Chapter 2: Supply and Demand - Economics

If an increase in the price of good X leads to a decrease in the demand for good Y, then:

good X and good Y are complements.

The buyer's reservation price for a particular good or service is the:

largest price the buyer would be willing to pay for it

What might cause a demand curve to shift to the right?

An increase in the price of a substitute.

Gertie saw a pair of jeans that she was willing to buy for $35. The price tag said they were $29.99. Therefore:

Gertie should buy the jeans because the price is less than her reservation price.

The entire group of buyers and sellers of a particular good or service makes up:

The Market

Which of the following is NOT a determinant of the demand for gasoline?

The supply of gasoline.

Refer to the figure below. Suppose all the sellers in this market started out charging a price of $45 per unit. What is the most likely result?

They would lower their prices because at $45 there would be excess supply.

When the price of a good changes, the amount of that good that buyers wish to buy changes:

because of both substitution and the income effects

If a country's economic decisions are made by an individual or small number of individuals, then it has a:

centralized economy

A movement along a demand curve from one price-quantity combination to another is called a:

change in quantity demanded.

Refer to the figure below. An increase in supply is represented by a shift from:

curve A to curve B.

As the price of flour (an input in the production of cookies) increases, firms that produce cookies will:

decrease the supply of cookies.

Suppose that when the price of broccoli is $4 per pound, buyers wish to buy 500 pounds per day and sellers wish to sell 800 pounds per day. In this case:

excess supply will lead the price of broccoli to fall

Suppose demand decreases, but there is no change in supply. As the market reaches its new equilibrium:

excess supply will lead the price to fall.

If the demand for olives falls when the price of cheese falls, then we know that cheese and olives are:

substitutes

"All else constant, consumers will purchase more of a good as the price falls." This statement reflects the behavior underlying:

the demand curve

Refer to the figure below. Suppose the solid line shows the current demand for coffee. In response to news that next year's coffee harvest will be extremely good due to favorable weather conditions, you should expect:

the demand curve to shift to D(A) in anticipation of lower future prices.

Refer to the figure below. If demand shifts from D1 to D2, and at the same time, supply shifts from S1 to S2, then according to the figure:

the equilibrium quantity will increase and the equilibrium price will increase.

You can spend $10 for lunch and you would like to purchase two cheeseburgers. When you get to the restaurant, you find out the price for cheeseburger has increased from $5 to $6, so you decide to purchase just one cheeseburger. This is best described as:

the income effect of a price change

As coffee becomes more expensive, Joe starts drinking tea instead of coffee. This is called:

the substitution effect of a price change

When a market is in equilibrium:

there is neither excess demand nor excess supply

Excess demand occurs:

when price is below the equilibrium price

A price ceiling that is set above the equilibrium price:

will have no effect on the market.

Suppose that Tom bought a bike from Helen for $195. If Helen's reservation price was $185, and Tom's reservation price was $215, the buyer's surplus from this transaction was:

$20

Refer to the figure below. The equilibrium price is ______, and the equilibrium quantity is ______.

$6;4

Refer to the figure below. At a price of $3, there will be:

an excess demand of 5 units.

Refer to the figure below. At a price of $9, there will be:

an excess supply of five units

Refer to the figure below. Suppose the solid line represents the current supply of Star Wars action figures. If retailers learn that a new Star Wars movie will be released in several months, this news is likely to cause:

current supply to shift to S(A) in anticipation of higher future prices.

The quantity that sellers wish to sell tends to ______ as price increases, and so the supply curve is ______ sloping.

increase; upward

As the price of a good rises:

more firms can cover their opportunity cost of producing the good

The demand curve illustrates the fact that consumers tend to purchase:

more of a good as its price falls

If the demand for a good decreases as income decreases, then the good is a(n):

normal good

Suppose one observes that when the price of peanut butter increases, the demand for jelly increases. One should conclude that:

peanut butter and jelly are substitutes.

If there is an excess supply of sport utility vehicles, then:

quantity supplied is greater than quantity demanded.

If the supply curve and the demand curve both shift to the left, then the new equilibrium:

quantity will be lower, but the direction of the price change is uncertain.

Jessica's marginal cost for producing a pitcher of lemonade is $0.25. Therefore, $0.25 is her:

reservation price