Economic Question Review 1

Why do economists use the ceteris paribus assumption?

Ceteris paribus means "all else equal". Economists use this because they like to isolate relationships between one independent variable and one dependent variable.

What determines the level of prices in a market?

Consumers.

Will demand curve shave the same exact shape in all markets? If not, how will they differ?

Demand curves will appear somewhat different for each product. Nearly all demand curves share the fundamental similarity that they slope down from left to right.

What is the effect of a price ceiling on the quantity demanded of the product?What is the effect of a price ceiling on the quantity supplied? Why exactly does a price ceiling cause a shortage?

Excess demand or shortages will result. Excess supply or surpluses will result. For the price that the ceiling is set at, there is more demand than there is at the equilibrium price. There is also less supply then there is at the equilibrium price, thus there is more quantity demanded then quantity supplied.

If a price floor benefits producers, why does a price floor reduce social surplus?

If they sell less, people won't buy their products.

Does a price ceiling change the equilibrium price?

It can often lead to unintended consequences.

Will supply curves have the same shape in all markets? If not, how will they differ?

Nearly all supply curves share a basic similarity. They slope up from left to right and illustrate the law of supply.

Does a price ceiling increase or decrease the number of transactions in a market? Why? What about a price floor?

Price ceiling would increase the number of transactions in a market, yet price floors decrease the number of transactions in a market.

What would be the impact of imposing a price floor below the equilibrium price?

Price floors prevents a price from falling below a certain level.

What does a downward-sloping demand curve mean about how buyers in a market will react to a higher price?

The demand would go down, while the supply would go up.

Suppose the price of gasoline is $1.60 per gallon. Is the quantity demanded higher or lower than at the equilibrium price of $1.40 per gallon? And what about the quantity supplied? Is there a shortage or a surplus in the market? If so, of how much?

The quantity demand is lower. The quantity supplied is higher. There is a surplus by 40 gallons.