CH 4 ECON exam

The claim that, with other things being equal, the quantity demanded of a good falls when the price of that good rises

law of demand

The manager of the Euclid Kroger notices that when the price of bread increases, the quantity sold at his store falls. What phenomenon best describes this?

law of demand

The claim that, other things being equal, the quantity supplied of a good increases when the price of that good rises

law of supply

supply increases to the ____ and decreases to the _________

left right

Law of Supply

producers offer more of a good as its price increases and less as its price falls

Changes in expectations (expected about future price or other conditions) :

-if we expect prices to be higher in future, we buy more now (increse in current demand) -if we expect prices to be lower in the future, we buy less now (decrease in current demand)

shift factors of supply

1) a change in quantity supplied 2) a change in supply

Shift factors of supply

1) price of the factors of production (changes in recourse prices) -as the prices of inputs increase, supply decreases -as the prices of inputs decrease, supply decreases 2) changes in technology -as technology increases, costs of production fall causing supply to increase -as technology decreases, costs of production rise causing supply to decrease 3) changes in the number of firms producing and selling the good (# of producers in market) 4)changes in expectations (about future) 5)Changes in taxes and subsidies -a tax on some aspect of production can increase the cost of the factors of production and decrease supply -taxes deduce supply and subsidies increase supply 6)natural disaster, elements of nature, political disruptions

Perfectly competitive markets have two characteristics:

1.The goods and services bought and sold are all exactly the same. 2.There are large numbers of buyers and sellers, such that no single buyer or seller can affect the market price.

Does a change in consumers' tastes lead to a movement along the demand curve or a shift in the demand curve? Does a change in price lead to a movement in the demand curve or a shift in the demand curve?

A change consumers' taste will only shift the demand curve, while a change in the price of the good itself will represent a movement along the demand curve. A curve shifts when there is a change in a relevant variable that is not measured on either axis. Because price is on the vertical axis, a change in price represents a movement along the demand curve.

What is a competitive market? Briefly describe a type of market that is not perfectly competitive.

A competitive market is one in which there are many buyers and many sellers so that each has a negligible impact on the market price. If a seller were to change their price, their buyers are likely to switch sellers. No single seller can impact the market price in a competitive market. Monopolies and oligopolies can create imperfect competitive markets. Along with this, imperfect competitive markets can be caused by only having one seller where this seller sets the price, such as a local television station.

What are the demand schedule and the demand curve, and how are they related? Why does the demand curve slope downward?

A demand schedule is a table that shows the relationship between the price of a good and the quantity demanded, while a demand curve is a graph of that same information. Because a lower price increases the quantity demanded, the demand curve slopes downward.

how to find market demand

Add up all individual demands

Beer and pizza are complements because they are often enjoyed together. When the price of beer rises, what happens to the supply, demand, quantity supplied, quantity demanded, and price in the market for pizza?

As the price of beer increases, demand for pizza decreases since people buy them together. Supply for pizza would remain unchanged, demand decreases, quantity supplied decreases, quantity demanded decreases, and then the price falls. The entire demand curve for pizza has shifted to the left and therefore affected the equilibrium price and quantity of pizza, in the send reducing the quantity of pizza supplied and demanded.

Explain each of the following statements using supply-and-demand diagrams. "When the weather turns warm in New England every summer, the price of hotel rooms in Caribbean resorts plummets."

Demand decreases. Supply stays the same.

Explain each of the following statements using supply-and-demand diagrams. "When a war breaks out in the Middle East, the price of gasoline rises and the price of a used Cadillac falls."

Demand stays the same. Supply decreases.

Explain each of the following statements using supply-and-demand diagrams. "When a cold snap hits Florida, the price of orange juice rises in supermarkets throughout the country."

Demand stays the same. Supply shifts to the left.

Define the equilibrium of a market. Describe the forces that move a market toward its equilibrium

Equilibrium of a market is where supply and demand have been brought into balance. At this price, the quantity of a good that buyers are willing and able to buy balances with the quantity sellers are willing and able to sell. The activity of many buyers and sellers automatically pushes the market price toward the equilibrium price. Increase in demand and shortage of supply can also move the equilibrium price, but how quickly equilibrium is reached thereafter varies from market to market.

True or False: The market for public utilities, such as gas and electricity, exhibits the two primary characteristics that define perfectly competitive markets.

False only one company

Popeye's income declines, and as a result, he buys more spinach. Is spinach an inferior or a normal good? What happens to Popeye's demand curve for spinach?

In this case, spinach is an inferior good. A rise in quantity demanded at any given price will shift the demand curve to the right.

threshold values

Level of acceptable practice beyond which quality cannot be assured

factors that determine demand

Price of a related good (complement or substitute) •Income of consumers •Tastes of consumers •Number of consumers •Expectations of consumers

Beer and bourbon are substitutes. The Kentucky General Assembly decides to decrease the legal drinking age in the state of Kentucky to 18. At the same time, Woodford Reserve decides to exit the bourbon market to produce basketballs instead. What do expect the effect of these changes to be in the market for bourbon?

Price of bourbon increases, quantity change indeterminate

What will happen if there is an increase in demand for lemons in Lexington as well as a decrease in supply Price of lemons goes up, change in quantity of lemons is ambiguous Change in the price of lemons is ambiguous, quantity of lemons goes down Change in the price of lemons is ambiguous, quantity of lemons goes up Price of lemons goes down, change in quantity of lemons is ambiguous

Price of lemons goes up, change in quantity of lemons is ambiguous

Describe the role of prices in market economies

Prices are great signals that guide economic decisions and bring the market into equilibrium. Prices can signal surplus or shortage and guide economists. Prices different from equilibrium can show a difference in supply and demand and can lead to a change in price until equilibrium is reached.

demand curve formula

Qd = a (intercept) - bP (gradient) -neg slope

supply curve formula

Qs=a+Bs

Suppose that when the price of a 16 oz. to-go cup of gourmet coffee is $4.25, students purchase 750 cups per day. If the price decreases to $3.75 per cup, which of the following is the most likely outcome?

Students would purchase more than 750 cups per day.

To reach this highest form of competition, a market must have two characteristics:

The goods offered for sale are all exactly the same and the buyers and sellers are so numerous that no single buyer or seller has any influence over the market price.

Does a change in producers' technology lead to a movement along the supply curve

The supply curve is very similar to the demand curve in that anything not measured on the axis (technology, input prices, expectations, number of sellers) will result in a shift in the supply curve. At the same time a change in price (on the vertical axis) will results in movement along the supply curve.

What are the supply schedule and the supply curve, and how are they related? Why does the supply curve slope upward?

The supply schedule and supply curve are a table and graph respectively that show the relationship between the price of a good and the quantity supplied. The supply curve slopes upward because a higher price means a great quantity supplied.

Which of the following would result in a shift in supply? Average income in the market increases The expectations of the buyers changes The price of the good itself changes The technology used to make the good changes

The technology used to make the good changes

opportunity cost of production

The total economic cost of producing a good or service. The cost component includes the opportunity cost of all resources, including those owned by the firm. The opportunity cost is equal to the value of the production of other goods sacrificed as the result of producing the good.

complementary market

a commodity consumed jointly with some other commodity -as Pcomp rises, demand for own good falls -as Pcomp falls, demand for our own good rises

substitute good

a good that can be used in place of another good -as Psub rises, demand for own good rises -as Psub falls, demand for our own good falls

demand curve

a graph of the relationship between the price of a good and the quantity demanded

market

a group of buyers and sellers of a particular good or service

competative market

a market in which there are many buyers and many sellers so that each has a negligible impact on the market price

competative market

a market with many buyers and sellers trading identical products so that each buyer and seller is a price taker

change in demand

a shift of the entire demand curve due to a change in one of the determinants of demand a) increase in demand b)decrease in demand

demand schedule

a table that shows the relationship between the price of a good and the quantity demanded

Which of the following might lead to an increase in the equilibrium price of jelly and a decrease in the equilibrium quantity of jelly sold? a. an increase in the price of grapes, an input into jelly b. an increase in the price of Marshmallow Fluff, a substitute for jelly c. an increase in consumers' incomes, as long as jelly is a normal good d. an increase in the price of peanut butter, a complement to jelly

a. an increase in the price of grapes, an input into jelly

The discovery of a large new reserve of crude oil will shift the ________ curve for gasoline, leading to a ________ equilibrium price. a. supply, lower b. demand, lower c. demand, higher d. supply, higher

a. supply, lower

The best definition of a market is a. a group of buyers and sellers of a good or service. b. a store that offers a variety of goods and services. c. a venue where the sole supplier of a good offers its product. d. a place where buyers meet and an auctioneer calls out prices.

a. a group of buyers and sellers of a good or service.

A change in which of the following will NOT shift the demand curve for hamburgers? a. the price of hamburgers b. the price of hot dogs c. the income of hamburger consumers d. the price of hamburger buns

a. the price of hamburgers

In a competitive market, the quantity of a product produced and the price of the product are determined by one buyer and one seller working together. a single buyer. a single seller. all buyers and all sellers

all buyers and all sellers

inferior good

as income increases, demand decreases (ceteris paribus) -potatoes , mac and cheese, used clothes, day old bread (CHEAPER)

normal good

as income increases, demand increases (ceteris paribus)

law of diminishing marginal benefit

as more units of a good are consumed, additional units provide less benefit

Movie tickets and film streaming services are substitutes. If the price of film streaming increases, what happens in the market for movie tickets? a. The demand curve shifts to the left. b. The demand curve shifts to the right. c. The supply curve shifts to the left. d. The supply curve shifts to the right.

b. The demand curve shifts to the right.

Which of the following shifts the supply curve for pizza to the right? a. a kitchen fire that destroys a popular pizza joint b. a decrease in the price of cheese, an input to pizza c. an increase in the price of root beer, a complement to pizza d. an increase in the price of pizza

b. a decrease in the price of cheese, an input to pizza

Which of the following will shift the demand curve for pizza to the right? a. an increase in the price of root beer, a complement to pizza b. an increase in the price of hamburgers, a substitute for pizza c. a decrease in the price of pizza d. the departure of college students, as they leave for summer vacation

b. an increase in the price of hamburgers, a substitute for pizza

An increase in ________ will cause a movement along a given supply curve, which is called a change in ________. a. supply, quantity demanded b. demand, quantity supplied c. demand, supply d. supply, demand

b. demand, quantity supplied

If pasta is an inferior good, then the demand curve shifts to the ________ when ________ rises. a. left, the price of pasta b. left, consumers' income c. right, consumers' income d. right, the price of pasta

b. left, consumers' income

If the economy goes into a recession and incomes fall, what happens in the markets for inferior goods? a. Prices rise and quantities fall. b. Prices fall and quantities rise. c. Prices and quantities both rise. d. Prices and quantities both fall.

c. Prices and quantities both rise.

Which of the following moves the pizza market up along a given supply curve? a. an increase in the price of root beer, a complement to pizza b. a decrease in the price of cheese, an input to pizza c. an increase in the price of pizza d. a kitchen fire that destroys a popular pizza joint

c. an increase in the price of pizza

In a perfectly competitive market, a. one seller has successfully outcompeted its rivals so no other sellers remain. b. every seller tries to distinguish itself by offering a better product than its rivals. c. every seller takes the price of its product as set by market conditions. d. every seller tries to undercut the prices charged by its rivals.

c. every seller takes the price of its product as set by market conditions.

In a perfectly competitive market, sellers of goods ___________ influence the prevailing market price, giving them the role of price ______ in the market.

cannot takers

shift factors of demand:

changes of prices of related goods -substitute good and complementary good

For each pair, identify whether they are complements or substitutes: Film streaming and TV screens Film streaming and movie tickets TV screens and movie tickets

components substitutes substitutes

The market for which product best fits the definition of a perfectly competitive market? a. tap water b. computer operating systems c. movies d. eggs

d. eggs

The following graph shows the market for laptops in 2008. Between 2008 and 2009, the equilibrium price of laptops remained constant, but the equilibrium quantity of laptops decreased. From this, you can conclude that between 2008 and 2009, the supply of laptops _____________ and the demand for laptops _________

decreased decreased

A graphical object showing the relationship between the price of a good and the amount of the good that buyers are willing and able to purchase at various prices

demand curve

A table showing the relationship between the price of a good and the amount that buyers are willing and able to purchase at various prices

demand schedule

if equilibrium decreases,

demand shift must be larger than supply shift

Prices above the equilibrium price generate ___________ supply

excess

shift

f a change occurs in any of the factors that determine demand, the result is a shift of the demand curve.

why we study markets?

factors that effect behavior impact price and amount of goods exchanged

"An increase in the demand for notebooks raises the quantity of notebooks demanded but not the quantity supplied." Is this statement true or false? Explain.

false

True or False: When both the demand and supply curves shift, you can always determine the effect on price and quantity without knowing the magnitude of the shifts.

false

Changes in consumer tastes and preferences

fashion, fads, seasons

If a surplus exists in the cantaloupe market, then the current price must be ___________- than the equilibrium price. For the market to reach equilibrium, you would expect ________________-.

higher sellers to offer lower prices

ceteris paribus

holding all other things constant

price gouging

is a pejorative term referring to a situation in which seller prices goods or commodities at a level much higher than is considered reasonable or fair

Pouplation:

if the the buying population increases, demand increases and vise versa -change in number of consumers in the market -demographic changes

A movement downward and to the right along a demand curve for parking passes to campus parking lots is called a(n) increase in quantity demanded of parking passes. decrease in demand of parking passes. decrease in quantity demanded of parking passes. increase in demand of parking passes.

increase in quantity demanded of parking passes. -Movement down and to the right along a demand curve results in a lower price and an increase in quantity.

The Law of Demand states that the lower the price the __________that will be demanded, all else being equal.

more

movement along or shift? An increase in the price of wine

movement along

movement along or shift? An increase in the price of hot dogs

movement along

change in quantity demanded

movement along the demand curve caused by a change in price level

When all market participants are price takers who have no influence over prices, the markets have numerous sellers but only a few buyers. only a few buyers and sellers. numerous buyers and sellers. numerous buyers but only a few sellers.

numerous buyers and sellers.

movement along

price change causes what change to a demand curve

The amount of a good that buyers are willing and able to purchase at a given price

quantity demanded

The amount of a good that sellers are willing and able to supply at a given price

quantity supplied

movement along or shift ? A change in tastes of consumers that makes them desire more wine

shift

movement along or shift? An increase in the number of producers

shift

movement along or shift? A change in expectations about the future price of hot dogs

shift

movement along or shift? A change in the expectations of consumers about their future income

shift

The state of KY told Toyota if they built a plant in KY they would give them a tax break. This is an example of

subsidization

A graphical object showing the relationship between the price of a good and the amount that sellers are willing and able to supply at various prices

supply curve

The cost of microchips has gone down with Moore's Law (that the number of transistors in a dense integrated circuit doubles approximately every two years). Microchips are used in the production of computers. What has been the result in the market for computers?

supply has increased

A table showing the relationship between the price of a good and the amount of it that sellers are willing and able to supply at various prices

supply schedule

quantity supplied

the amount of a commodity that a firm plans to sell in a given time period at a given price

quantity demanded

the amount of a good that households want to consume given their income and prices in a given time period -willing and able

changes in consumer income:

the effect of income on demand depends on the type of good -normal good and inferior good

Today's demand curve for gasoline could shift in response to a change in today's price of gasoline. All of the above are correct. the number of sellers of gasoline. the expected future price of gasoline.

the expected future price of gasoline.

Equilibrium

the market where Qs=Qd

the relative price

the price of a good compared to the price of other goods ex: hat at book store $10 tshirt costs $20 1 shirt = 2 hat 1 hat = 1/2 shirt

scalping

ticket scalping, also known as ticket resales, is the practice of buying tickets to an event and reselling them for more than you paid for them

If the supply of a product decreases, then we would expect equilibrium price to decrease and equilibrium quantity to increase. to increase and equilibrium quantity to decrease. and equilibrium quantity to both increase. and equilibrium quantity to both decrease.

to increase and equilibrium quantity to decrease.

the law of increasing costs (inc. marginal opp. cost)

to supply additional units of a good, producers have greater opportunity costs, so the price must rise to induce producers to supply greater quantities -ex: shortages during covid

components in production

two goods that are ezsity produced in unison, one is typically a byproduct of the others productive process -beef and leather

law of demand

when the price goes up, demand goes down; when the price goes down, demand goes up

Factors affecting Supply:

•Price of inputs •Production technology •Number of producers •Expectations of producers