MICRO- CH 3, QUIZ 2
Suppose that the price of coal falls in the market. According to the law of supply, what will happen?
A lower quantity of coal will be supplied in the market.
How does the concept of deadweight loss apply to a per unit tax?
A per unit tax results in a loss in social surplus.
The graph below represents the market for eggs during a snow storm. Calculate the shortage caused by the price ceiling.
A price ceiling keeps the price for a good from rising above a set maximum. An effective price ceiling is set below the equilibrium price. To calculate the shortage caused by the price ceiling, subtract the quantity supplied from the quantity demanded. In this case, the shortage is equal to 1,375−520, or 855 dozen eggs.
Which of the following is the definition of price floor?
A price floor is the minimum amount that can legally be charged for a good or service. A price floor is defined as the minimum amount that can legally be charged for a good or service. An effective price floor is set above equilibrium and is meant to help the producer. At a price floor set above equilibrium quantity supplied is greater than quantity demanded which results in a surplus.
The graph below represents the market for strawberries. A supply and a demand curve are shown with a price floor at $8.50. Equilibrium price is $5 and the equilibrium quantity is 135 baskets of strawberries. The quantity demanded at the price floor is 75 baskets of strawberries and the quantity supplied is 480 baskets of strawberries. Calculate the surplus caused by the price floor.
$405\text{ baskets of strawberries}$405 baskets of strawberries A price floor keeps the price for a good from falling below a set minimum. An effective price floor is set above equilibrium price. To calculate the surplus caused by the price floor, subtract the quantity demanded from the quantity supplied. In this case, the surplus is equal to 480−75, or 405 baskets of strawberries.
The table below represents the market for condominiums in a neighborhood in Austin, TX. Suppose there is a price floor set at $375,000. Calculate the surplus caused by the price floor.
$675\text{ condominiums}$675 condominiums A price floor keeps the price for a good from falling below a set minimum. An effective price floor is set above equilibrium price. To calculate the surplus caused by the price floor, subtract the quantity demanded from the quantity supplied. In this case, the surplus is equal to 1,450−775=675 condominiums.
The graph below represents the market for gasoline. Calculate the shortage caused by the price ceiling.
1060 A price ceiling keeps the price for a good from rising above a set maximum. An effective price ceiling is set below equilibrium price. To calculate the shortage caused by the price ceiling, subtract the quantity supplied from the quantity demanded. In this case, the shortage is equal to 1,200−140, or 1,060 thousands of gallons of gas.
Consider the supply curve shown for Company R in the figure. The marketing director of Company R has hired you to analyze the effects of an expected increase in price. The market price is currently $10.00. If the market price increases by 10%, what quantity supplied is the producer willing to bring to the market?
1150 If the market price increases by 10% from $10.00 to $11.00, the new quantity supplied at that price level is 1150.
In order to encourage consumers to buy washing machines, the government places a price ceiling on them. Calculate the shortage caused by the price ceiling.
2800 A price ceiling keeps the price for a good from rising above a set maximum. An effective price ceiling is set below equilibrium price. To calculate the shortage caused by the price ceiling, subtract the quantity supplied from the quantity demanded. In this case, the shortage is equal to 4,200−1,400, or 2,800 washing machines.
A snow storm hits the Southeastern United States in March. The table below represents the market for loaves of bread. Suppose there is a price ceiling set at $5 per loaf to avoid price gouging. Calculate the shortage caused by the price ceiling.
3500 A price ceiling keeps the price for a good from rising above a set maximum. An effective price ceiling is set below the equilibrium price. To calculate the shortage caused by the price ceiling, subtract the quantity supplied from the quantity demanded. In this case, the shortage is equal to 6,900−3,400=3,500 loaves of bread. Quantity Demanded − Quantity Supplied = The Shortage
During a back to school shopping frenzy, a price ceiling of $5 is put on a pack of pencils. Calculate the shortage caused by the price ceiling.
500
The table below represents the market for greeting cards. Suppose there is a price floor set at $6.00. Calculate the surplus caused by the price floor.
550
The below figure illustrates the market for rental housing. If the government placed a price ceiling on rentals at $1,200, some producer surplus will be lost. A part of that lost producer surplus will be captured by consumers and will become consumer surplus. A second part of the lost producer surplus will become a deadweight loss. Calculate the value of that second part of the lost producer surplus. Note that the quantities (x-axis) are in thousands. Hint: the formula for the area of a triangle is A= 1 BASE x HEIGHT ---- 2
7,500,000
In order to increase support for the ruling party before the next general election, the government decrees that Product Z cannot be sold for more than $8.60. At a price of $8.60, what is the quantity supplied of Product Z?
800
Gasoline is one of the main costs for a local messenger company that delivers packages. If the price of gasoline falls, how is the company's delivery impacted? On the graph below, demonstrate the effect of falling gasoline prices on the supply of package delivery by shifting the appropriate curve.
A decrease in production costs, such as gasoline, results in an increase in supply, or a rightward shift in the supply curve for package deliveries. A rightward shift in supply means that at every given price, the quantity supplied is higher.
The graph below represents the diesel fuel market. Calculate the surplus caused by the price floor.
A price floor keeps the price for a good from falling below a set minimum. An effective price floor is set above the equilibrium price. To calculate the surplus caused by the price floor, subtract the quantity demanded from the quantity supplied. In this case, the surplus is equal to 42−14, or 28 gallons of diesel fuel.
The table below shows Jennifer's demand schedule for bottles of barbecue sauce. Choose the most accurate statement below.
As the price of barbecue sauce increases from $2 to $3, the quantity demanded of the sauce decreases from 12 units to 9 units.
The graph below represents the market for rice. If a price floor is set at $12, which parts of the graph correspond with lost social surplus (deadweight loss)?
B & E The sum of consumer surplus and producer surplus is social surplus. The loss in social surplus that occurs when the economy produces at an inefficient quantity is called deadweight loss. This occurs when a price ceiling or price floor is put in place. Originally, consumer surplus is equal to D+E+F and producer surplus is equal to A+B+C.When the price floor is set at $12, quantity demanded drops to 100,000 bushels of rice. The consumer loses blocks D and E and is left with block F in consumer surplus. The producer loses block B and gains block D in producer surplus. Thus, the deadweight loss, or the social surplus that is no longer received with the price floor, is represented by triangles B and E.
The image is representative of the market for corn. Notice without price controls that price equals $4 per bunch of corn and quantity demanded equals 60,000. In order to help farmers overcome bad crop seasons, the government sets a price floor at $8 per bunch of corn. At this price, quantity demanded drops to 20,000. The sum of which two areas represents the lost social surplus (deadweight loss) from this price floor. Please use the variables from the image in your answer (and not numeric calculations).
C+E The lost social surplus (deadweight loss) is found in the areas of C and E. The sum of consumer surplus and producer surplus is social surplus. The loss in social surplus that occurs when the economy produces at an inefficient quantity is called deadweight loss. This occurs when a price ceiling or price floor is put in place. Originally, consumer surplus is equal to A+B+C and producer surplus is equal to D+E+F.When the price floor is set at $8, quantity demanded drops to 20,000 bunches of corn. The consumer loses block C and B and is left with block A in consumer surplus. The producer loses block E and gains block B in producer surplus. Thus, the deadweight loss, or the social surplus that is no longer received with the price floor, is represented by triangles C and E.
Lettuce and tomatoes are complements. Demonstrate the impact on the demand of tomatoes on the graph below if the price of lettuce falls. Shift the demand or supply curve in the appropriate direction.
Complements are goods that are purchased together. If the price of one good changes, that will affect the demand for the other good. In this case, because the price of lettuce falls, the demand for tomatoes increases.
Use the graph below to answer the following questions. What is the equilibrium quantity and price at the intersection of D0 and S0?
Equilibrium occurs where D0 and S0 cross, at point E0. In this case, the curves cross at q=250 thousand fish and p=$3.25 per pound.
Using the supply and demand schedule below, determine the equilibrium price and quantity for gallons of milk.
Equilibrium occurs where quantity supplied equals quantity demanded. This can be seen in the chart where price = $5 and quantity = 4.
True or false? As the Baby Boomer generation transitions into retirement, the demand for withdrawals from the social security system will decrease.
False As the number of Baby Boomers transition into retirement, the demand for withdrawals from the social security system will increase as a larger number of people will depend on social security for living expenses.
True or false? A surplus is the result of a price set above the equilibrium price. When producers face a surplus, they are willing to increase production even further. This combination of higher quantity and higher price increases industry profits, which are beneficial to producers.
False By definition a surplus is an excess of supply--that is, quantity demanded cannot match quantity supplied. Firms cannot earn profits from unsold inventory, while production is costly. Since producers cannot find enough buyers at this price, producers in a competitive market will want to cut price and production levels.
True or false? Your widget manufacturing company has recently purchased a new machine that promises to decrease costs by 20% per widget. If all other factors are held constant, then the supply of widgets will decrease.
False Improved technology will increase supply because new technology can lower production costs for each unit produced, thus, the supply increases, or we can also say that quantity supplied increases at every price. This is represented by a rightward shift of the supply curve.
True or false?If quantity supplied is 5 dozen apples and quantity demanded is 4 dozen apples, the market is in equilibrium.
False Market equilibrium occurs where quantity demanded equals quantity supplied.
Price ceilings are typically enacted in an attempt to keep prices high for those who produce the product.
False Price ceilings are typically enacted in an attempt to keep prices low for those who demand the product. A price floor is enacted to keep prices high for producers.
You survive through grad school by eating a bland diet of rice and lentils, which you view to be inferior to more expensive meals. After graduating, you secure a high-paying job and can now afford much more than rice and lentils. As a result, your demand for rice and lentils is likely to increase.
False Rice and lentils are clearly an inferior good in this example. Eating out and higher priced foods will make up a higher share of spending after an increase in income.
Given the supply and demand curves for cigarettes below, graph the change in the market if the government imposes a tax on the production of cigarettes.
Government policies can affect the cost of production and the supply curve through taxes, regulations, and subsidies. A tax placed on the production of cigarettes leads to a shift of the supply curve to the left. Equilibrium price of cigarettes rises, whereas equilibrium quantity falls.
Which of the following best defines consumer surplus?
It is the gap between the price consumers are willing to pay, based on their preferences, and the market equilibrium price. Consumer surplus is defined as the gap between the price consumers are willing to pay, based on their preferences, and the market equilibrium price.
If the price of a good were to change will it shift demand or change quantity demanded?
It will change quantity demanded. When economists talk about demand, they mean the relationship between a range of prices and the quantities demanded at those prices, as illustrated by a demand curve or a demand schedule. When economists talk about quantity demanded, they mean only a certain point on the demand curve, or one quantity on the demand schedule. A shift in demand means that at any price (and at every price), the quantity demanded will be different than it was before. A change in the price of a good or service causes a movement along a specific demand curve, and it typically leads to some change in the quantity demanded, but it does not shift the demand curve.
Papa's Italian Joint has a promotion for $1 off any large specialty pizza. Ernie's Shop does not have any promotions that reduce the price of pizza. How does the decrease in price of Papa's Italian Joint pizza affect the demand for Ernie's Shop pizza? In the graph below, show how demand for Ernie's Shop pizza is impacted by shifting the supply or demand curve in the appropriate direction.
Papa's Italian Joint pizza and Ernie's Shop pizza are substitutes. If the price of one substitute falls, the demand for the other will decrease or shift leftward. A leftward shift in demand means that at any price, the quantity demanded will be lower than it was before.
Suppose there is a soda tax levied on producers to curb obesity. What should a reduction in the soda tax do to the supply of sodas?
Producers are likely to supply more sodas. Businesses treat taxes as a production cost. When supplying sodas becomes more expensive for producers due to the introduction of a soda tax, they will most likely decrease the amount they are supplying. In reverse, reducing the soda tax will reduce the cost of production from the businesses' point of view and cause them to increase the quantity produced at any given price.
Given the chart below, what are the equilibrium price and equilibrium quantity?
Q= 4, P= $7
The table below shows the market supply and demand for cheddar cheese. What is the equilibrium price and quantity?
Q= 650 P= $3.40
A longer growing season caused by a warm spring and an ideal amount of water hits Georgia. Demonstrate the effect of the longer growing season on the equilibrium price and quantity of peanuts.
Step 1: Draw the initial supply and demand curves with the initial equilibrium price and quantity. Step 2: Is the supply or demand affected? The extended growing season will increase supply. Step 3: The supply of peanuts will increase, shifting the supply curve to the right. Step 4: A rightward shift in supply causes a movement down the demand curve, decreasing the equilibrium price and increasing the equilibrium quantity.
The population of senior citizens, the main buyer group of wheelchairs, is expected to increase by 15%. Demonstrate the effect the increase in population has on the equilibrium price and quantity of wheelchairs.
Step 1: Draw the initial supply and demand curves with the initial equilibrium price and quantity. Step 2: Is the supply or demand affected? The increase in population of senior citizens will increase the demand for wheelchairs. Step 3: The demand for wheelchairs will increase, shifting the demand curve to the right. Step 4: A rightward shift in demand causes a movement up the supply curve, increasing the equilibrium price and the equilibrium quantity.
A main component used in the production of acoustic guitars has risen in price by 11%. Demonstrate the effect this has on the equilibrium price and quantity of acoustic guitars.
Step 1: Draw the initial supply and demand curves with the initial equilibrium price and quantity. Step 2: Is the supply or demand affected? The increase in price will decrease supply because of increased production costs. Step 3: The supply of acoustic guitars will decrease, shifting the supply curve to the left. Step 4: A leftward shift in supply causes a movement up the demand curve, increasing the equilibrium price and decreasing the equilibrium quantity.
A recent study was published on the potentially harmful effects of drain cleaning products on water quality. Show the effect on equilibrium price and quantity of drain cleaners on the graph below.
Step 1: Draw the initial supply and demand curves with the initial equilibrium price and quantity. Step 2: Is the supply or demand affected? The study will decrease the demand for drain cleaners as buyers are concerned about the quality of the water they use. Step 3: The demand for drain cleaners will decrease, shifting the demand curve to the left. Step 4: A leftward shift in demand causes a movement down the supply curve, lowering the equilibrium price and the equilibrium quantity.
You are responsible for setting prices of finished clothing items at a major textile manufacturer. In the past year the price of cotton, a critical input, has increased by 20%. What is the likely result?
Supply of clothing will decrease. When a firm faces an increase in production costs, its profits will decline at the given selling price, causing the firm to reduce production and quantity supplied.
The government implements a tax on incandescent light bulbs to encourage the use of energy-saving LED light bulbs. In the graph below, demonstrate the impact on the supply of incandescent light bulbs by shifting the appropriate curve. (Note: To shift a curve, grab the point in the shape of a circle.)
Taxes on production of goods that are levied on the producer, cause an increase in production costs. Due to the tax on incandescent light bulbs, suppliers produce less incandescent light bulbs, resulting in a leftward shift of the supply curve. A leftward shift in supply means that at every given price, the quantity supplied is lower.
Tea and coffee both contain caffeine and are often consumed in place of one another. You are the director of a large coffee plantation. In recent years, poor tea harvests have devastated tea production and significantly increased prices. How would you expect the demand for coffee to change, and why?
The demand for coffee should increase because the two goods are substitutes.
Suppose the price of adoption fees for shelter dogs decreases so that more dogs can be adopted. What would happen to the demand for dog food at the local pet store? Assume that the shelter does not buy its pet food from this pet store, rather it buys in bulk directly from a national supplier.
The demand for dog food will go up because the number of dogs being adopted has increased.
For generations, the Irish were among the poorest in the British Isles and relied almost exclusively on simple potatoes, which were inexpensive but not particularly tasty, for sustenance. Potatoes were an inferior food product favored by the poorer sections of the population. All else being equal, how would you expect the demand for potatoes per person to change after several decades of significant economic development?
The demand for potatoes is likely to decline.
There is a general decrease in the price of airfare tickets. What do you expect to happen to the demand for cross-country train tickets, a substitute good?
The demand for train tickets would decrease. Different modes of transportation can be viewed as substitutes, so if the price of one good decreases, the demand for the substitute good will also decrease.
Suppose the price of beer increases. What would you expect to happen to the demand for wine? Assume that beer and wine are substitutes.
The demand for wine would increase.
The Green Revolution is a scientific breakthrough that improved seeds for basic crops. How did the Green Revolution impact the supply of basic crops such as wheat and corn?
The supply of wheat and corn increased.
Assume equilibrium price for lemons is $1.50 for a dozen. If a government believes the price for lemons is too high, and sets a temporary price cap at $1.00 for a dozen, what will happen? Please select two correct answers below.
There will be a shortage of lemons. After the price cap is lifted, prices will return to the equilibrium price.
Assuming all other variables that affect supply are held constant, which of the following outcomes happen in the market for DVD players if the price of DVD players increases?
There will be an increase in the quantity supplied of DVD players.
Which of the following characteristics is a fundamental similarity that nearly all demand curves share?
They slope downward from left to right. Demand curves will appear somewhat different for each product. They may appear relatively steep or flat, or they may be straight or curved. Nearly all demand curves share the fundamental similarity that they slope down from left to right. This is because the Law of Demand states that as the price of a product decreases, consumers want to purchase more of it.
True or false? A decrease in demand for inferior goods results from a rise in income.
True A decrease in demand for inferior goods results from a rise in income because inferior goods are usually cheaper substitutes purchased with lower incomes.
True or false? The law of supply states that when there are many sellers of a good, an increase in price results in an increase in quantity supplied.
True All other factors being equal, when there are many sellers of a good, an increase in price results in an increase in quantity supplied, a relationship that is known as the law of supply.
According to the law of demand, changing the price of sweater vests will only affect the quantity demanded, not demand itself.
True As demand is a schedule consisting of quantity and price combinations, changing the price of sweaters will move the consumer from one row or point in the demand schedule to another row or point. The demand schedule itself remains unchanged.
True or false? According to the law of demand, changing the price of sweater vests will only affect the quantity demanded, not demand itself.
True As demand is a schedule consisting of quantity and price combinations, changing the price of sweaters will move the consumer from one row or point in the demand schedule to another row or point. The demand schedule itself remains unchanged.
Economists use the ceteris paribus assumption to make it easier to analyze complex problems by looking at one factor at a time.
True Ceteris paribus is a Latin phrase that means "all other things being equal." Economists try to test hypotheses by observing actual behavior and using real-world data. By keeping all other factors constant, economists are able to analyze one factor at a time.
For normal goods, there is a positive relationship between income and demand levels, while there is an inverse relationship for inferior goods.
True This statement fits the definitions of normal and inferior goods. For normal goods, demand increases with income, while it decreases with income for inferior goods.
A drought results in a very small crop of sweet potatoes at the same time as the American Physicians Association releases a journal article praising the health benefits of sweet potatoes. Which of the following statements is true about the equilibrium quantity of sweet potatoes?
We do not know the magnitude of the shift in supply and demand; therefore, we cannot determine the effect on equilibrium quantity.
The graph below represents the market for bottled water. Graph the change in the market if a category 5 hurricane is predicted to hit the area by shifting the supply or demand curve in the appropriate direction.
When consumers hear the news of a major event, such as a hurricane, they stock up on the necessary goods to weather the storm. In this case, the demand for bottled water increases whereas supply stays unchanged. The shift of demand increases both equilibrium quantity and equilibrium price.
Coca-Cola and Pepsi, two popular brands of soda, are substitutes. Suppose that the price of Coca-Cola drops by 20%. In the graph below, show how demand for Pepsi is impacted by this change by shifting the appropriate curve. Provide your answer below:
When the price of a good (Coca-Cola) falls, the demand for its substitute (Pepsi) will decrease. This is because as Coca-Cola and Pepsi are similar, the consumer chooses to switch consumption from Pepsi to Coca-Cola whenever the Coca-Cola price falls, all else the same. This reduces the demand for Pepsi, which is represented by a leftward shift in the demand curve. A leftward shift in demand means that at any price, the quantity demanded will be lower than it was before.
Which of the following is not a factor that could cause a shift in supply for a certain good?
a change in income A change in income is the only choice that affects demand, which will change quantity supplied due to a shift in the demand curve but not a shift of the supply curve.
Which of the following is not a factor that could cause a shift in the demand curve for a certain good?
a change in the price of a good A change in the price of a good does not change demand for it. A price increase will change the quantity demanded but not shift the demand curve. If the price of a good increases, fewer people will want to purchase it, as explained by a downward sloping demand curve.
Taking into account ceteris paribus, which of the following factors of production will not impact the supply of corn?
a disease killing potato plants Farmers, fertilizer, and tractors are all factors of production that impact the supply of corn growing. Potato plants are not related to the corn market and the corn supply. FEEDBACK
When considering factors that shift demand curves, which of the following will decrease the market demand for a product? Select the two correct answers below.
a drop in the price of substitutes a rise in the price of complements A drop in the price of substitutes will decrease demand because people are likely to buy the more affordable product. A rise in the price of complements will decrease demand because people are likely to buy complements together.
Which of the following will impact the supply of a good?
a government subsidy to the producers of the good
If a product's demand rises as income rises, ceteris paribus, the product is ________.
a normal good
Which of the following would be consequences of more rental properties in the United States being subject to binding price ceilings?
a shortage of apartments the quantity demanded of apartments will exceed the quantity supplied
The following supply schedule shows ___________.
a supply curve that does not satisfy the Law of Supply The chart shows a supply curve, however, as price increases, quantity supplied decreases. This is in contrast to the Law of Supply.
Graphically positioned, where does producer surplus fall in relation to supply and demand?
above the supply curve but under the price
Ryan is studying the effects of income on the demand for jewelry. Which factors are held constant when using the ceteris paribus assumption?
all factors affecting demand besides income
Ryan is studying the effects of income on the demand for jewelry. Which factors are held constant when using the ceteris paribus assumption?
all factors affecting demand besides income When studying the relationship between demand and an influencing factor, the ceteris paribus assumption holds all other influencing factors constant in order to study the effects of only the factor at hand.
The difference between supply and quantity supplied is that "supply" refers to the _____________ and "quantity supplied" refers to the _____________.
curve; point on the curve When economists refer to supply, they mean the relationship between a range of prices and the quantities supplied at those prices, a relationship that can be illustrated with a supply curve or a supply schedule. When economists refer to quantity supplied, they mean only a certain point on the supply curve, or one quantity on the supply schedule. In short, supply refers to the curve and quantity supplied refers to the (specific) point on the curve.
Per unit taxes are said to be inefficient because they create ______________.
deadweight loss
What term best describes the loss in social surplus that occurs when a market produces an inefficient quantity?
deadweight loss A deadweight loss is defined as a loss in social surplus that occurs when a market produces an inefficient quantity. Social surplus is the combined amount of producer and consumer surplus, which demonstrates the economic efficiency of the market equilibrium.
If the price of gasoline increases by 50%, we would expect demand for automobiles to _____________. This occurs because the two goods are close ______________.
decrease, complements
Corn syrup and maple syrup are substitutes. News of health benefits from maple has increased the demand for maple syrup and decreased the demand for corn syrup. Meanwhile, the government has subsidized corn crops, a key ingredient of corn syrup. As a result, the equilibrium price of corn syrup _______ and the equilibrium quantity ________.
decreases; is unknown The supply for corn syrup increases (shifts right) due to the subsidy, and the demand decreases (shifts left) as people substitute maple syrup for corn syrup. Equilibrium price of corn syrup falls due to the two events, but the impact on quantity depends on the magnitude of the changes in supply and demand, so its effects are unknown.
A price floor will usually tend to create ___________ when the price floor is set above the market price.
excess supply A price floor will tend to create conditions of excess supply as a result of the misalignment in the market forces of more supply produced than demanded at this higher price. If price is set above equilibrium, quantity demand decreases while quantity supplied increases, causing a shortage to exist in the market.
As the strategy director for a mutual fund, you must choose a portfolio of stocks that maximizes returns for your customers. Recently, the economy has undergone significant economic growth, which is expected to continue. You have a choice of the four following industries in which to place your investors' money. In which two will you place the money to best fulfill your goal?
fancy restaurants high-end electronics The other two industries are either inferior goods or at least goods in which consumers are less likely to place marginal earnings as incomes increase. Both high-end electronics and fancy restaurants are considered normal goods as people increase spending on them when incomes improve.
When considering factors that shift supply curves, which of the following will increase supply?
favorable natural conditions for production lower taxes levied on producers
If the price of indoor cycling classes increase by $10, we would expect the demand for fitness classes to _______________. This is because indoor cycling classes and fitness classes are ______________.
increase; substitutes Indoor cycling classes and fitness classes are substitutes, so if the price of one rises, the demand for the other will also rise.
Why does a "per unit" tax create a deadweight loss?
it creates a wedge between the price consumers pay and the price producers receive The wedge between the price consumers pay and the price producers receive is known as the tax incidence. This wedge means that the market is no longer in equilibrium and therefore must be inefficient. As a result, deadweight loss must exist.
Suppose that while in college, you saved money by eating generic fruits and vegetables from the grocery store. Now, suppose that after you graduated from college you got your first paying job and your income increased. As a result, you started buying higher priced organic fresh fruits and vegetables from specialty stores.This scenario would indicate that the organic fresh fruits and vegetables are a(n) _______ good for you.
normal If an increase in income leads to an increase in demand, the good is a normal good. Thus, in this case, as your income increased, you purchased more fruits and vegetables. This makes fresh fruits and vegetables a normal good for you.
China is currently on the tail end of a "demographic bulge" that will see unprecedented numbers of retirees and senior citizens over the next decade. You are the strategy coordinator of a major sporting goods company. The main products in your catalog are hiking equipment, diving gear, physical therapy equipment, and basketball equipment. Where would you expect the greatest increase in demand as the elderly and retiree population increases?
physical therapy equipment
Jeremy is studying the effects of income on the demand for Greek ceramics. If "ceteris paribus" is used, which factors would be held constant when studying the effects of changes in income? Select the two correct answers below.
price of Italian ceramics demand for Greek sculptures
All of these scenarios cause the Demand Curve for a product to shift (left or right), except for one. Identify that one scenario that does not shift the Demand Curve.
price of the good changes When the price of a good changes, it is a movement along the demand curve, not a shift in the demand curve. The new equilibrium point along the demand curve will indicate both the new quantity demanded and the new price.
Quantity demanded is different from demand because _________________________.
quantity demanded is the number of units consumers demand at a specific price, while demand is a schedule comprised of quantity demanded at different prices
What term is best described as the total number of units of a good or service producers are willing to sell at a given price?
quantity supplied
Price ceilings typically affect which of the following?
rent A price ceiling is a legal maximum price that one pays for some good or service. A government imposes price ceilings in order to keep the price of some necessary good or service affordable. Rent is likely to have a price ceiling in an effort to keep prices low for those needing them. This is a necessity that could disproportionately affect the poor. An unintended consequence is that shortage occurs and some people are unable to get the goods. Additionally, product quality may suffer. Milk, cars and CEO salaries are not generally affected by price ceilings.
What term is best described as the situation where the quantity demanded exceeds the quantity supplied?
shortage A shortage is the situation where the quantity demanded exceeds the quantity supplied. It occurs when the price is set below equilibrium price, therefore, more units of the good are desired for purchase than are available for sale.
The demand curve for a normal good is ______________.
sloped downwards The demand curves for both an inferior and normal good are sloped downwards as the slope is determined by the law of demand (which is a negative relationship between price and quantity demanded).
The table below shows the market's demand and supply for cheddar cheese. If the price is set at $3.80, the market will experience a ______________ with resulting ____________________ pressure on the price.
surplus, downward
What is the best definition of producer surplus?
the difference in the amount the producer is paid and the cost of production
Where supply and demand intersect on a graph, quantity demanded equals quantity supplied. This quantity intersection is referred to as ________________.
the equilibrium quantity The equilibrium quantity occurs where supply and demand intersect on a graph.
Although governments can collect tax revenue in the form of a per unit tax on output, this creates inefficiency known as deadweight loss because _________________________________.
the market is no longer in equilibrium A per unit tax on output drives a wedge between the price consumers pay and the price producers receive. This wedge is known as the tax incidence and means that the market is no longer in equilibrium since there is no equilibrium price, but rather two prices: one that consumers pay and one that producers receive.
A price ceiling is _______________.
the maximum amount that can legally be charged for a good or service
When plotting a demand curve for crushed tomatoes, what is assumed to be constant according to ceteris paribus?
the price of a can of tomato sauce income
If we use "ceteris paribus" when plotting a demand curve for sneakers, what is assumed to be constant? (Select all that apply.)
the price of shoelaces consumers income
According to the law of demand, if all else remains equal, as the price of a good becomes lower, then _________________________.
the quantity demanded of the good will increase
Quantity supplied is a term that refers to _______.
the total number of units of a good or service producers are willing to sell at a given price
