Supply and Demand

Suppose that a customer's willingness to pay for a product is $79, and the seller's willingness to sell is $64. If the negotiated price is $68, how much is consumer surplus? -$15 -$4 -$11 -$21

$11

Suppose that a customer's willingness to pay for a product is $79, and the seller's willingness to sell is $64. If the negotiated price is $68, how much is producer surplus? -$21 -$11 -$15 -$4

$4

Jonathan purchased coffee for $5 at Jennifer's coffee shop; however, he was willing to pay $9. Jennifer was willing to accept $3 for the coffee. The results of this transaction are a consumer surplus of: -$10 and a producer surplus of $12 -$2 and a producer surplus of $4 -$4 and a producer surplus of $2 -$12 and a producer surplus of $10

$4 and a producer surplus of $2

How to find the area of a triangle?

1/2 (base x height)

An increase in government subsidies for an industry, which reduces production cost, causes the market equilibrium price to_____ and the market equilibrium quantity to____. A. decrease; increase B. increase; decrease C. increase; increase D. decrease; decrease

A. decrease; increase

When the market for a good is in equilibrium, there is (are): A. No shortages or surpluses B. an increase in the quantity demanded of the good C. forces that induce a decrease in price D. excess Demand

A. no shortages or surpluses

What might be done with the surplus caused by a government agricultural price support program? A. some of the surplus might be used for school lunches and in other government institutions; other parts of the surplus might be destroyed B. the farmers producing the surplus might be destroyed C. the surplus could be used as a seed for the next year's crop D. the surplus might be sold to other countries above the world market price

A. some of the surplus might be used for school lunches and in other government institutions; other parts of the surplus might be destroyed

An effective (or binding) price ceiling is a situation in which: A. the government sets the maximum price for a good above its free market equilibrium price B. government sets the maximum price for a good below its free market equilibrium price C. competing firms collude to set the price of a good above its free market equilibrium price D. consumer unions bargain to set the price of a good below its free market equilibrium price

B. government sets the maximum price for a good below its free market equilibrium price

Assume that hamburgers and ketchup are complements. If the price of hamburgers falls, demand for ketchup: A. decreases B. increases C. remains the same D. moves to the left

B. increases

If an effective price ceiling is raised: A. shortage increases B. shortage decreases C. surplus increases D. surplus decreases

B. shortage decreases

Price controls are sometimes used when the natural operation of free markets leads to: A. positive externalities B. undesirable outcomes C. an efficient distribution of goods D. a trade deficit

B. undesirable outcomes

The Supply and demand Model assists in analyzing the: A. relationship between education and employment B. growth in overall level of economic activity C. determinants of market price and quantity D. connection between trade and U.S. employment levels

C. determinants of market price and quality

Assume a farmer's land is equally productive in growing corn or potatoes and is currently producing both. If the price of corn increases but the price of potatoes does not change, the farm's supply curve for potatoes will: A. shift to the right, and more potatoes will be produces at each price level B. not change, because the production of potatoes is not affected by price changes for corn C. shift to the left, and fewer potatoes will be produced at each price level D. shift to the right, and fewer potatoes will be produced at each price level

C. shift to the left, and fewer potatoes will be produced at each level price

One of the costs associated with a minimum wage is that it creates a: A. shortage of workers B. shortage of employers C. surplus of workers D. surplus of employers

C. surplus of workers

Improvements in technology that reduce production costs cause the___ curve to shift to the___, indicating a(n)_____ in the amount_____ at each price point. A. demand; right; increase; demanded B. supply; left; decrease; supplied C. demand; left; decrease; demanded D. supply; right; increase; supplied

D. Supply; right; increase; supplied

When price ceiling for a good is set below the free market equilibrium the result is a(n): A. supply B. equilibrium C. surplus D. Shortage

D. shortage

Determinant of Demand (5)

Number of buyers

Determinant of demand (6)

Price expectations

Determinant of Demand (4)

Price of complements

Determinant of supply (3)

Price of related commodities

Determinant of Supply (1)

Production technology

Determinants of Demand (1)

Taste and Preference

In general terms, which item is an example of an inferior good? -a T-bone steak -clothing -a city bus -gasoline

a city bus

Inferior good

a good for which an increase in income results in declining demand

normal good

a good for which an increase in income results in rising demand

normal goods

a good for which an increase in income results in rising demand

inferior goods

a goof for which an increase in income results in declining demand

supply curve

a graphical illustration of the law of supply, which shows the relationship between the price of a good and the quantity supplied

Laissex-faire

a market that is allowed to function without any government intervention

laissez- faire

a market that is allowed to function without any government intervention

price ceiling

a maximum price established by government for a product or service -when the price ceiling is set below equilibrium, a shortage results

price floor

a minimum price established by government for a product or service -when the price floor is set above equilibrium, a surplus results

when a scarce good or resource is consumed by the person who does not value it most, economists refer to the situation as: -a misallocation of resources -the allocation of resources -equity -efficiency

a misallocation of resources

price system

a name given to the market economy because prices provide considerable information to both buyers and sellers

Horizontal summation

add the number of units of a product all consumers will purchase at each price

Price of related goods

affect consumer decisions

taxes and subsidies

affect costs

Example of price floor

agriculture

willingness to pay

an individuals valuation of a good or service -equal to the most an individual is willing and able to pay

willingness to pay

an individuals valuation of a good or service equal to the most an individual is willing and able to pay

Income

as income rises, demand for most goods will likewise increase

when demand alone changes what can be determined?

both equilibrium price and output

demand curve is____ based

consumer

The demand for gasoline is rising. Which statement describes a possible cause? -commuters are switching from driving to public transportation -drivers are purchasing more fuel-efficient cars -consumers expect prices to rise in the near future -incomes are falling

consumers expect prices to rise in the near future

Determinant of supply (2)

cost of resources

When the price of a good or service increases the quantity demand will?

decrease

producer surplus

difference between the market price and the price at which firms are willing to supply the product -equal to the area below market price and above the supply curve

Producer surplus

difference between the price a seller receives and its willingness to sell

The demand curve slopes____to the___

down; left

suppose a price floor is set on cane sugar that is approximately three times the equilibrium price. one of the effects is a(n): -drop in the quantity of sugar consumed -shortage of sugar -shift by food manufactures from the use of corn syrup to cane sugar -increase in the efficiency of the market

drop in the quantity of sugar consumed

Price ceilings are below_____

equilibrium price

Price floor is above?

equilibrium price

Number of sellers

everything else is being held constant

Pirce___ the quantity demanded___

falls; increases

True or false: if a price floor is effective, all suppliers benefit from equilibrium prices below the free market prices

false

true or false: An increase in consumer preference for a good shifts the demand curve to the left

false

true or false: if the price of a resource required to produce a good increases, the supply curve will shift to the right, indicating that producers are inclined to produce more of the good at each price point

false

true or false: price controls provide only benefits but no costs to society

fasle

Consumer surplus is defined as the: -gap between the supply curve and the market price -gap between the demand curve and the market price -difference between a price floor and the market price -difference between a price ceiling and the market price

gap between the demand curve and the market price

Producer surplus is defined as the: - gap between the supply curve and the market price -difference between a price ceiling and the market price -gap between the demand curve and the market price -difference between a price floor and the market price

gap between the supply curve and the market price

substitute goods

goods consumers will substitute for one another -when the price of one good rises, the demand for the other good increases (and vice versa)

complementary goods

goods that are typically consumed together. -when the price of a complementary good rises the demand for the other good declines ( and vice versa)

Public goods

goods that one person can consume without diminishing what is left for others

Price ceilings are set by?

government

Price floor is set by?

government

Which of these circumstances would NOT affect the supply of new automobiles? -a subsidy for struggling automobile manufacturers -a labor strike in the steel industry -higher interest rates for new car financing -an improvement in automobile manufacturing technology

higher interest rates for new car financing

law of demand

holding all other relevant factors constant, as price increases quantity demanded falls and as price decreases quantity demanded rises

law of supply

holding all other relevant factors constant, as price increases, quantity supplied rises and as price declines, quantity supplied fails

What does technology determine?

how much output can be produced from given quantities or resources

Determinant of demand (2)

income

When the prices of goods or services decrease quantity demand will?

increase

Price ____ the, quantity demanded___

increases; falls

demand declines as income rises and the demand curve shifts to the left

inferior goods

markets

institutions that bring buyers and sellers together -so they can interact and transact with each other

equilibrium

market forces are in balance when the quantities demanded by consumers just equal the quantities supplied by producers

When quantity demanded in a market equals quantity supplied: then the: -equilibrium price is less than expected by buyers -market is in temporary disequilibrium -market will not clear without further price adjustments -market is in equilibrium

market is in equilibrium

Price ceilings are a_____ price for a good

maximim

Price floor is a_____ price for a good

minimum

a good example of a government- imposed price floor is: -rent controls -supply and demand -equilibrium -minimum wage

minimum wage

existence of public goods

most goods we buy are private goods (meals/ concert tickets),

examples of complementary goods

movies and popcorn, car and oil

substitute goods examples

movies, concerts, plays and sporting events

Demand curve has a____ relationship

negative

determinants of supply

non-price factors that affect supply

determinant of demand

nonprice factors that affect demand - tastes and preferences, income - prices or related goods -numbers of buyers -expectations

determinants of supply

nonprice factors that affect supply -production technology -costs of resources -prices of related commodities -expectations -number of sellers -taxes and subsidies

demand is positively linked to income

normal goods

Income shifts the demand curve?

normal goods- shift right inferior goods- shift left

Number of buyers

number of potential buyers in the market

Determinant of supply (5)

number of sellers

market failure

occurs when a free market does not lead to a socially desirable outcome

misallocation of resources

occurs when a good or service is not consumed by the person who values it most and typically results when a price ceiling creates an artificial shortage in the market

Change in demand

occurs when one or more of the determinants of demand changes

change in supply

occurs when one or more of the determinants of supply change

asymmetric information

occurs when one party to a transaction has significantly better information than another party

surplus

occurs when the price is above market equilibrium, and quantity supplied exceeds quantity demanded

shortage

occurs when the price is below market equilibrium and quantity demanded exceeds quantity supplied

change in quantity demanded

occurs when the price of the product changes

change in quantity supplied

occurs when the price of the product changes

changes in quantity supplied

occurs when the price of the product changes, shown as movement along an existing supply curve

It takes how many of the determinants of demand to change the entire demand curve right?

one

Which type of payment would NOT be a market transaction? -payment for a soft drink at a vending machine -payment for a used book purchased on eBay -payment for purchase of shares at a stock exchange -payment made to a disaster victim

payment made to a disaster victim

A market exists when: -the cost of production is equated to the price by a government agency -a physical location is created to facilitate the exchange of personal information about consumer choices -an absolute advantage is achieved by one country -people exchange money for goods and services

people exchange money for goods and services

Supply curve is a___relationship

positive

tastes and preferences

preference for certain products over others

When demand falls what falls?

price and output

When demand grows what rises?

price and output

supply curves positive relationship is between?

price and quantity

"price gouging" laws are types of____ and often result in____. -price ceilings; a sufficient supply of a scarce good -price ceilings; shortages of a scarce goos -price floors; a sufficient supply of a scarce good -price floors; surpluses of a scarce good

price ceilings; shortages of a scarce good

determinant of supply (4)

price expectations

What are used to analyze minimum wage policy?

price floors

A change in the quantity demanded of a good results from a change in the:

price of a good

Determinant of Demand (3)

price of substitutes

Another word for Market economy is:

price system

law of demand

principle when all other factors are held constant

Supply curve is____ based

producer

Other factors held constant, as the price of an ipad rises, the: -demand for ipads falls -demand for ipads rises -quantity demanded for ipads falls -quantity demanded for ipads rises

quantity demanded for ipads falls

demand

refers to the goods and services people are willing and able to buy during a certain period of time at various prices, holding all other relevant factors constant

A good example of a government imposed- price ceiling is: -rent controls -equilibrium -supply and demand -minimum wage

rent controls

Example of price ceiling

rent prices

What costs affect production costs and supply?

resource costs

Taste and preferences causes the Demand curve to shift to the?

right

demand curve shifts___ during hurricane season and its moving toward the coast the demand for plywood, nails, bottled water and batteries quickly rises

right

When demand and supply increase output will____, new equilibrium price is___

rise: uncertain

If demand grows relatively more than supply, price will___; but if supply grows relatively more than demand price will___

rise; fall

Price of complements shifts the demand curve?

shift to the left

Cost or resources shifts the supply curve?

shifts left

Price of related commodities causes the supply curve to shift?

shifts left

price expectations causes a shift in the supply demand?

shifts left

taxes lead to a shift in the supply curve?

shifts left

Number of buyers shifts the demand curve?

shifts right

Number of sellers leads to a supply shift?

shifts right

Price expectations shift the demand curve?

shifts right

Production technology moves the supply curve?

shifts right

Subsides cause the supply curve to shift?

shifts right

Price of substitutes shifts the demand curve?

shifts to the right

Price ceilings cause a?

shortage

Determinant of demand (7)

subsidies

law of____ states that higher prices will lead producers to offer more of their products for sale during a given period

supply

Price floor causes a?

surplus

demand schedule

table indicating the quantities consumers are willing to purchase at each price

Determinant of supply (6)

taxes

equilibrium

the amount of the product that consumers are willing and able to purchase is matched exactly by the amount that producers are willing and able to sell

Consumer surplus

the difference between a person's willingness to pay and the price paid

consumer surplus

the difference between what consumers would be willing to pay and the market price -equal to the area above market price and below the demand curve

What are expectations?

the effects of future expectations

Deadweight loss

the loss of consumer surplus and producer surplus caused the the inefficiency of a market not operating at equilibrium

demand

the maximum amount of a product that buyers are willing and able to purchase over some time period at various prices -holding all other relevant factors constant (ceteris Paribus)

supply is defined as: -the minimum amount of a product that sellers are willing and able to provide for salve over a particular time period at various prices, holding all other relevant factors constant -the maximum amount of a product that sellers are willing and able to provide for sale over a particular time period at various prices, holding all other relevant factors constant -the minimum amount of a product that buyers are willing and able to purchase over a particular time period at various prices, holding all other relevant factors constant -the maximum amount of a product that buyers are willing and able to purchase over a particular time period at various prices, holding all other relevant factors constant

the maximum amount of a product that sellers are willing and able to provide for sale over a particular time period at various prices, holding all other relevant factors constant

supply

the maximum amount of a product that sellers are willing and able to provide for sale over some time period at various prices, holding all other relevant constant (ceteris paribus)

equilibrium quantity

the output that results when quantity demanded is just equal to quantity supplied

equilibrium price

the price at which the quantity demanded is just equal to quantity supplied

At any price below the equilibrium price: -the quantity demanded exceeds the quantity supplied in the market -the quantity demanded equals the quantity supplied in the market -demand exceeds supply in the market -the quantity demanded is less than the quantity supplied in the market

the quantity demanded exceeds the quantity supplied in the market

deadweight loss

the reduction in total surplus that results from the inefficiency of a market not in equilibrium; occurs when prices deviate from equilibrium

total surplus

the sum of consumer surplus and producer surplus, and a measure of the overall net benefit gained from a market transaction

What do governments use price ceilings and price floors for?

to keep prices below or above market equilibrium

flu vaccination shots provide external benefits thus: -the private market collapses -too many flu vaccination shots are given -too few flu vaccination shots are given -the private market provides the socially desirable output of shots

too few flu vaccination shots are given

The measure of society's benefits due to a market transaction is called: -producer surplus -total surplus -deadweight loss -consumer surplus

total surplus

True or false: a price ceiling is a government- mandated maximum price at which a good can be sold

true

true or false: as income increases, the demand curve for an inferior good shifts to the left

true

true or false: markets tend to provide too little of products with external benefits

true

invisible hand

unobservable market force that helps the demand and supply of goods in a free market to reach equilibrium automatically

The supply curve slopes___ to the____

up; right

Whenever you purchase a product you are?

voting with your money

Predicting the new equilibrium when both curves shoft

we can predict price and in some cases output but not both

when does asymmetric information occur?

when either a buyer or a seller knows more about a product than the other

predicting the new equilibrium when one curve shifts

when only supply or only demand changes, the change in equilibrium price and equilibrium output can be predicted

Market equilibrium

where supply and demand intersect each other and are equal