Macroeconomics Ch 3

Answer the question based on the following supply and demand schedules in units per week for a product. If the government introduced a guaranteed price floor of $40 and agreed to purchase surplus output, then the government's total support payments to producers would be

$4,000 per week.

Which statement is consistent with the law of supply?

An increase in market price will lead to an increase in quantity supplied.

In which of these two statements are the terms "supply" and "demand" used correctly?

"The price of corn rises and falls in response to changes in supply and demand."

Given the following diagram, indicate whether the specified changes below represent a change in supply or a change in the quantity supplied.

A change from point A to point B: A change in the quantity supplied A change from point A to point C: A change in supply

Critically evaluate: "In comparing the two equilibrium positions in the figure below, I note that a smaller amount is actually demanded at a lower price. This observation refutes the law of demand."

A decrease in demand from D1 to D2 results in a surplus This causes the price to fall This change in price results in an increase in quantity demanded along demand curve D2 This change in price results in a decrease in quantity supplied The new equilibrium has a lower price and lower quantity when compared to the original equilibrium. Does this refute the law of demand: No Why: Because there was a change in demand

How is the market supply curve derived from the supply curves of individual producers?

By adding up the quantities supplied by all individual producers for each price Correct

What happens to the supply curve when any of the following determinants change? Indicate whether each of these determinants causes a shift of the supply curve or a movement along the curve.

Change in market price: Movement along the supply curve Change in factor productivity: A shift of the supply curve Change in producer expectations: A shift of the supply curve Change in the price of other goods: A shift of the supply curve Change in technology: A shift of the supply curve Change in resource prices: A shift of the supply curve Change in taxes: A shift of the supply curve

True or False: A "change in quantity demanded" is a shift of the entire demand curve to the right or to the left

False

Why does the supply curve slope upward? To answer this question, use the choices below to identify the characteristics of an upward-sloping supply curve.

Increasing opportunity costs Increasing marginal costs

Label each of the following scenarios with the correct combination of price change and quantity change. In some scenarios, it may not be possible from the information given to determine the direction of a particular price change or a particular quantity change. We will symbolize those cases as, respectively, "P?" and "Q?".

On a hot day, both the demand for lemonade and the supply of lemonade increase. Price: P? On a cold day, both the demand for ice cream and the supply of ice cream decrease. Price: P? Quantity: Decreases When Hawaii's Mt. Kilauea erupts violently, tourists' demand for sightseeing flights increases but the supply of pilots willing to provide these dangerous flights decreases. Price: Increases Quantity: Q? In a hot area of Arizona where a lot of electricity is generated with wind turbines, the demand for electricity falls on windy days as people switch off their air conditioners and enjoy the breeze. But at the same time, the amount of electricity supplied increases as the wind turbines spin faster. Price: Decreases Quantity: Q?

What are the determinants of supply?

Price of other goods Technology Resource prices Number of producers

What effect will each of the following have on the demand for small cars such as the Mini Cooper and Fiat 500?

Small cars become more fashionable: Demand increases The price of large cars rises (with the price of small cars remaining the same): Demand increases Income declines and small cars are an inferior good: Demand increases Consumers anticipate that the price of small cars will decrease substantially in the near future: Demand decreases The price of gasoline substantially drops: Cannot be determined

Suppose that the demand and supply schedules for rental apartments in the city of Gotham are as given in the following table Monthly Rent: Apt Demanded Apt Supplied 3250 12500 17500 3750 15000 15000 2250 17500 12500 1750 20000 10000 1250 22500 7500

What is the market equilibrium rental price per month and the market equilibrium number of apartments demanded and supplied? Market equilibrium rental price = $ 2,750 Market equilibrium quantity = 15,000 apartments If the local government can enforce a rent-control law that sets the maximum monthly rent at $2,250, will there be a surplus or a shortage? Shortage Of how many units? 5,000 apartments per month How many units will actually be rented each month? 12,500 apartments Suppose that a new government is elected that wants to keep out the poor. It declares that the minimum rent that landlords can charge is $3,250 per month. If the government can enforce that price floor, will there be a surplus or a shortage? Surplus Of how many units? 5,000 apartments per month And how many units will actually be rented each month? 12,500 apartments

Suppose that in the market for computer memory chips, the equilibrium price is $50 per chip. If the current price is $55 per chip, then there will be

a surplus of memory chips

Suppose that a more efficient way to produce a good is discovered, thus lowering production costs for the good. This will cause a(n)

increase in supply.

Sometimes, we observe cases where the price of a product rose and the quantity bought by buyers also increased. Such cases occur due to a violation of the

ceteris paribus assumption.

Refer to the diagram. A decrease in quantity demanded is depicted by a

move from point y to point x.

Answer the question based on the following supply and demand schedules in units per week for a product. Refer to the above table. If demand increased by 100 units at each price level and the government set a price ceiling of $40, then there would be

no shortage or surplus.

The horizontal axis of a graph that shows a market demand curve indicates the

quantities which consumers will be willing and able to buy at various prices.

The supply curve in a market is vertical instead of upsloping whenever

sellers have a fixed quantity of the item for sale.

Plastics manufacturers can make either toys or plastic containers. If the prices and profitability of plastic toys increase, then the

supply of plastic containers will decrease.

How will each of the following changes in demand and/or supply affect equilibrium price and equilibrium quantity in a competitive market? That is, do price and quantity rise, fall, or remain unchanged, or are the answers indeterminate because they depend on the magnitudes of the shifts?

Supply decreases and demand is constant. Price: Increases Quantity: Decreases Demand decreases and supply is constant. Price: Decreases Quantity: Decreases Supply increases and demand is constant. Price: Decreases Quantity: Increases Demand increases and supply increases. Price: Indeterminate Quantity: Increases Demand increases and supply is constant. Price: Increases Quantity: Increases Supply increases and demand decreases. Price: Decreases Quantity: Indeterminate Demand increases and supply decreases. Price: Increases Quantity: Indeterminate Demand decreases and supply decreases Price: Indeterminate Quantity: Decreases

When the price of a product increases, a consumer is able to buy less of it with a given money income. This describes the

income effect.

The graph below shows the market for tickets to a "Final Four" sports event. Assume that there is only one kind of ticket to the event. The supply curve in this event-ticket market is vertical because

the organizers are selling a fixed number of tickets.