Econ 103

Which of the following sounds the most like a horizontal reading of a decrease in demand?

"At every price, buyers are willing to buy less at that price."

Suppose paperback books and hardcover books are substitutes and that, tomorrow, the price of hardcover books will fall. Which of the following could plausibly be the quantity of paperback books demanded tomorrow at a price of $5?

10

Suppose Gil can write a poem in 1 hour, Holly can write a poem in 2 hours, and Ivan can write a poem in 3 hours. Each person spends 12 hours per day writing poems and requires a wage of $10 per hour to do so. How many poems per day will these three writers produce if the market price of a poem is $25?

18

Of the following answer choices, which is most likely to be an inferior good?

Instant coffee.

Which of the following correctly describes the appearance of a demand curve?

It is a line or curve that slopes down and to the right.

Which of the following correctly describes the appearance of a supply curve?

It is a line or curve that slopes up and to the right.

What impact would a new policy restricting butter imports from Europe have on the domestic butter market?

It would decrease the supply of butter, shifting the supply curve up and to the left.

What effect would a $20 tax on output have on the good's supply curve?

It would shift the supply curve upward by $20.

Which of the following is NOT among the demand shifters discussed by Professor Cowen?

Technology.

In a market where a good has one price for all consumers, which consumer gets the most consumer surplus from the good?

The consumer who values the good the most

With a linear, or straight line, demand curve, total consumer surplus can be calculated using what formula from geometry?

The formula for the area of a triangle

What is shown by the height of the demand curve?

The maximum willingness to pay for a particular unit of a good

What is shown by the height of the supply curve?

The minimum price that a seller requires in order to sell a given quantity

Anything that decreases cost _______ supply, shifting the supply curve _______.

increases; down and to the right

In addition to the dollar cost of inputs, the use of inputs also imposes an opportunity cost because:

inputs could instead be used in the production of other goods.

A low price of oil sends the signal to oil producers that:

it is not worth it to extract oil unless they can do so at a very low cost.

Mobs on Black Friday are primarily caused by:

lower prices.

The demand for _____ goods increases as income increases.

normal

The supply curve for oil slopes upward because:

not all oil on earth is equally costly to extract.

Gains from trade are maximized at market equilibrium because:

only the highest-value buyers buy and only the lowest-cost sellers sell.

In a market, buyers compete with ________, and sellers compete with ________ .

other buyers; other sellers

On the graph of a demand curve, ________ is shown on the vertical axis, and ________ is shown on the horizontal axis.

price; quantity demanded

The _____ is the producer's gain from exchange.

producer surplus

As the price of oil rises:

producers of oil with higher extraction costs will begin to enter the market because they can earn a profit.

As the price of oil rises, it becomes:

profitable to extract oil from more costly sources.

The equilibrium price in a market is the price at which:

quantity demanded equals quantity supplied.

The demand curve is a function that shows the _____ over a range of prices.

quantity demanded.

A technological innovation:

reduces cost and increases supply.

The demand and supply curves show how buyers and sellers ________; the interaction of buyers and sellers ________.

respond to prices; determines the price

When there is a surplus in a market:

sellers have an incentive to reduce their prices so they can outcompete other sellers and sell more.

The supply curve demonstrates that producers respond to a lower price of a good by:

selling less.

At a price lower than the equilibrium price, there is a _______, and buyers _______.

shortage; demand more than sellers are willing to sell

The equilibrium price is the only ________ price.

stable

The market equilibrium separates the demand curve into two parts: _______ and _______.

the buyers; the non-buyers

Consumer surplus is defined as:

the consumer's gain from exchange.

Most goods are normal goods, which means that when income rises:

the demand for the good increases.

The "gains from trade" can be defined as:

the difference between a good's value and its cost.

If in a market there are no unexploited gains from trade and no wasteful trades, it must be that:

the equilibrium quantity is being produced.

The rightmost points on the supply curve for oil represent:

the highest-cost barrels of oil.

The leftmost points on the demand curve for oil represent:

the highest-value uses of oil.

Graphically speaking, the equilibrium price and quantity can be found by locating:

the intersection of the supply and demand curves.

A very low price for oil sends the signal to consumers that:

there is enough oil available even for low-value uses of oil, like making rubber duckies.

The statement, "for the five millionth barrel of oil, the most that consumers are willing to pay is $55", is an example of reading a demand curve:

vertically.

In a market equilibrium, what differentiates suppliers who actually sell a good from suppliers who do NOT sell a good?

The suppliers who sell have lower costs than the sellers who don't sell.

Which of the following gives a horizontal reading of an increase in supply?

The supply curve shifts to the right because sellers are willing to supply a greater quantity at any given price.

Which of the following gives a vertical reading of a decrease in supply?

The supply curve shifts up because sellers require a higher price to sell the same quantity.

If furniture prices rise, which of the following would happen as a result?

The supply of goods with inputs similar to furniture will decrease.

Which of the following is NOT true about the free market equilibrium?

There are opportunities for further gains from trade between buyers and sellers.

At quantities lower than the equilibrium quantity, which of the following is true?

There are unexploited gains from trade because buyers are willing to pay more than sellers require for another unit.

Which of the following is true about demand curves for inferior goods?

They will shift inward during an economic boom.

When the price at which sellers are willing to sell another unit exceeds the price at which buyers are willing to buy another unit, there must be _______, and the quantity is too _______.

waste; high

Economists believe that in free markets, potential gains from trade:

will eventually be found by buyers and sellers in a market.

Which of the following shows the calculation that Professor Cowen did in order to determine the total consumer surplus in the market for oil?

½ × ($80 - $20) × 90 million = $2,700 million

There is:

a unique supply curve for every good or service.

Another way to describe a "high value" use of oil is as:

a use of oil for which oil has few substitutes.

At the market equilibrium:

all trades that can generate gains from trade take place, and no trades take place that would not generate gains from trade.

If, at a certain price, buyers suddenly demand a greater quantity of a good than they did previously, there has been:

an increase in demand.

Tastes and preferences:

differ among consumers and can change over time.

The only way the quantity of supplied oil can be increased is to:

employ more by extracting oil even from high extraction cost areas.

Nobel laureate Vernon Smith, one of the founders of _______, first tested the supply and demand model in 1956.

experimental economics

Every different good in the world:

has its own unique demand curve.

At the equilibrium price for oil, only the _______ buyers buy oil and only the _______ sellers sell oil.

high-value; low-cost

The statement, "at $55 per barrel, consumers are willing and able to purchase 5 million barrels of oil per day", is an example of reading a demand curve:

horizontally.

The statement, "at a price of $20 per barrel, suppliers are willing and able to sell 30 million barrels of oil per day", is an example of reading a supply curve:

horizontally.

A demand curve shows:

how much of a good people will want at different prices.

A supply curve shows:

how much sellers will supply at different prices.

If buyers expect that the price of a good will fall in the future, what will happen to demand today?

Demand today will decrease as some buyers put off buying the good until the future.

Which of the following is NOT among the specific supply shifters that Professor Tabarrok mentions in the video?

Income

How do we show an increase in demand graphically?

By a shifting out of the demand curve, to the northeast

What happens at any price other than the equilibrium price?

Forces are put into play that move the price toward the equilibrium price.

In what two ways can a demand curve be read?

Horizontally and vertically

In what two ways can a supply curve be read?

Horizontally and vertically

Refer to the figure nearby, which shows two supply curves, one flatter than the other. Suppose the price falls from $30 to $20. For which supply curve is the change in producer surplus largest?

Supply 2

If a good can be stored, what impact does a higher expected future price have on supply?

Supply in the present would fall, and supply in the future would rise.

What will happen to the supply of a good if the price of an input rises?

Supply will decrease because sellers are willing to sell less at any given price.

Total producer surplus is measured by the area _____ and below the price.

above the supply curve

Graphically, producer surplus is shown as the area _______ the supply curve and _______ the price.

above; below

If there is no waste and all potential gains from trade have been exploited, then a market must:

be in equilibrium.

Total consumer surplus is measured by the area _____ and _____ the price.

below the demand curve; above

Graphically, total consumer surplus is shown as the area _______ the demand curve and _______ the price.

below; above

The equilibrium quantity is equal to:

both quantity demanded and quantity supplied at the equilibrium price.

Markets find equilibrium, and maximize gains from trade, when:

buyers and sellers act in their own self interest.

The demand curve demonstrates that, keeping all other factors constant, people respond to a lower price of a good by:

buying more of a given product.

Which does not shift the supply curve?

changes in consumer tastes

Which will shift the supply curve?

changes in opportunity cost

Which does not shift the supply curve?

changes in the price of a substitute

Two goods are _______ if an increase in the price of one good leads to a decrease in the demand for the other good.

complements

The reason the fewer barrels of oil are demanded at higher prices is that:

consumers would rather forgo some low value uses for oil rather than pay high prices.

At the most basic level, all supply shifters are essentially factors that change:

costs.

The major factor that determines how the supply curve shifts is a change in:

costs.

A demand shifter is anything that can cause buyers to:

demand a greater or lower quantity of a good at a given price.

For a particular producer, producer surplus can be calculated as the difference between:

the market price and the minimum price at which producers would be willing to sell a given quantity.

For a particular consumer, consumer surplus can be calculated as the difference between:

the maximum price a consumer is willing to pay and the market price.

The vertical reading of a supply curve tells us:

the minimum price at which sellers will sell a given quantity.

A surplus will occur in the market for oil if:

the price of oil is above the equilibrium price.

Producer surplus is defined as:

the producer's gain from exchange.

The equilibrium price is the price where:

the quantity demanded is equal to the quantity supplied.

A free market maximizes:

the sum of producer and consumer surplus.

In discussing the supply curve, economists use phrases like, "if the price rises" or "if the price falls," because:

the supply curve shows how sellers will respond to price changes but by itself does not explain how prices are determined.