ECON210 ch 4
A(n) ______ occurs when the quantity demanded is equal to the quantity supplied.
equilibrium
If the supply of oil decreased:
quantity demanded would decrease. A leftward shift is a decrease, which causes quantity demanded would decrease.
equilibrium price
the price at which the quantity demanded is equal to the quantity supplied stable
What were OPEC countries able to work together to achieve by the early 1970s?
to reduce supply and raise prices
The financial crisis of 2007-2010 had a huge impact on the U.S. housing market, causing the number of uninhabited houses to be far greater than the number of people able and willing to buy a house. What probably happened in the housing market?
Housing prices fell. Housing prices dropped over 25% between 2006 and 2010.
what is price determined by?
combination of supply and demand
Suppose that when good M is free, sellers will not supply any, but quantity supplied rises by 20 units for every $6 increase in the price. If the quantity demanded is fixed at 150 units, the equilibrium price will be:
$45 150/20=7.5 7.5x$6=45
Holding supply constant, if the demand curve shifts to the right, there will be a(n) _____ in equilibrium price and a(n) _____ in equilibrium quantity. increase or decrease
increase; increase This is an increase in demand, which causes an increase in quantity supplied.
a free market does what?
maximizes the gains from trade and maximizes producer plus consumer surplus
If country A's supply of oil decreased, the _____ curve in country _____ would shift to the _____.
supply; A; left A leftward shift is a decrease.
When the free market maximizes the total gains from trade, the supply of goods is sold by:
sellers with the lowest costs
Jean is a seller in Vernon Smith's classroom experiment of the market model. Which does she know?
her own willingness to sell
Imagine that a major car company has been able to plan production to coincide with sales forecasts. As new inventory comes into the showroom, customers purchase it, and there is no unsold inventory and no unfilled orders. How can we BEST describe this phenomenon?
This is a market in equilibrium. When a market is in equilibrium, there is no pressure for price to rise or fall.
A decrease in the demand for Belorussian vodka will result in:
a decrease in the equilibrium price and quantity of Belorussian vodka supplied. The decrease in demand is shown as a leftward shift in the demand curve.
Bobby is a buyer in Vernon Smith's classroom experiment of the market model. Which does he know?
his own willingness to buy
A decrease in supply:
increases the equilibrium price and reduces the equilibrium quantity. A decrease in supply will cause the price to rise, which will in turn cause the quantity demanded to fall.
How does a surplus affect prices?
A surplus will push prices down. The lower price increases quantity demanded and reduces quantity supplied, thus reducing the surplus.
What happened to the supply of oil from the early twentieth century to the 1970s?
demand for oil increased steadily, but major discoveries and improved production techniques meant that the supply of oil increased at an even faster pace, leading to modest declines in price
If the demand for oil increased, the _____ curve would shift to the _____.
demand; right A rightward shift is an increase.
A decrease in supply results in:
lower equilibrium quantity
If the demand for oil decreased:
market price would rise.
Imagine that a major car company is producing large, fuel-inefficient SUVs during a period of rising gas prices. As a result, dealerships are overstocked with inventory that is not selling. How can we BEST describe this phenomenon?
This is a surplus, because the quantity supplied is greater than the quantity demanded. A surplus will usually lead to a decrease in the price of a good.
How would a global fall in income affect oil prices?
Oil prices would fall as demand for oil dropped. This assumes that oil is a normal good, a reasonable assumption.
free market
The supply of goods is bought by the buyers with the highest willingness to pay. The supply of goods is sold by the sellers with the lowest costs. Between buyers and sellers, there are no unexploited gains from trade and no wasteful trades.
surplus
a situation when the quantity supplied is greater than the quantity demanded
The use of laboratory experiments in economics:
was pioneered by Vernon Smith, who used his undergraduate economics students as his first test subjects in the 1950s.
What would happen if the demand for oil increased?
Quantity supplied would increase. Quantity demanded would increase if demand increased.
Suppose that when good Z is free, buyers will demand 200 units of it, but the quantity demanded falls by 5 units for every $2 increase in the price. If the price is $24 and the quantity supplied is 125 units:
the price will eventually rise above $24. The quantity demanded is 200 − (5 × ($24 ÷ $2)) = 140. This is more than the quantity supplied, 125, so there is a shortage in this market.