Macro econ chapter 3
Demand curve
A curve that shows the relationship between the price of a product and the quantity of the product demanded.
Supply curve
A curve that shows the relationship between the price of a product and the quantity of the product supplied
Demand schedule
A table showing the relationship between the price of a product and the quantity of the product demanded.
From the list below, select the variable that will cause the supply curve to shift:
The cost of raw materials
Supply schedule
A table that shows the relationship between the price of a product and the quantity of the product supplied
Imagine that the table on the right shows the quantity demanded of UGG boots at five different prices in 2014 and in 2015. Which of the following variables could cause the demand for UGG boots to change as indicated from 2014 to 2015? (Check all that apply.)
A. A decrease in the number of buyers C. A decrease in the price of a substitute good.
Choose two products whose demand is likely to increase rapidly if the population in the following demographic group increases at a faster rate than the population as a whole: Children under five.
A. Big wheel tricycles E. Sesame Street educational software
When economists speak of a shortage, they mean a situation in which
ALL OF THE ABOVE A. the market price is belowbelow the equilibrium price. B. some consumers aresome consumers are unable to makeunable to make a purchase ata purchase at the current price.the current price. C. the quantity demandeddemanded exceeds quantity suppliedsupplied.
Suppose that the table on the right shows the quantity supplied of UGG boots at five different prices in 2016 and in 2017. Refer to the table to the right and note the change in the supply of UGG boots from 2016 to 2017. Which of the following could explain the change in supply observed in 2017? (Check all that apply.)
C. An increase in worker productivity D. A decrease in the expected future price.
State whether each of the following events will result in a movement along the demand curve for McDonald's Big Mac hamburgers or whether it will cause the curve to shift. The price of Burger King's Whopper hamburger increases. This will cause McDonald's distributes $1.00 off coupons. This will cause The price of fries increases due to a potato shortage. This will The U.S. economy enters a period of rapid growth in incomes. This will cause
demand for McDonald's Big Mac hamburgers to increase. a movement along the demand curve for McDonald's Big Mac hamburgers. decrease the demand for McDonald's Big Mac hamburgers. demand for McDonald's Big Mac hamburgers to shift to the left if they are inferior goods.
Richard Posner is a federal court judge who also writes on economic topics. A newspaper reporter summarized Posner's views on the effect of online bookstores and e-books on the demand for books: "Posner's [argument] is that the disappearance of bookstores is to be celebrated and not mourned, partly because e-books and online stores will reduce the cost of books and thus drive up demand for them." Source: Christopher Shea, "Judge Posner Hails the Demise of Bookstores," Wall Street Journal, January 13, 2011. Do you agree with Posner's statement, as given by the reporter?
No, the accurate phrasing would be that "a reduced price drives up the quantity demanded."
Even though fuel prices rise as noted in the article and shown in the graph, can anything be said with certainty regarding the change in the equilibrium quantity?
No, the given summer changes in demand and supply may increase the quantity, decrease it, or leave it unchanged.
Substitute goods
Goods and services that can be used for the same purpose.
Complementary goods
Goods that are used together
You observe that when the price of houses decreases the demand for household appliances increases.
Houses and household appliances are considered to be COMPLEMENTARY goods.
Since 1979, China has had a policy that allows couples to have only one child. (There are exceptionslong dash—couples in which both partners are single children may be allowed two children.) The population demographics have changed between the young, middle-aged, and old, and between young males and females. Between 2000 and 2010, the share of the population under 14 slumped from 23% to 17%, and to ensure that the lone child is a son, the number of newborn males relative to females has increased. Source: "China's Family Planning: Illegal Children Will Be Confiscated" and "China's Population: Only and Lonely," Economist, July 21, 2011. How has the one-child policy changed the relative demand for goods and services in China?
It has undoubtedly shifted away from goods and services appealing to youthful buyers, particularly youthful female buyers.
Imagine that the curves shown in the accompanying figure represent two demand curves for traditional wings (basket of six) at Buffalo Wild Wings. The movement from point Upper AA to Upper BB on Upper D 1D1 is caused by Indicate which of the following could cause a movement from point Upper AA to Upper CC. (Check all that apply.)
A decrease in the price of baskets of traditional wings. A. A rise in buyer incomes. D. A decline in vegetarianism.
Inferior good
A good for which the demand increases as income falls, and decreases as income rises.
What do economists mean by market equilibrium?
A market outcome where quantity supplied is equal to quantity demanded.
What do economists mean when they use the Latin expression ceteris paribus?
All else equal.
From the list below, select the variable that will cause the demand curve to shift:
Consumer income
A student was asked to draw a demand and supply graph to illustrate the effect on the market for smartphones of a fall in the price of processorsprocessors used in smartphones, holding everything else constant. She drew the graph to the right and explained it as follows: "ProcessorsProcessors are an input to smartphones, so a fall in the price of processorsprocessors will cause the supply curve for smartphones to shift to the right (from Upper S 1S1 to Upper S 2 right parenthesis .S2). Because this shift in the supply curve results in a lower price left parenthesis Upper P 2 right parenthesis commaP2, consumers will want to buy more smartphones and the demand curve will shift to the right (from Upper D 1D1 to Upper D 2 right parenthesis .D2). We know that more smartphones will be sold, but we can't be sure whether the price of smartphones will rise or fall. That depends on whether the supply curve or the demand curve has shifted farther to the right. I assume that the effect on supply is greater than the effect on demand, so I show the final equilibrium price left parenthesis Upper P 3 right parenthesisP3 as being lower than the initial equilibrium price left parenthesis Upper P 1 right parenthesis .P1." Where is the flaw in the student's argument?
Demand will not shift.
If the price of a good increases, is the increase in the quantity of the good supplied likely to be smaller or larger, the longer the time period being considered?
Larger
If a market is in equilibrium LOADING... , is it necessarily true that all potential buyers and sellers are satisfied with the market price?
No
Suppose the data in the table present the price of a base model Toyota Prius hybrid and the quantity of Priuses sold for three years. Do these data indicate that the demand curve for Priuses is upward sloping?
No
Will each firm in the smartphone industry always supply the same quantity as every other firm at each price? What factors might cause the quantity of smartphones supplied by each firm at each price to be different?
No Productivity differences due to variations in the use of existing technology.
The difference between a change in supply and a change in the quantity supplied is that the latter is
Produced by a change in the product's own price while the former is caused by a variety of variables other than the product's price
Historically, the production of many perishable foods, such as dairy products, was highly seasonal. Thus, as the supply of those products fluctuated, prices tended to fluctuate tremendouslylong dash—typically by 25 to 50 percent or morelong dash—over the course of the year. One impact of mechanical refrigeration, which was commercialized on a large scale in the last decade of the nineteenth century, was that suppliers could store perishables from one season to the next. Economists have estimated that as a result of refrigerated storage, wholesale prices rose by roughly 10 percent during peak supply periods, while they fell by almost the same amount during the off season. Source: Lee A. Craig, Barry Goodwin, and Thomas Grennes, "The Effect of Mechanical Refrigeration on Nutrition in the U.S.," Social Science History, Vol. 28, No. 2 (Summer 2004), pp. 327-328. Choose the graph below that corresponds to the change for the peak season.
SUPPLY LEFT SHIFT
When smartphones based on the Android operating system were first introduced, there were relatively few applications, or "apps," available for them. Now, there are many more "apps" available for Android-based smartphones. With respect to the demand for Apple iPhones, the increase in the availability of "apps" for Android-based smartphones would be expected to
Smartphones and "apps" for smartphones are clearly COMPLEMENTS reduce the demand for Apple iPhones because enhancements (in the form of additional "apps") to Android-based smartphones increase the latter's relative appeal.
Which one is best suited to find the quantity demanded at a price of $4.00?
The demand schedule
Which one is best suited to find the quantity supplied at a price of $4.50?
The supply curve.
he demand for pearspears is highest during summer and lowest during winter. Yet pearpear prices are normally lower in summer than in winter. What must be happening to the supply of pearspears, from winter to summer, for the equilibrium price to fall?
The supply increases more than the demand increases.
In The Wealth of Nations, Adam Smith discussed what has come to be known as the "diamond and water paradox": "Nothing is more useful than water: but it will purchase scarce anything; scarce anything can be had in exchange for it. A diamond, on the contrary, has scarce any value in use; but a very great quantity of other goods may frequently be had in exchange for it." LOADING... Click in the icon for a reference diagram. It is possible for the price of water to be much lower than the price of diamonds if which of the following is true?
The supply of water is greater than the supply of diamonds.
During the summer of 2011, General Motors (GM) had trouble selling pickup trucks. According to an article in USA Today: "General Motors dealers had a 122-day supply of Chevrolet Silverado and GMC Sierra pickups in June, more than 50% above what's considered optimum. . . . Behind the glut: The year started strong and makers pumped up production. Then the economy slowed faster than they cut back." Source: Chris Woodyard, "Pickup Truck Glut Brings Hot Deals This Summer," USA Today, July 11, 2011. A slowing economy helped cause the glut of pickup trucks because
The term glut implies that relative to the quantity supplied of GM pickup trucks, the quantity demanded was SMALLER Given the situation in the market for GM pickup trucks in the summer of 2011, their prices would be expected to FALL income growth was sluggish and GM pickup trucks are a normal good.
Years ago, an apple producer argued that the United States should enact a tariff, or a tax, on imports of bananas. His reasoning was that: "the enormous imports of cheap bananas into the United States tend to curtail the domestic consumption of fresh fruits produced in the United States." Source: Quoted in Douglas A. Irwin, Peddling Protectionism: Smoot-Hawley and the Great Depression, Princeton, NJ: Princeton University Press, 2011, p. 22. In a graph (not shown) of the banana market in the United States, the imposition of a tariff on banana imports would
This producer apparently assumed apples and bananas to be SUBSTITUTES . shift supply leftward, increasing equilibrium price and decreasing equilibrium quantity.
Identify whether each of the following statements describes a change in supply or a change in the quantity supplied.
To take advantage of high prices for snow shovels during a very snowy winter, Alexander Shovels, Inc., decides to increase output. A CHANGE IN QUANTITY SUPPLIED The success of Apple's iPod leads more firms to begin producing digital music players. A CHANGE IN SUPPLY. In the six months following Hurricane Katrina, production of oil in the Gulf of Mexico declined by 25 percent. A CHANGE IN SUPPLY.
Suppose that the curves in the figure to the right represent two supply curves for traditional wings (basket of six) at Buffalo Wild Wings. The movement from point Upper AA to Upper BB on Upper S 1S1 is caused by Indicate which of the following would cause a movement from point Upper AA to Upper CC. (Check all that apply.)
a decrease in the price of baskets of traditional wings. B. A decrease in worker productivity C. An increase in the prices of substitutes in production.
In early 2011, financial journalist Wolfgang Gruener made the following observation about forecasts of demand for tablet computers: "The conclusion can only be that the market is too young to sustain a reliable shortdash-, middash- or longdash-term forecast. If you trust any number at this time, good luck with that. Only a fool would bet the farm and a business on any forecast for the tablet market right now." Source: Wolfgang Gruener, "240 Million Tablets: The Gazillion-Dollar Forecast Game," www.fool.com, February 6, 2011. It might be particularly difficult to forecast the demand for a new product because In the case of tablet computers, a forecast of the demand was made particularly difficult by uncertainty regarding
all of the above appear to be legitimate arguments. consumers' perception of the tablet's usefulness.
A student writes the following: "Increased production leads to a lower price, which in turn increases demand." This student must be referring to
an increase in quantity demanded.
A student makes the following argument: "The chapter says that for consumers as a group, Quiznos sandwiches are normal goods and Subway sandwiches are inferior goods. But I like the taste of Subway sandwiches better than I like the taste of Quiznos sandwiches, so for me Quiznos sandwiches are inferior goods and Subway sandwiches are normal goods." This student's reasoning is
confused because the classification of a good as normal or inferior depends on the response of demand to a change in income.
Complete the following statement: "When there is a shortage of a good
consumers compete against one another by bidding the price upward. The process continues until the market is finally in equilibrium."
The law of demand is the assertion that An increase in the price of a product causes a decrease in quantity demanded because of the income and substitution effects. More specifically,
the quantity demanded of a product is inversely related to its price. the substitution effect is the decrease in quantity demanded because the product is more expensive relative to other goods and the income effect is the decrease in quantity demanded owing to the decline in consumers' purchasing power.
a. If the demand and supply for a product both increase, the equilibrium quantity of the product must also increase. b. If the demand and supply for a product both increase, the equilibrium price of the product must also increase. c. If the demand for a product decreases and the supply of the product increases, the equilibrium price of the product may increase or decrease, depending on whether supply or demand has shifted more.
true false false
