Economics 260 Exam 1 Practice
Consider the words "supply" and "production." Which of the following statement is true
"Supply" refers to what is provided to the market, while "production" refers to the quantity produced
(graph) Consider the market price for steak, a normal good. Use the slider to show what will happen to the demand for steak if the price of steak decrease
(graph) A change in the price of a good will result in a movement along the demand curve, not a shift of the demand curve. If the price of steak decreases, there will be an increase in the quantity demanded. This is signified by a movement down the demand curve.
(graph) Consider the market for rice an inferior good. Use the slider to show what will happen to the demand for rice if the price of rice increases
(graph) A change in the price of a good will result in movement along the demand curve, not a shift of the demand curve. If the price of rice increases, there will be a decrease in the quantity demanded. This is signified by a movement up the demand curve.
(graph) Consider the market price for steak, a normal good. Use the slider to show what will happen to the demand for steak if consumers incomes decrease
(graph) A decrease in consumer income will decrease demand for a normal good. This is represented by a leftward shift of the demand curve. Consumer income is a nonprice determinant of demand. This will result in a shift of the demand curve rather than a movement along the demand curve
(graph) Consider the market for rice an inferior good. Use the slider to show what will happen to the demand for rice if consumers' incomes decreases
(graph) A decrease in consumer income will increase demand for an inferior good. This is represented by a rightward shift on the demand curve. Therefore, the plus sign besides "increase in Demand" should have been pressed. Consumer income is a non-price determinant of demand. This will result in a shift in demand rather than a movement along the demand curve
(graph) Assume coffee and tea are substitute goods for most consumers. Use the slider to show what will happen to the demand for coffee if the price of tea decreases
(graph) A decrease in the price of tea, a substitute good will cause a decrease in the demand for coffee. This is represented by a leftward shift on the demand curve
(table) Suppose that half the population concerned about proliferation of discarded empty water bottles, buys water bottles, buys water filtration systems, which reduces the demand for bottled water by 50 percent. Show the change in demand in the demand schedule below
(table) price initial quantity new quantity $5 200 100 $4 300 150 $3 400 200 $2 500 250 $1 600 300
Use you knowledge of relative scarcity to rank the following item from least scarce (top) to most scarce (bottom)
1. Salt water 2. Drinking water 3. Diamonds
What is the quantity of umbrellas supplied if the market price is $60
2,000 umbrellas
At a price of $1.50 per head of lettuce, the original quantity supplied was ________ heads of lettuce and the new quantity supplied is _____ heads of lettuce
200; 140
At a price of $1.50 per head of lettuce, the original quantity supplied was ____ heads of lettuce and the new quantity supplied is ____ heads of lettuce
200; 250
How many pounds of peaches will be supplied to the market when the price is $6 per pound ________ pounds
24,000
Jack likes tacos. He values the first taco he eat at $5, the second taco at $4, the third taco at $3, and the fourth taco at $2. If the price of tacos is $2.50, Jack will buy _________ tacos
3
At a price of $425 per laptop computer, the entry of NF computers will increase the quantity of computers supplied by ________ computers, resulting in a total market quantity of ________ computers
54; 754
The table below shows the weekly supply for hamburgers in a market where there are just three sellers price seller 1 QS 1 seller 2 QS 2 seller 3 QS 3 5 8 5 4 4 6 4 3 3 4 3 2 2 2 2 1 If there were 300 sellers in the market, each with a supply schedule identical to seller 1 in the table above, then the weekly quantity of hamburgers supplied in the market at a price of $2 would be
600
At a market price of $2 per gallon, the pre-subsidy quantity supplied was ________ thousand gallons and the quantity supplied after the subsidy is ______ thousand gallons
6; 7.2
Suppose the market demand and supply of an economics textbook is shown below
Assume the price is fixed at $135. There is a shortage of 1500 units
Which of the following is most likely to decrease the demand for Mango Jarritos a popular Mexican soft drink
Concerns over the empty calories soft drinks contain cause more people to drink mineral water
(graph) Consider the market price for steak, a normal good. Use the slider to show what will happen to the demand for steak if consumers incomes increase
Consumer income is a nonprice determinant of demand. This will result in a shift in demand rather than a movement along the demand curve
Every Friday, you order a pizza for dinner. The first two slices are delicious, and you devour them. The third and fourth slices take you a bit longer to eat and you do not enjoy them as much. You do not eat a fifth slice
Diminishing marginal utility
___________ is the study of how individuals and firms make decisions in a world of scarcity
Economics
The skill that enables a business owner to hire and manage programmers who developed a new, online, streaming music service that was previously available
Enterprise
in reference to the graph
If a price ceiling is imposed at $1.50 per bottle, consumers will want to purchase 700 more bottle relative to the initial market equilibrium
The graph below represents the market for bottled water
If a price ceiling is imposed at $1.50 per bottle, firms will produce 300 fewer bottles relative to the initial market equilibrium
in reference to the graph
If a price ceiling is imposed at $1.50 per bottle, the total shortage will be 700-300=400 bottles
The law of demand holds true whether we are discussing smoking cigarettes, going out for dinner, or purchasing a house. When the price of food falls, perhaps due to technological advances, people will most likely respond by eating more food. When the price of a doctor's visit falls because your insurance company covers the cost, you'll be likely to visit the doctor more frequently.
If he cost of raising and educating children rises, people will likely have fewer children. Many of the social issues we face are simply the result of changing prices altering people's behaviors
The statement "Households are on the supply side, and firms are on the demand on side" is with reference to which market
Labor
______________ deals with large scale issues of an economy such as total output average price levels (and inflation) and unemployment
Macroeconomics
Which of the following scenarios is an example of a person interacting outside of a market
Melissa votes for her favorite performer at a local talent show
____________ is the idea that people make choices to maximize the overall benefit, or utility, of an action subject to its cost
Optimization
D. What is the prevailing price and quantity if the price ceiling is set at $6
P=$5; Q=25
a. what is the equilibrium price and quantity in the absence of a price ceiling
P=$5; Q=25
b. What is is the prevailing price and quantity if a price ceiling is sent at $4
P=4; Q=20
Use the supply schedule below to answer the questions that follow. Supply of umbrellas
Price of umbrellas quantity of umbrellas 120 5,000 100 4,000 80 3,000 60 2,000 40 1,000 20 0
The characteristics of equilibrium include
Qs=Qd Quantity supplied = Quantity demanded
(table) the table below shows the weekly demand for hamburgers in a market where there are just three buyers price quant buyer 1 quant buyer 2 quant 3 6 7 4 6 5 9 7 8 4 15 10 12 3 21 15 16
Refer to the table. At a price of $4, the weekly quantity of hamburgers demanded in a market is 37
(table) the table below shows the weekly demand for hamburgers in a market where there are just three buyers price quant buyer 1 quant buyer 2 buyer 3 6 7 4 6 5 9 7 8 4 15 10 12 3 21 15 16
Refer to the table. If there were 200 buyers in the market, each with a demand schedule identical to Buyer 2, then the weeks demanded in the market at a a price of $ 4 would be 2,000
The market supply of lettuce in a small town is shown in the table below
Suppose an increase in the cost of water decreases the production of lettuce heads by 30% at every price supply schedule in the table above Price quan of lettuce new quan lettuce 2.00 300 210 1.50 200 140 1.00 100 70 0.50 0 0
Market supply of Lettuce
Suppose there is a decrease in the cost of renting land that allows lettuce growers to produce 50 more heads of lettuce at each price. Find the new quantities supplied at each price and then complete the new supply schedule in the table price quantity of lettuce new quantity 3.00 500 550 2.50 400 450 2.00 300 350 1.50 200 250 1.00 100 150 0.50 0 50
Which of the following likely affects the demand curve
Taxes and subsidies placed on consumers
Price floors should be high to have an impact. When a price floor is imposed on a market, it is binding only if it is above the equilibrium price. Many students incorrectly draw price floors below the equilibrium price, since they associate the word floor with something that is low.
The key here is that for a price floor to actually change the behavior in a market, it has to go against the norm. The floor has to be placed above the equilibrium price to have an impact. When drawing a price floor so that you can analyze its effects on a market, make sure it's above the equilibrium price (or it will be nonbinding). Here's a good way to remember this: when the market price is above the equilibrium price, market forces try to drive it lower, but it can't go lower than the floor
The law of demand is on of the fundamental laws of economics. Demand curves illustrate the relationship between the opportunity cost, or price, of an action and the quantity of an action people will undertake. Thus, if we want people to do more of an activity, we have to find a way of lowering the opportunity cost (price) of that activity.
The opposite is also true if the opportunity cost (price) of an action rises, less will be done
Suppose the market price rises from $60 per umbrella to $80 per umbrella.
The quantity of umbrellas will increase by 1,000 umbrellas
A good will become more affordable when
The supply curve shifts to the right, causing the price to fall.
The supply curve below shows the supply for used 32' LED televisions in a college town. Use the slider to indicate the price where exactly 40 people would be advertising their TVs for sale
There were 20 TVs supplied at a price of $300 and every $10 increase in price increases the quantity of televisions supplied by 1 unit. We need the quantity of TVs supplied to increase by 20 TVs, so the price must increase by $10 x0 20 = $200. Thus, the market price at which 40 TVs are advertised for sale is $500 (300+200). You can also see from your supply curve that at a quantity supplied of 40 TVs, the price $500
One way of understanding the real cost of a good or service is to ask yourself, "how many hours would the average person have to work to be able to afford it? In 1949, the price of a toaster was $16.95 and the average wage was $1.26 per hour. This meant that the average person had to work 13.5 hours to buy a toaster.
These days, a toaster probably costs only 1 or 2 hours of the average person's labor. Also in 1949, a refrigerator cost the average person 178 hours of labor - that's 22 days, or an entire month of workdays to keep food cold. Now a refrigerator costs the average worker less than half that
Consider the market for coal, with quantities in tons (give the answer in whole number
What is the equilibrium market price 60 What is the equilibrium quantity 400
Now suppose the quantity demanded decreases by 75 tons at every price.
What is the new equilibrium price $150 What is the new equilibrium quantity 200 tons
Now suppose there is a decrease in demand equal to 400 units at each price.
What is the new equilibrium price 40 What is the new equilibrium quantity 200
Many of the products you enjoy today were once very expensive but thanks to improvements in technology, they have become less expensive over time. Consider DVD players. When first available for purchase in the US in 1997, their average price was around $500. By 2003 the price had decreased to $123, and by 2007 it was only $72. DVD players are not unique in this trend of lower prices over time.
Whether it's Blu-ray players, LCD televisions, washing machines, or laundry detergents many products have become vastly less expensive over time due to technological advances
Which of the following statements are true
a binding price floor will be higher than a nonbinding price floor
All the following can shift the supply curve except
a change in income
In economics, a downward sloping or upward straight line is often called
a curve
When demand shits to the left it is called
a decrease in demand
For inferior goods
a decrease in income increases demand an increase in income decreases demand
Which of the following statements is true
a decrease in price is beneficial to consumers because they do not have to pay as much a decrease in price is detrimental to consumers since less will be produced
A decrease in demand means
a decrease in the quantity demanded at every price, so the curve shifts to the left.
Identify which of the following scenarios is likely to shift the demand for wheat bread to the right
a drought in Kansas makes people believe that the price of wheat bread will increase in a couple of months people learn that certain bread additives may be bad for their health as people become more health conscious, they discover the benefits of whole wheat as a part of their diet
Which of the following scenarios would likely shift the supply curve for potatoes to the right (increase in supply)
a new harvester enables farmers to bring in ripe potatoes twice as fast as they did before
If demand shifts to the right when income increases, we can conclude that the good is
a normal good
If a price ceiling is imposed at $3 per bottle, how large will the shortage in the market be 600
a price ceiling at $3 non-binding because it is above the equilibrium price, so the market equilibrium will remain at a price of $2 and a quantity of 600 bottles
(graph) An increase in supply would best be reflected by
a shift from supply curve C to supply curve A
A change in income is illustrated by
a shift in the demand curve
A situation in which the quantity of output supplied is greater than the quantity output demanded at the current market price is called
a surplus
A market is
a system where buyers and sellers interact to trade goods, service or resources
The figure above shows three supply curves for wheat. Which of the following would cause the supply of wheat to shift from S1 to S3
a tax on wheat production
(table) The table below represents the quantity of rice demanded for selected countries Price us $ Japan Taiwan S.Korea Market Total $600 6 0 1 7 500 7 0.5 3 10.5 400 8 1.0 5 14 300 9 1.5 7 17.5 200 10 2.0 9 21
a. Fill in the market quantity of rice demanded (refer to market total) b. What is the quantity of rice demanded in the market (in millions of metric tons) if the market price is $40 then 14 metric tons
The demand and supply schedules in the market for fast food employees are shown in the table below. Use this information to answer the question that follow
a. in the market for eggs, there is an improvement in packaging technology that leads to fewer broken eggs, and there is also an increase in the price of bacon and sausage. Equilibrium price decreases. Equilibrium quantity cannot be determined
Suppose the table below represents the demand and supply schedules in the market for sunglasses
a. what is the equilibrium price 80 b. How many pairs of sunglasses are produced and purchased at the equilibrium 5200
Something about bottled water
a. what it he equilibrium price 2 what is the equilibrium quantity 600
Taxes and subsidies
after the costs or benefits of producing good and services
Assume there is initially a shortage in the market. As market participants respond to rising prices, the market returns to an equilibrium where the quantity supplied equals to quantity demanded resulting in
an elimination of shortage
When a nonprice determinant of supply changes
an entire new supply relationship is created the market adjusts to a new equilibrium price and quantity the supply curve shifts the left or right
(graph) Use the following graph of the demand for steak to answer the question below. Refer to the above diagram and assume that steak is a normal good. Which of the following would shift the demand for steak D1 to D3
an increase in consumer incomes
Which of the following statement is true
an increase in demand is a shift to the right a decrease in demand is a shift to the left
(graph) Use the following graph of the demand for noodles to answer the question below. Refer to the three demand curves for noodles. Which of the following would shift demand for noodles from D1 to D2
an increase in the number of buyers of noodles
A product such as a generic, store brand dried noodles are considered
an inferior good a normal good
The demand schedule represents the relationship between the price of a good, service or resource
and the quantity that individuals and firms are willing and able to buy all else held constant and in table form
If the price of tortilla chips decreases and as a result you buy more salsa, then tortilla chips and salsa
are compliments
Surpluses and shortages
are denoted in units of the product itself
Substitute goods
are viewed as replacements for other goods
The line (or curve) that represents the combinations of the two goods produced on the production possibilities frontier is a boundary between out put levels that are _____ and out put levels that are unattainalbe
attainable
(graph) Demand for peaches
b. If the market price for peaches is $8 per pound, what is the quantity of peaches demanded in Hoboken? 26 pounds
Something about bottled water
b. if a price is imposed at $1.50 per bottle how large will the market be a price floor at $1.50 is non-binding so the market equilibrium will remain at a price of $2 per 600
demand and supply
b. in the market for new automobiles (a normal good) there is a decrease in the average incomes earned by the general population, but there is an increase in the wages paid to automobile workers. Equilibrium price cannot be determined. Equilibrium quantity decrease
( graph) Demand for funnel cakes (bot lines correct)
b. on rainy days the demand for funnel cakes at the West Virginia state fair decrease by 1,000 cakes at every price. Complete the table below by billing in the quantity of funnel cakes on a rainy day price initial quantity new quantity 1.75 8,750 7750 1.50 9,000 8000 1.25 9,250 8250 1.00 9,500 8500 0.75 9,750 8750 0.50 10,000 9000 0.25 10,250 9250
A minimum legal price that is set above the market price is called a
binding price floor
When a tax is imposed on a market
both producers and consumers are affected, no matter who pays the tax
The taxes and subsidies that are under consideration in analyzing supply are applied to
businesses
In a market ___ try to pay the lowest price possible for a good or service
buyers
One assumption of the demand curve is that the number of __ is constant
buyers
something about bottled water
c. if a price floor is imposed at $2.50 per bottle, consumers will demand 100 fewer bottles relative to the initial market equilibrium
demand and supply
c. in the market for avocados, there is a charge in preference in favor of using guacamole instead of salsa, and changes in climate result in an exceptionally large harvest of avocados this year. Equilibrium price cannot be determined. Equilibrium quantity increase
The demand curve
can be a straight line or a curve
Shifts supply
can be non parallel can be paralle
A change in income
can increase or decrease demand
The computers that General Motor's technicians uses to design a new automobile
capital
Rent control is an example of price
ceiling
We both demand and supply change the
change in price or quantity will be indeterminate
Taxes
change the prices that buyers and sellers face change market outcomes
An increase in the price of a good's ______ will shift the demand of the good to the left
complement
A decrease in the price of good A will cause an increase in demand for good B where the two goods are
complements
Assume you buy three goods: hamburgers, french fries, and pizza. Hamburgers and french fries are most likely _____, whereas hamburgers and pizza are most likely _______
complements substitutes
The price of a _______ of a good is one of the non-price determinants of its demand
compliment
Non-price determinants are held ____ for any given supply curve
constant
Non-price determinants are held _______ for any given demand curve
constant
Non-price determinants are held _______ for any given supply curve
constant
Which of the following plays a crucial role in determining the demand for a good or service
consumer expectations
For a market to reach equilibrium __________
consumers need information about different suppliers prices firms must be able to change the prices of their goods firms must be able to monitor inventories
More of a good will be demanded at each price if
consumers' perception of the good improve
If consumers expect prices to fall
current demand will fall
The supply ______ displays in a graph the information found in the supply schedule.
curve
When you plot the data from the demand schedule on a graph, the result is called the demand
curve
something about bottle water
d. if a price floor is imposed at $2.50 per bottle firms will want to supply 300 bottles relative to the initial market equilibrium
Microeconomics
deals with individuals and individual firms
Macroeconomics
deals with the economy as a whole
(graph) Suppose higher electricity prices require automobile manufacturers to slow down production. That would cause the supply of automobiles to
decrease
(graph) Suppose the government passes a new tax on hamburger producers, making them pay $1 to the government every time they sell a hamburger. That would cause the supply of hamburgers to
decrease
f. When the price floor is effective, what happen to quantity transacted in the market
decreases
A change in ________ occurs when a non-price determinant of demand changes
demand
According to the law of __ price and quantity demanded are inversely related
demand
Market _____ is based on the overall preferences of everyone in the market
demand
Tastes and preferences, the number of buyers, and buyer expectations are all nonprice determinants of ________
demand
The size of the shift in the _____ curve depends on which non-price determinant (tastes and preferences, income, etc) changes and how much it changes
demand
When a demand curve shifts to the right or to the left, we say has been a change in
demand
Consumer expectations influence the _______ curve, and producer expectations influence the _______ curve
demand supply
The nonprice determinants or other factors that affect demand are held constant for any given
demand curve
A tax on demanders shifts the
demand curve to the left
The terms "normal" and "inferior" refer to what happens to
demand when income changes
When both demand and supply shift, the direction of change in price or quantitiy
depends on the relative magnitude of the changes in the demand and supply
A characteristic of demand for a good, service, or resource other than its own market price is a non-price ___________ of demand
determinant
The market adjusts to a new equilibrium price and quantity when a non-price __________ of supply changes
determinant
The role of government in market economies include
determining rules of commerce enforcing contracts punishing dishonest behavior defining and enforcing property rights
If a fitness center owner decides to hire additional employees but does not change the size of the fitness center or the amount of capital available to its employees to perform their tasks, the fitness center will likely experience
diminishing marginal productivity
The negative relationship between the quantity of a good, service or resource and the marginal utility obtained from each additional unit consumed in a given period of time describes
diminishing marginal utility
Which of the following best explains why people eventually stop eating when they dine at an "all you can eat" buffets
diminishing marginal utility
Taxes are generally imposed to
discourage people from consuming a particular good or service raise revenue to fund government activities
Suppose that there is an increase in demand for this type of housing
does demand shit inward or outward: outward (right) at the original equilibrium price does this lead to a surplus or shortage: shortage
The income effect
does not refer to a change in income refers to the change in purchasing power when the price changes
Suppose that there is an increase in supply for all grades of gasoline
does supply shift inward or outward: outward (right) at the original equilibrium price does this lead to a surplus or shortage: surplus
Competition between suppliers tends to drive prices ____; competition between buyers tends to drive prices ____
down up
A movement along the demand curve is
due to a change in the quantity demanded
something about bottled water
e. if a price floor is imposted at $2.50 per bottle the total surplus will be 400 bottles
The demand curve focuses entirely on the
effect of a change in price on the quantity of the product consumes and holds everything else constant
Resources include
entrepreneurial ability land labor
The lack of ___ results in increased scarcity and inefficiency in the production of a good or service
equilibrium
When a shortage is eliminated, the market returns to an ______ equilibrium where the quantity supplied equals the quantity demanded
equilibrium
The price that balances demand and supply is called the
equilibrium price
When the quantity supplied of a good, service or resource equals the quantity demanded this quantity traded is known as the
equilibrium quantity
An $1.01 tax on every pack of cigarettes sold, is an example of an _____ tax
excise
An 18.4 cent tax on every gallon of gasoline sold is an example of an ________ tax
excise
Use the figure below to answer the following question. The diagram shows three supply curves for apples today. Which of the following would cause supply of apples to shift S1 to S3?
expectations of higher apple prices in the future
(graph) the diagram show three supply curves for cars today. Which of the following would cause the supply of cars to shift from S1 to S2
expectations of lower car prices in the future
(graph) Consider the market for cars. Suppose buyers expect that new regulations set to go into effect next year will lead to significantly higher prices for new cars in the future. In this case, the non-price determinant of demand that is currently changing is
expected and shifts to the right (graph)
Resources are
factors of production land, labor, capital, and entrepreneurial ability inputs used to produce goods and services
Someone who is self-interested only performs actions for his or her own benefit
false
Martin has given himself an entertainment budget of $5 per week. He has decided that each week he will spend $5 by either attending a matinee movie at the local theater or downloading five songs by one his favorite artists. What is the most monetary opportunity cost of seeing a moving this week
five songs
According to the law of diminishing marginal productivity, the marginal productivity of additional variable resources will eventually fall all else held constant, if at least one input is
fixed
A policy designed to ensure that sellers receive a minimum price that is greater than what would be available at the market price is a price _______
floor
A price fixed above equilibrium that changes the incentives that both buyers and sellers face is called price __________
floor
Incentives faced by both buyers and sellers changes in the face of a price
floor
Markets such as the New York stock exchange are your local retail store are ______ markets
formal
Assuming a downward-sloping demand curve, a change in price, all else held constant
generates a change in quantity demanded
As a winter storm approaches, we would expect that the demand for
generators increases
A _______ is a tangible product that consumers, firms or governments wish to pruchase
good
Taxes paid by demanders help fund ______ services
government
The supply curve is a _____ representation of the information found in the supply schedule
graphical
Assume you buy three goods: hamburger, french fries, and pizza. You always prefer your hamburger with french fries. Also, you consume either hamburgers and french fries together or pizzas at the same time. If the price increase, the demand for
hamburger decrease pizza increases
Assume you buy three products: hamburger, french fries, and pizza. You always prefer your hamburger with french fries. Also, you consume either hamburgers and french fries together or pizzas at a time. If the price of pizza increases, the demand
hamburgers increases french fries increases
A change in supply
has the effect of shifting the entire supply curve to the right or left occurs when a non-price determinant of supply changes
The non-price determinants or other factors that affect supply are
held constant for any given supply curve
With a binding price floor, the market price is set _____ what would occur in a market without price controls
higher than
The demand curve can be drawn as
horizontal a straight line a curve
Shortages and surpluses are represented by the
horizontal distance between a point on the demand curve at a particular price and a point on the supply curve at the same price
Shortages and surpluses are represented by the
horizontal distance between the quantity demanded and the quantity supplied
The earliest two fundamental steps in learning the economic way of thinking are understanding
how resources and scarcity affect the costs and benefits of choices how people make choices
The role of government in market economies includes all the following except
identifying new markets
According to the principle of diminishing marginal productivity
if at least on input of production is fixed, the marginal productivity of additional variable resources will eventually fall, all else constant
The demand schedule displays the demand for a product
in a table, showing the different prices and the corresponding quantities demanded
Consumers willingness and ability to buy a good, service or resource will change if ______ changes resulting in a new relationship between price and quantity demanded
income
Suppose you have $18 to spend on coffee each week. When the price of coffee increase from $2 to $3 the purchasing power falls from 9 coffees per week to 6 coffees per week. This decreases in the quantity of taco demanded illustrates the ______ effect
income
The ____________ effect is the effect that a change in the price of a good, service, or resource has on the purchasing power of income
income
Determine which reason for downward sloping demand best explains each of the examples below. When a new cupcake store your town sells giant cupcakes for $5 each, you buy one. When the store puts the cupcakes on sale for $2.50 you but two
income effect
(graph) Suppose global warming effects Canada, causing millions of acres of land to have a climate more suitable to growing potatoes than before. This would cause the supply of potatoes to
increase
(graph) Suppose the government increase subsidies for wheat farmers who grow wheat that goes into hamburger buns. That would cause the supply of hamburgers to
increase
(graph) suppose the government decreases the social security tax that firms pay on wages for their employees, from 6.2 percent to 4.2 percent. Like all firms, fast food restaurants hire labor. In the market for fast food, the lower tax would cause supply to
increase
When a shortage occurs in a competitive market, there is an incentive for suppliers to _________ the quantity of a good or service supplied to the market
increase
The lack of equilibrium results in
increased scarcity and inefficiency in the production of a good or service.
On the supply side side of market when the price of a good increases the quantity supplied of the good
increases
A tax
increases the cost of goods sold and shifts the supply curve to the left
A tax
increases the price of goods sold
If both demand and supply change simultaneously, the effect on either price or quantity will be
indeteminant
If both demand and supply change simultaneously, the effect on either price or quantity will be
indeterminant
A higher price reduces the quantity of product demanded because
individuals will buy less of the product and more of its substitutes
For __ goods, an increase in income decreases demand, and a decrease in income increases demand
inferior
When a minimum wage results in unemployment, people may turn to ______ markets to provide their labor
informal
A market price
is a price at which buyers and sellers agree to exchange money for a good or service
When the supply curve shifts to the right
it is called an increase in supply more of a good, service, or resource is produced at all prices
The workers at general motors who produce an additional automobile
labor
The oil that Shell Oil extracts from the ocean floor and refines into gasoline and other petroleum products
land
You go to a baseball game on "dollar dog" night. In the first inning, you gobble up three hot dogs loaded with toppings. In the fourth inning, you have one more hot dog but it takes a bit longer to finish. In the eight inning, you buy one more hot dog but eat only half. The scenario is an illustration of the
law of diminishing marginal utility
A change in demand
leads to a shift of the demand curve
When the supply curve shits to the left
less of a good, service, or resource is produced at all prices it is called and decrease in supply
A subsidy to producers
lowers the cost of producing
The effect of an extension in unemployment benefits on the unemployment rate in the country
macroeconomics
The effect on an increase in the inflation rate on households to save or spend money
macroeconomics
The "all else held constant" assumption
makes it possible to study how a change in only the price affects the quantity demanded.
The additional cost associated with one more unit of an activity is the _____ cost
marginal
When someone compares marginal benefits associated with an activity to its marginal costs, that person is making a __________ decision
marginal
When the market is in equilibrium, the price that consumers pay and that producers receive exactly balances the ____ benefit and marginal cost of consuming and producing a good or service
marginal
The process of making choices in increments by evaluation the additional or marginal benefit against the additional or marginal cost of an action is called
marginal decision making
When you decide, after studying for three hours, that another hour of sleep is more beneficial to you than a fourth hour of studying, you are engaging in
marginal decision making
A ________ refers to a group of buyers and sellers who exchange one specific good, service or resource not necessarily to a specific place
market
Prices and quantities traded are determined by the interaction of buyers and sellers in a
market
The _____ demand represents the horizontal summation of individual demand curves
market
The overall or total demand for a good, service, or resource is called _____ demand
market
The sum of individual supply curves added together reflect the ______ market supply curve
market
The horizontal summation of the quantities supplied by individuals, firms, states or even nations at each price over a fixed period represents the
market supply
A tax on demanders
may be paid in addition to the purchase price at the point of sale may be included in the purchase price
The effect of a harsh growing season on the price of corn
microeconomics
The effect of a tax credit for purchasing new energy compliant appliances on the use of electricity
microeconomics
The _____ wage is the most common form of price floor
minimum
Demand will increase if there are
more buyers
If manufacturing technology improves
more manufactured products will be supplied
When we say in economics that there is an increase in supply we mean that
more output is being supplied at every price, all else held constant
E. Is the price ceiling at $6 effective binding
no
When a ____ determinant of demand changes, the demand curve shifts
non-price
The supply curve shifts to response to changes in
non-price determinants
A minimum legal price that is not set above the equilibrium price is a ____________ price floor
nonbinding
A good for which there is a direct relationship between the demand for the good and income is a _____ good
normal
For ____ goods an increase in income increases demand and a decrease in income decrease the demand
normal
If income increases, the demand for a ________ good increases
normal
The laptops sold by Dell to students around the world
not a
As long as there are differences in ____ costs, there are comparative advantages and there will be potential for trade to make both parties better off
opportunity
Firms will be willing and able to produce more output only when prices rise, because the ___________ cost of production is rising
opportunity
What do we call it when a decision maximizes overall benefit (That is no other available action would generate larger benefits)
optimization
Rational decision making is based on three assumptions
optimization self-interest marginal decision making
When people specialize according to their comparative advantages
overall production rises
Which of the following pairs of goods represent compliments
peanut butter and jelly guitar and guitar strings
Labor as a resource is defined as all _____ and ______ activity devoted to producing goods and services
physical mental
The table below presents the market supply schedule for roses in an average month. In February in anticipation for rose growers increase the quantity of roses they supply to the market by 50% at every price.
pice per dozen average month February 7.00 200 300 8.00 225 337.50 9.00 250 375 10.00 275 412.50 11.00 300 450 12.00 325 487.50 13.00 350 525
Assume you buy three products: hamburger, french fries, and pizza. You always prefer your hamburger with french fries. Also, you consume either hamburgers and french fries together or pizzas at a time. If the price of hamburgers increases, the demand
pizza increases french fries decreases
A decrease in supply would best be reflected by a change from
point 2 to point 1
A change in __ all else held constant, generates a change in quantity demanded
price
Along a demand curve, all else is held constant except the good's own
price
In a world characterized by scarcity, ________ mechanism for allocating goods, service and resources between competing uses is most reliant
price
Other factors remaining constant, when the ___ of a good increases, the quantity supplies increases
price
Other things remaining constant, when a good's ______ falls, its quantity supplied falls
price
The income effect refers to the change in purchasing power when the _________ changes
price
Shortages cannot push the market to an equilibrium in the presence of
price controls
The table below presents the market supply schedule for laptop computers in the "Initial Market Quantity of Computers Supplied" column. Suppose a new firm, NF Computers, enters the market with the supply schedule shown in the "Quantity of Computers Supplied by NF Computers" column
price initial quan quan by NF market quan 500 1,000 75 1075 475 900 69 969 450 800 63 863 425 700 54 754 400 600 45 645 375 500 36 536 350 400 27 427 325 300 18 318
The primary determinant of the quantity demanded by consumers is the
price of a good or service
(graph) The diagram above shows three supply curves for apples. A movement from point a to point b is caused by a change in the
price of apples in the market
Imagine that the market supply of peaches come from Georgia (GA) and South Carolina (SC). The supply schedule below shows the quantity of peaches supplied in each state at each price
price per lb quant GA quant SC Market 10 20,000 18,000 38,000 8 16,000 15,000 31,000 6 12,000 12,000 24,000 4 8,000 9,000 17,000 2 4,000 6,000 10,000
When graphing a demand curve we place ________ on the y-axis and _____ on the x-axis
price; quantity demanded
In most markets, _________ are determined by the interactions of numerous buyers and sellers
prices
Out of rationing mechanisms, such as prices, lotteries, first-come first-served arrangements and contests, ________ tend to be the most efficient mechanism for allocating goods, services, and resources between competing uses
prices
The upward slope of the supply curve reflects
principle of specialization in production
The supply curve will shift to the right in the current period if
producers expect lower future prices the number of sellers increase
________ refers to the quantity of output firms produce
production
Which of the following is something that markets cannot do
provide unlimited goods and services
The horizontal axis of a graph that shows a market demand curve indicates the
quantities that consumers are willing and able to buy at various prices
Any change in the availability and quality of resources and technology will likely affect the ____________ producers are willing and able to supply to the market at every price
quantity
When a normal goods's price changes the
quantity demanded falls as the price rises
When we talk about the supply of a good, we are referring to the
quantity of the good producers are willing and able to supply at a variety of different prices over a fixed time period, all else held constant
When we talk about the demand for sunglasses we are referring to the
quantity that consumers are willing and able to buy at a variety of different prices all else held constant
Payments (subsidies) or charges (taxes) initially affect the
quantity traded and the market price of goods and services supply of output in the market place
Any item whether a gift of nature the result of production or the result of human effort, that is used to produce goods and services is
resource
Because the world is characterized by scarcity, people must allocate the limited ________ at their disposal among many competing uses
resources
Every person's and every economy's standard of living relies on the effective use of
resources
Inputs used to produce goods and services are
resources
A change in nonprice determinant of supply will
result in a shift of the supply curve
Better technology can
result in an increase in supply in the market significantly decrease the cost of producing a good
The quantity traded times the times equals: the tax _____
revenue
When producers expect lower future prices, current supply shifts to the
right
When the demand curve shifts to the ___, more is demanded at all prices
right
Since Chevrolet Camaros represent a small subset of all automobiles in existence, they are relatively more
scarce than automobiles in general
Due to the ___ of natural resources, we cannot have all the housing and all the forests we may want
scarcity
A tabular representation of the relationship between the price of a good, service, or resource and the quantities producers are willing and able to supply is known as the supply
schedule
The idea that people choose to do the things that interest them is
self-interest
The anticipated future outcomes including prices that sellers associate with the production of a good, service or resource are expectations of the ________
seller
In a market ___ seek to change the highest price they can for a good or service
sellers
Market participants who are willing and able to sell good, services, or resources are known
sellers
Market participants who are willing and able to sell goods, services, or resources are known as
sellers
An intangible product or action that consumers, firms, or governments wish to purchase is a
service
(graph) Now use the same graph use the slider to show how the supply curve will shift (the new supply curve will be labeled S1
shift line on graph to the right
If products C and D are close substitutes, an increase in the price of C will
shift the demand curve for D to the right
An improvement in production technology will
shift the supply curve to the right
If the price of gasoline increases significantly, then we'd expect the demand curve for large trucks and SUVs to
shift to the left
(graph) Now use the slider to show how the supply curve will shift (the new supply curve will be labeled S1
shift to the right
(graph) Now use the slider to show how the supply curve wills shift (the new supply curve will be labeled S1)
shift to the right
A situation in which the quantity of out put demanded is greater than quantity of out put supplied at the current market price is called a
shortage
Suppliers have an incentive to increase quantity supplied when there is _________ in a competitive market
shortage
When a ____ exists in a competitive market, buyers want to purchase more of a good or service than is supplied
shortage
The law of demand says that lower prices lead to a higher quantity demanded. As a result the demand curve
should slope down
In economics, supply (and demand) curves that are neither perfect elastic not perfectly inelastic are often illustrated as _____________ lines
straight
A payment made by the government that does not necessarily require an exchange of economic activity in return is called a
subsidy
A decrease in the price of a good's __ will cause a decrease in the demand for the good
substitute
An increase in the price of a good's ___ will shift the demand for the good to the right
substitute
The ______ effect is the effect that a change in the price of one good. service or resource has on the demand for antoher
substitution
When the price of oranges increase, Jack buys more apples and fewer oranges. The decrease in the quantity demanded for oranges and the increase in the quantity demanded for apples is an example of the ______ effect
substitution
Determine which reason for downward sloping demand best explains each of the examples below. Your favorite cereal is Frootie-Os. When it is on sale for $2 a box, you buy one. When a box of Frootie-Os is selling at its regular price of $3.50 you buy the generic store brand instead
substitution effect
Market supply is the
sum of individual supply curves added together
A graphical representation of the relationship between the price of a good, service or resource and the quantities producers are willing and able to supply is known as the _____ curve
supply
Taxes and subsidies that are placed on businesses are likely to shift the ________ curve
supply
The law of _______ tells us that higher prices result in higher quantities being supplied
supply
The law that states that as the price of a good, service, or resource rises quantity supplied will increases all else held constant is the law of
supply
The size of the producer subsidy will influence the size of shift in
supply
The three different ways of expressing information about the supply of a good, service or resources are
supply curve supply schedule supply
When economists say that the supply for a product has decreased they mean that the
supply curve has shifted to the left
When there is a change in a non-price determinant of supply the
supply curve shifts and there is a change in the quantity demanded supply curve shifts and there is a movement along the demand curve
A tax on supplies shifts the
supply curve to the left
When the number of sellers increase
supply increases
The ______ displays the relationship between price and quantity supplied supply in a table
supply schedule
Suppose that tomato producers expect prices to fall in the future. This will likely cause current
supply to increase
The demand schedule represents the relationship between the price of a good, service or resource and the quantity that individual and firms are willing and able to buy, all else held constant in _______ form
table
The supply schedule displays the in a ____ form, showing the different prices and the their corresponding quantities supplied
table
Pam sees that the price of bananas has risen in the grocery store. All else equal, she decides to by more tangerines than she normally purchases. From the information given, you might conclude
tangerines and bananas are substitutes
A payment made to the government that is the result of economic activity is called a
tax
The knowledge, inventions, and innovations that can potentially increase resource productivity are known as
technology
Marginal benefit
the additional benefit associated with one or more unit of an acitvity
Marginal cost is
the additional cost associated with one more unit of an activity
The demand curve is downward sloping because
the benefit of consuming more of a good falls with each additional unit, so the price consumers are willing and able to pay also falls with increased consumption as prices rise, the purchasing power of each dollar earned falls, and consumers are willing able to buy less of a good as consumers purchase substitutes, the quantity demanded of the good falls
A change in quantity is demanded
the change in the quantity of a good, service or resource that consumers, firms, and governments are wiling and able to buy due to a change its price
In the presence of a tax on suppliers
the cost producing the food or services increases
(graph) same graph; Now use the slider to show how the supply curve will shift (the new supply curve will be labeled S1
the decrease in supply is a shift to the left
If there is a change in a non-price determinant of demand for a good
the demand cure shifts
When income decreases
the demand for an inferior good increases
Two different ways in which we usually express information about the demand for a good, service, or resource are
the demand schedule the demand curve
Without individuals and households that are willing and able to purchase a good
the demand side of the market cannot exist
Consider the market for electronic cigarettes shown below
the equilibrium price is 6 the equilibrium quantity is 50
An increase in demand for bubble gum might be caused by
the fact that blowing bubbles in a now a popular activity
When the supply curve increases
the good becomes less expensive, certeris paribus
When the price of a product decreases, the purchasing power of our income increases and thus permits consumers to purchases more of the product
the income effect
The minimum wage is
the lowest wage firms can legally pay employees in the labor market
There is no incentive to either increase or decrease the level of activity performed when
the marginal benefit equals the marginal cost
A good once affordable to most people can become an item that almost everyone owns when
the market supply increases over time
Theaters do not lower the price for bad movies and raise the price for good ones because
the movie studio that produced the movie would believe that the price is sending customers negative information about the movie consumers might view a lower price as a signal that the move is of poor quality
One assumption of a demand curve is that
the number of buyers in the market is constant
Demand for a good, service or resource will increase when
the number of buyers increases
If production of a good involves a lower cost
the opportunity cost of producing other goods (in terms of the amount of this good that could have been produced) has increased the opportunity cost (in terms of other goods that could have been produced) has decreased
Tastes and preferences refer to
the perfectly desirability of consuming a good, service, or resource
In most markets _______ is determined by the interactions of numerous buyers and sellers
the price of labor the price of goods and services
Terms of trade refers to
the price of one good or service in terms of another
Which of the following scenarios would likely shift the supply of cars to the left (decrease is supply)
the price of steel and aluminum increase
As the price of a good, service or resource rises
the quantity demand will fall
When the price of smart phones increases
the quantity of smart phones supplied will increase
A change in the pice of a good will affect
the quantity of that good supplied to the market
When a good or service is taxed in the market
the quantity traded in the market falls
Other factors remaining constant, if a non-price determinant of supply changes
the supply curve shits to the left or right an entire new supply relationship is created
The quantity traded times the tax equals
the tax revenue from a tax
Informal labor markets are problematic because
there are few protections from abuse no tax revenues are generated via income or employment taxes the workers cannot participate in retirement funds or Social Security there can be no formal contracts to guarantee payment the workers are at a significant disadvantage relative to the employers
When a binding price ceiling is in effect
there is a shortage there is a reduction on the prices received by producers market participants have a strong incentive to work around the laws
Because resources are scarce
they must be allocated between competing uses
The primary reason that governments tax economic activity is
to generate the revenue needed to pay for services
The demand for a product will change when the prices of the goods are complements or substitutes for that change
true
Shortages are usually the result of
unforeseen events that disrupt supply price controls that do not allow markets to adjust
When drawing a supply curve we always place price on the ___ axis and quantity on the ____ axis
vertical horizontal
When we graph the relationship between price and quantity demanded
we call the result a demand curve but demand curves are often drawn as straight lines
When both demand and supply change
we can always determine with confidence how price or quantity will change, but not both
When both demand and supply change simultaneously
we can determine the effect on either price or quantity, but not both
Suppose that there is an increase in consumer income and the market shown above if for a normal good
what is the effect on equilibrium price: increase what is the effect on equilibrium quantity: increase
Suppose that the government provides a subsidy to producers of this good
what is the net effect on equilibrium price: decrease what is the net effect on equilibrium quantity: increase
Suppose that there is a technological improvement that leads to an improvement that leads to an increase in labor productivity
what is the net effect on equilibrium price: decrease what is the net effect on quantity: increase
Suppose that the price of a complementary good (ski resort lift tickets) increases
what is the net effect on equilibrium price: decrease what is net effect on equilibrium quantity: decrease
Suppose the effect of consumer tastes and preferences declining for this good
what is the net effect on equilibrium price: decreases what is the net effect on equilibrium quality: decrease
Suppose that there is an increase in all factor input prices
what is the net effect on equilibrium price: increase what is the net effect on equilibrium quantity: decrease
Suppose that the number of consumers in the market increases
what is the net effect on equilibrium price: increase what is the net effect on equilibrium quantity: increase
Suppose that there is an increase in the wage rate of labor used in production of the good in the market above
what is the net effect on equilibrium price: increase what is the net effect on equilibrium quantity: decrease
The income effect, the substitution effect and diminishing marginal utility together explain
why demand curves are downward sloping
If price was not allowed to adjust a shortage
would persist, and the market would not return to equilibrium
C. Is the price ceiling at $4 effective binding
yes
