Chapter 3 Micro Supply and Demand

competitive market

A market where no single buyer or seller can influence the price

The law of demand states that, other things equal, as the price

decreases, the quantity demanded will increase

At the current market price in the market for smartphones, the quantity of buyers is larger than the quantity of sellers. Given this situation, we can expect the market price of smartphones to

Increase

The price of good X falls and the demand for good Y decreases. We can conclude that

X and Y are substitutes

(Figure: Shifts in Demand and Supply II) Use Figure: Shifts in Demand and Supply II. The graph shows how supply and demand might shift in response to specific events. Suppose excessive rainfall destroys one-third of the nation's radish crop. Which panel BEST illustrates how this will affect the market for radishes?

C

(Figure: Supply of Bananas) Use Figure: Supply of Bananas. A rise in the prices of inputs (e.g., labor, fertilizer, and fuel) used to produce and transport bananas could be represented in the figure as a movement from

C to A

The demand curve for meals at a local Chick-fil-A will shift to the left if

Chick-fil-A offers a free sandwich to people who sign up for their new rewards app

(Figure: Supply and Demand in the Peach Market) Use Figure: Supply and Demand in the Peach Market. The market is in equilibrium at point C. Suppose most people drink peach juice in the afternoon with champagne. What will be the new equilibrium point in the peach juice market if a law banning alcohol passes?

D

The demand curve

is a graphical representation of the relationship between price and quantity demanded.

Spaghetti and lasagna are substitutes. Holding all other things constant, this means that if the price of spaghetti increases, the demand for

lasagna will increase

A decrease in the prices of a good will result in

c. An increase in Supply

A shortage in the market for economics textbooks will ___________ the price of textbooks

c) increase

If cream cheese and bagels are complements, then an increase in the price of cream cheese will __________ the demand for bagels

d) decrease

Currently, the market for pizza pies in your neighborhood is at equilibrium. If a large number of people move into the area, we would expect the market price of pizza to

increase

A shift of the demand curve for fried chicken would NOT be caused by a change in

the price of fried chicken

The Market for Salt and Vinegar Chips. There is an excess demand of 210 bags of salt and vinegar chips per month if the price is _____ per bag.

$0.30

Market equilibrium occurs when

there is no incentive for prices to change in the market, quantity demanded equals quantity supplied, and the market clears.

(Figure: Shifts in Demand and Supply III) Use Figure: Shifts in Demand and Supply III. The figure shows how supply and demand might shift in response to specific events. Suppose a wet and sunny year increases the nation's strawberry crop by 20%. Which panel BEST illustrates how this event will affect the market for strawberries?

B

An increase in price and an ambiguous change in quantity are MOST likely caused by

a shift to the left of the supply curve and a shift to the right of the demand curve

Which factor is MOST likely to shift the supply curve for milk to the left?

a tax on each gallon of milk produced

Assuming everything else stays the same, an increase in the price of smartphones will __________ of smartphones.

b) increase the quantity supplied

(Figure: Demand and Supply of Sugar) Use Figure: Demand and Supply of Sugar. Given the initial equilibrium of S1 and D, any price below _____ will exert pressure for the price to _____.

$25; rise

(Table: The Demand for Potato Chips) Use Table: The Demand for Potato Chips. If Blair, Serena, and Dan are the only three buyers in the market, and the price of a bag of potato chips is $0.50, the total market quantity demanded is _____ bags per month

240: Read the charts

Assuming everything else stays the same, an increase in the price of laptop computers will __________ of laptop computers.

a) decrease the quantity demanded

Assume the market for DVD movies is initially at equilibrium. A decrease in the price of streamed movies, a substitute for DVD movies, will __________ the equilibrium price and ___________ the equilibrium quantity of DVD movies.

d) decrease; decrease

If farmers begin using better fertilizers to grow corn, we would expect a(n) __________ in the supply of corn

d) increase

If a demand curve is downward sloping, a decrease in supply with no change in demand will lead to a(n) _____ in the equilibrium quantity and a(n) _____ in the equilibrium price.

decrease; increase

The Supply of Apple TV Rentals. An increase in the price of online movie rentals would result in the change illustrated by the move from

s to t in panel C

(Figure: Demand for Bananas) Use Figure: Demand for Bananas. If bananas are a normal good, an increase in the incomes of consumers could be represented as a

shift from D1 to D2.

An increase in the price of strawberries causes strawberry jam producers and consumers to expect that the price of strawberry jam will rise in the future. In the market for strawberry jam, both the equilibrium price and the equilibrium quantity increase. It must be the case that

the demand for strawberry jam increased by more than the supply of strawberry jam decreased