizza is $2.56. Thus, $2.56 is

John's reservation price for pizza. Reason: A buyer's reservation price is the largest dollar amount the buyer would be willing to pay for the good.

The change in the quantity demanded of a good that results because buyers switch to or from substitutes when the price of the good changes is known as the _____ of a price change.

Substitution effect Reason: The substitution effect captures the change in the quantity demanded of a good that results because buyers switch to or from substitutes when the price of the good changes.

True or false: The socially optimal quantity is that level for which the marginal cost and marginal benefit of the good are the same. True false question.

True

A shift in the entire demand curve is considered ______.

a change in demand

A shift of the entire supply curve is considered ______.

a change in supply

A movement along the demand curve is considered ______.

a change in the quantity demanded

If an increase in the price of one good, causes a decrease (leftward shift) in the demand for another good, then the two goods are _____.

complements

If the demand for ketchup decreases when the price of hot dogs increases, then this suggests that ketchup and hot dogs are _____.

complements

If the price of blueberries increases, then this should lead the supply of blueberry muffins to _____.

decrease Reason: An increase in the price of an input will lead to a decrease in supply.

The graph shown represents a ______.

demand curve Reason: Demand curves are downward-sloping with respect to price.

You observe that the price of books has gone down at the same time that the number of books bought and sold in the market has decreased. The best explanation for this is that the:

demand for books has decreased.

When all goods and services are produced and consumed at their socially optimal levels ______.

economic efficiency is achieved

Suppose that as the price of coffee increases, consumers purchase less coffee in part because they can no longer afford to buy as much coffee as they used to. This reduction in the quantity of coffee demanded is known as the _____ of a price change.

income effect Reason: The income effect captures the change in the quantity demanded of a good that results because a change in the price of a good changes the buyer's purchasing power.

Suppose that as the price of movie tickets increases, people stop going to the movies as often because they can no longer afford to do so. This reduction in the quantity of movie tickets demanded is known as the _____ of a price change.

income effect Reason: The income effect captures the change in the quantity demanded of a good that results because a change in the price of a good changes the buyer's purchasing power.

A maximum allowable price specified by law is a _______.

price ceiling

A change in demand is represented by a ______.

shift in the entire demand curve

If an increase in the price of one good, causes a increase (rightward shift) in the demand for another good, then the two goods are _____.

substitutes

If the demand for apartments decreases when house prices falls, then this suggests that apartments and houses are _____.

substitutes

If the demand for tea increases when the price of coffee goes up, then this suggests that coffee and tea are:

substitutes.

An increase in the price of cotton is likely to shift the supply curve for clothing (that uses cotton as an input) to

the left. Reason: An increase in the price of an input will lead to a decrease in supply (a leftward shift).

The socially optimal quantity is

the quantity of a good that maximizes the total economic surplus that results from producing and consuming the good.

If Zach's reservation price for a gallon of milk is $5.53, and the market price for milk is $4.90, then Zach

will buy a gallon of milk. Reason: A buyer will only buy a good if his or her reservation price for that good is greater than the market price of that good.

If Jason's reservation price for a pound of apples is $1.40, and the market price for a pound of apples is $1.52, then Jason

will not buy a pound of apples. Reason: A buyer will only buy a good if his or her reservation price for that good is greater than the market price of that good.

When a new technology reduces the cost of production, supply ______. Multiple choice question.

will shift to the right (increase)

If butter and popcorn are complements, then a decrease in the price of butter will lead to _____ in the demand for popcorn.

an increase

If more people decide to go to medical school because of the popular television show "Grey's Anatomy", then this should lead to _____ in the supply of doctors.

an increase

If the price of sugar falls, this is like to lead to _____ in the supply of candy.

an increase Reason: As decrease in the price of an input will lead to an increase in supply.

Two goods are complements if

an increase in the price of one good, leads to a decrease (leftward shift) in the demand for the other.

Two goods are substitutes if

an increase in the price of one good, leads to an increase (rightward shift) in the demand for the other.

Select all that apply Which of the following is likely to lead to an increase in the demand for cell phones? -A decrease in the price of cell phone apps (a complement to cell phones). -A reduction in the cost of manufacturing cell phones. -An increase in income (assuming cell phones are a normal good).

-A decrease in the price of cell phone apps (a complement to cell phones). -An increase in income (assuming cell phones are a normal good).

Select all that apply If Red Bull and Coke are substitutes, then a decrease in the price of Red Bull should lead to: -an increase in the amount of Coke bought and sold in the market. -an increase in the price of Coke. -a decrease in the amount of Coke bought and sold in the market. -a decrease in the price of Coke.

-a decrease in the amount of Coke bought and sold in the market. -a decrease in the price of Coke.

Select all that apply If butter and popcorn are complements, then an increase in the price of popcorn will lead to: -a decrease in the equilibrium quantity of butter. -a decrease in the equilibrium price of butter. -an increase in the equilibrium price of butter. -an increase in the equilibrium quantity of butter.

-a decrease in the equilibrium quantity of butter. -a decrease in the equilibrium price of butter. Reason: As the price of popcorn increases, the demand for butter will decrease, leading to a decrease in the equilibrium price and quantity of butter.

Select all that apply If hot dogs and ketchup are complements, then an increase in the price of ketchup will lead to: -a decrease in the price of hot dogs. -an increase in the price of hot dogs. -an increase in the number of hot dogs bought and sold in the market. -a decrease in the number of hot dogs bought and sold in the market.

-a decrease in the price of hot dogs. Reason: As the price of ketchup increases, the demand for hot dogs will fall, leading to a decrease in the equilibrium price and quantity of hot dogs. -a decrease in the number of hot dogs bought and sold in the market. Reason: As the price of ketchup increases, the demand for hot dogs will fall, leading to a decrease in the equilibrium price and quantity of hot dogs.

Select all that apply Given that flour is an important input to bread, an increase in the price of flour should lead to: -a decrease in the quantity of bread bought and sold in the market. -a decrease in the price of bread. -an increase in the price of bread. -an increase in the quantity of bread bought and sold in the market.

-a decrease in the quantity of bread bought and sold in the market. Reason: If the price of flour increases, the supply of bread will decrease (a leftward shift in the supply curve), leading to an increase in the equilibrium price and a decrease in the equilibrium quantity of bread. -an increase in the price of bread. Reason: If the price of flour increases, the supply of bread will decrease (a leftward shift in the supply curve), leading to an increase in the equilibrium price and a decrease in the equilibrium quantity of bread.

Select all that apply Given that flour is an important input to bread, an increase in the price of flour should lead to: -a decrease in the price of bread. -an increase in the price of bread. -an increase in the quantity of bread bought and sold in the market. -a decrease in the quantity of bread bought and sold in the market.

-an increase in the price of bread. Reason: If the price of flour increases, the supply of bread will decrease (a leftward shift in the supply curve), leading to an increase in the equilibrium price and a decrease in the equilibrium quantity of bread. -a decrease in the quantity of bread bought and sold in the market. Reason: If the price of flour increases, the supply of bread will decrease (a leftward shift in the supply curve), leading to an increase in the equilibrium price and a decrease in the equilibrium quantity of bread.

Select all that apply Failure to achieve economic efficiency means that _____. -total economic surplus is not maximized -everyone in the economy could be made better off -the market is not in equilibrium

-total economic surplus is not maximized -everyone in the economy could be made better off

Given the figure on the right, if the government imposes a price ceiling of $2 per gallon on milk, the quantity of milk supplied will equal

3,000 gallons per day. Reason: The supply curve tells us that when the price of milk is $2 per gallon, the quantity of milk supplied is 3,000 gallons per day.

iven the picture on the right, if the price of milk is $3 per gallon, how many gallons per day do sellers wish to sell? ________ gallons.

5,000

In the figure to the right, what is the equilibrium quantity? -4,000 gallons per day -3,000 gallons per day -5,000 gallons per day -6,000 gallons per day

5,000 gallons per day Reason: The equilibrium quantity is the quantity at which the supply curve and demand curve intersect.

Refer to the graph as shown. If the price of milk is $2 per gallon, then the consumers would be willing to purchase _________ gallons of milk per day.

7,000

A medical breakthrough that decreases the cost of treating cancer should lead to ____ in the supply of cancer treatments.

an increase

If Netflix and Hulu Plus are substitutes, then an increase in the price of Netflix will lead to _____ in the demand for Hulu Plus.

an increase

If Ramen Noodles are an inferior good, then a fall in income should lead to _____ in the demand for Ramen Noodles.

an increase

A movement along the supply curve is considered ______.

a change in the quantity supplied

If bagels and cereal are substitutes, then a decrease in the price of bagels will lead to _____ in the demand for cereal.

a decrease

If iPads are a normal good, then a fall in consumer income should lead to _____ in the demand for iPads.

a decrease

An increase in the supply of corn (a rightward shift in the supply curve) could be the result of _____ in the price of an input to the production of corn.

a decrease Reason: A decrease in the price of an input to production leads to an increase in supply.

If the price of cheese increases, then this should lead to _____ in the supply of pizza.

a decrease Reason: An increase in the price of an input will lead to a decrease in supply.

If people who currently own homes learn that home prices are likely to go up in their area next year, then this should lead to ____ in the current supply of homes.

a decrease Reason: If people believe that home prices are going to go up next year, this may lead them to delay selling their homes for a year, thereby decreasing current supply.

A change in quantity demanded is represented by

a movement along the demand curve.

A change in the quantity supplied is represented by

a movement along the supply curve.

If your cousin gets a big raise at work, and as a result, goes out to eat more often, then this suggests that for your cousin restaurant meals are _____.

a normal good

A supply curve is ______.

a schedule or graph showing the quantity of a good that sellers wish to sell at each price

A change in supply is represented by ______.

a shift in the entire supply curve

Economic efficiency occurs when

all goods and services are produced and consumed at their socially optimal levels.

Given the figure on the right, if the government of Pleasantville makes it unlawful to charge more than $500 per month for a one-bedroom apartment, then this would result in an excess

demand of 20,000 apartments per month. Reason: When the price is $500, quantity demanded is 35,000 units per month, and the quantity supplied is 15,000 units per month, implying an excess demand of 20,000 units per month.

The change in the quantity demanded of a good that results because a change in the price of a good changes the buyer's purchasing power is known as the _____ of a price change.

income effect Reason: The income effect captures the change in the quantity demanded of a good that results because a change in the price of a good changes the buyer's purchasing power.

Along a supply curve, if the price of butter increases, the quantity of butter supplied will _____.

increase Reason: As price increases, quantity supplied increases.

Movements toward efficiency make the total economic pie _____, making it possible for everyone to have a _____ slice. Multiple choice question.

larger; larger

A buyer's reservation price is the

largest dollar amount the buyer would be willing to pay for a good. Reason: A buyer's reservation price is the largest dollar amount the buyer would be willing to pay for the good.

Suppose that as the price of movie tickets increases, people go to the movies less often and instead rent movies at home. The resulting reduction in the quantity of movies demanded is known as the _____ of a price change.

substitution effect Reason: The substitution effect captures the changes in the quantity demanded of a good that results because buyers switch into or out of substitutes as the price of the good changes.

Suppose that as the price of pencils increases, people buy fewer pencils and instead use pens. The resulting reduction in the quantity of pencils demanded is known as the _____ of a price change.

substitution effect Reason: The substitution effect captures the changes in the quantity demanded of a good that results because buyers switch into or out of substitutes as the price of the good changes.

A schedule or graph showing the quantity of a good that sellers wish to sell at each price is known as a _____.

supply curve

The picture on the right represents a _____.

supply curve Reason: Supply curves are upward sloping with respect to price.

The numbers in the table below likely capture the daily _______ tennis balls.

supply of Reason: As the price of a product increases, the quantity supplied increases.

You observe that the price of ice cream has gone up and that less ice cream is being bought and sold. The best explanation for this is that the

supply of ice cream has decreased.

Buyer's surplus is

the difference between a buyer's reservation price and the price the buyer actually pays.

Total surplus is

the difference between the buyer's reservation price and the seller's reservation price.

Seller's surplus is:

the difference between the price the seller receives and the seller's reservation price.