Module 5

Excess demand = ____

shortages

In ____ producers can raise prices

shortages

If demand curve shift to the right and supply curve shift to right. Quantity will ___ and price will _____

Quantity will increase Price will decrease, decrease or stay the same

The price of turkeys goes down at Thanksgiving even though demand increases because:

Supply increases by relatively more than demand because frozen turkeys are brought to market.

_____: how to arrange our limited resources to satisfy as many wants as possible

The Great Economic Problem

A decrease in the equilibrium quantity for a product will result:

when there is a decrease in supply and a decrease in demand for the product.

What causes a demand to shift?

1) Income 2) prices of related good 3) size of population 4) Tastes 5) Expected future prices

What causes supply to change?

1) Price of input 2)Prises of subtitutes and complements in production 3) Number of firms in the market 4) Technological change 5) Expected future prices

Why does the price of turkey fall on thanksgiving, but price of roses shoot up in valentine's day?

Because turkeys can be frozen trhougth the year YOu can not drastically increase the supply of roses

In recent years the cost of producing organic produce in the U.S. has decreased largely due technological advancement. At the same time, more and more Americans prefer organic produce over conventional produce. Which of the following best explains the effect of these events in the organic produce market?

Both the supply and demand curves have shifted to the right. As a result, there has been an increase in the equilibrium quantity and an uncertain effect on the equilibrium price.

What causes a change in market equilibrium?

Changes are brought by shifts in market demand and market supply

Let D= demand, S = supply, P = equilibrium price, Q= equilibrium quantity. What happens in the market for walnuts if the Centers for Disease Control and Prevention announces that consuming a half cup of walnuts each week helps to lower bad levels of cholesterol?

D increases, S no change, P and Q increase

Auctions in recent years have resulted in higher prices paid for letters written by John Wilkes Booth than those written by Abraham Lincoln. Which of the following events would cause the price differences in these letters to get smaller?

Demand of Lincoln's letter increase and the supply of Booth's letter increase

T/F Scarcity is defined as the situation that exists when the quantity demanded for a good is greater than the quantity supplied

FALSE! That would be a shortage

T/F Because the supply of low-quality guns is very elastic, gun buy-back programs in a single city will reduce the number of guns by a large amount

FALSE! The number of people buying guns for the streets are the same, what changed is what the cops bought

T/F Suppose a medical study reveals new benefits to consuming beef and at the same time a bumper corn crop reduces the cost of feeding steers. The equilibrium price of beef will: Rise

FALSE! perhaps rise, fall, or stay the same, but more information is needed to determine which it does. (both demand and supply shift right)

T/F Resources have equall value in all uses

FALSE!! this is where the great economic problem comes from

T/F Because the demand for illegal drugs is inelastic and the supply is elastic, policies that reduce supply in the illegal drug market reduce equilibrium quantity very much

FALSE!!! Because the demand for illegal drugs is inelastic and the supply is elastic, policies that reduce supply in the illegal drug market do not reduce equilibrium quantity very much

T/F Government policies will have their intended effect irrespective of the laws of supply and demand

FALSEEEEEE

- When the demand for a good decrease, its equilibrium price ______ and equilibrium quantity ______.

Falls; decreases

Because the demand for illegal drugs is inelastic and the supply is elastic, policies that reduce supply in the illegal drug market reduce revenue for drug dealers:

False! Revenue increases

T/F In a shortage, quantity supplied is less than quantity demanded

False! shortage

_______: situation where the buyer or the seller have NO incentive to change their behavior

Market Equilibrium

_______eliminate shortages and surplus

Market Equilibrium

If demand curve shift to the left and supply curve shift to the left. Quantity will ____ and price will ____

Quanity will decrease Price will decrease, increase or stay the same

If demand curve shift to the right and supply curve is unchanged. Quanity will ____ and price will ______

Quantity increase Price increase

If demand curve shift to the left and supply curve is unchanged. Quanity will ____ and price will ___

Quantity will decrease Price will decrease

If demand curve is unchanged and supply curve shift to the left. Quantity will _____ and Price will _________

Quantity will decrease Price will increase

If demand curve shift to the left and supply curve shift to the right. Quantity will ____ and price will ____

Quantity will decrease, increase or stay the same Price will decrease

If demand curve shift to the right and supply curve shift to left. Quantity will ___ and price will _____

Quantity will decrease, increase or stay the same Price will increase

If demand curve is unchanged and supply curve shift to the right. Quantity will _____ and Price will _________

Quantity will increase Price will decrease

Let D= demand, S = supply, P = equilibrium price, Q= equilibrium quantity. What happens in the market for tropical hardwood trees if the governments restrict the amount of forest lands that can be logged?

S decreases, D no change, P increases, Q decreases

In 2004, hurricanes damaged a large portion of Florida's orange crop. As a result of this, many orange growers were not able to supply fruit to the market. Consider this new, post-hurricane situation under previous, pre-hurricane equilibrium price. We would expect to see: ______ of Oranges

Shortage

Some consumers will be unable to obtain digital music players at the market price and will have an incentive to offer to buy the product at a higher price. This means there is a _____ in the market of digital music

Shortage

______: Quantity demanded exceed quantity supply

Shortages

______: falling quantity demanded and rising quantity supplied

Surplus

T/F In response to a surplus the market price of a good will fall; as the price falls, the quantity demanded will increase and quantity supplies will decrease until equilibrium is reached.

TRUE

T/F Increase in demand, decrease in supplies will always rise the equilibrium price

TRUE

T/F Increase in price and increase in price quantity than the increase in price, would cause an increase in the equilibrium price and an increase in the equilibrium quantity of watermelons

TRUE

T/F Market equilibrium occurs where supply equals demand.

TRUE

T/F In equilibrium demand = supply

TRUE, But that is NOT why it is in equilibrium

In 2004, hurricanes destroyed a large portion of Florida's orange and grapefruit crops. In the market for citrus fruit:

The supply curve shifted to the left resulting in an increase in the equilibrium price.

Auctions in recent years have resulted in higher prices paid for letters written by John Wilkes Booth than those written by Abraham Lincoln. What is a reason for this difference in price?

There are more letter by Lincoln than letters by booth

T/F A change in one resources can change the consumption patterns of many goods

True

T/F Demand and supply work together to determine prices and quantity on a market

True

T/F If the demand and supply curves for a commodity both shift to the left by the same amount, then in comparison to the initial equilibrium, the new equilibrium will be characterized by: same price and lower quantity

True

T/F Prices below or above the market equilibrium have an incentive to change behavior

True

A decrease in the demand for soft drinks due to changes in consumer tastes, accompanied by an increase in the supply of soft drinks as a result of reductions in input prices, will result in:

a decrease in the equilibrium price of soft drinks; the equilibrium quantity may increase or decrease

An increase in the demand for lobster due to changes in consumer tastes, accompanied by a decrease in the supply of lobster as a result bad weather reducing the number of fishermen trapping lobster, will result in:

an increase in the equilibrium price of lobster; the equilibrium quantity may increase or decrease

Assume that the price for swimming pool maintenance services has risen and sales of these services have fallen. One can conclude that: the supply of swimming pool maintenance services has ______

decreased

In 2001 noted two developments in the market for laser eye surgery. The first development concerned side effects from the surgery, including blurred vision. The second development was that the companies renting eye-surgery machinery to doctors had reduced their charges. In the market for laser eye surgeries, these two developments:

decreased demand and increased supply, resulting in a decrease in the equilibrium price and an uncertain effect on the equilibrium quantity of laser eye surgeries.

The equilibrium quantity of a good will increase and its equilibrium price might rise, fall, or stay the same when:

demand and supply both increase

In ______, Quantity demanded = quantity supplied

equilibrium market

If the demand and supply curves for a commodity both shift to the left and the shift in demand is less than the shift in supply, then in comparison to the initial equilibrium, the new equilibrium will be characterized by:

higher price and lower quantity

Increase in income --> ____ in quantity and demand

increase

So for roses in valentines, the demand increases and supply stays the same. this leads to an ___ in price

increase

Supply shifts upward and left, that means there was a ____ in prices and ___ in quantity supplied

increase in prices and decrease in quantity supplied

The cost of producing cigarettes in the U.S. has increased and at the same time, more and more Americans are choosing to not smoke cigarettes. Both the supply and demand curves have shifted to the _____. As a result, there has been a _____ in the equilibrium quantity and an uncertain effect on the equilibrium price.

left; decrease

The elasticity of demand for turkeys at Thanksgiving and roses at Valentine's day: becomes _____ elastic

less elastic (people can no live without them on this day, no substitutes)

Assume that the supply curve for a commodity shifts to the right and the demand curve shifts to the left, both by the same degree. Then, in comparison to the initial equilibrium, the new equilibrium will be characterized by:

lower price and same quantity

Why aren't imports of roses from South America and Africa high year-round instead of just around Valentine's Day?

o The spike in demand makes it profitable for producers with higher costs (like transportation) to enter the market. o Flower production in the US is particularly low in February, so US-based supply is shifted leftward that month because of the climate.

If Supply shifts downward and outward, that means there was a ____ in prices and ____ in quantity supplied

reduction in prices and increase in quantity supplied

If the demand and supply curves for a commodity shift to the right by the same amount, then in comparison to the initial equilibrium, the new equilibrium will be characterized by:

same price and higher quantity

Sellers are selling out = _____

shortages

A ____ gives producers incentive to reduce prices

surplus

Excess supply in the market = ____

surplus

Sellers make, but can't sell = ______

surplus

a _____ is eliminated by a price decrease, decreasing the quantity supplied and increasing the quantity demanded.

surplus

great economic problem

to arrange our limited resources to satisfy as many of our wants as possible