Section 3: Supply and Demand

When the price of an hour of tutoring increases,

the quantity demanded for tutoring decreases.

A competitive market is one in which

there is a large number of buyers and sellers

Which country has characteristics of a command economy?

Russia

The ________ is where quantity demanded and quantity supplied are equal at a certain price.

equilibrium

A demand curve shows the graphical relationship between price and

quantity demanded

A negative relationship between the quantity demanded and price is called the law of:

demand

Good weather and heavy winter rain increases the supply of agricultural products. This means that at any given price, a higher quantity will be supplied. Conversely, a drought would shift the

supply curve to the left

If the market clearing (equilibrium) price of computer tablets rises from $400 to $600, and the market clearing (equilibrium) output decreases from 5 million to 4 million units.

supply decreased and demand remained unchanged

Analyze the following diagram: In this graph, the y-axis represents price and the x-axis represents quantity. There are two lines, S1 and D1. S1 starts at (0,2) and has an upward slope. D1 starts at approximately (0,16) and has a downward slope. The two lines cross at the point (31,14). The price at which quantity demanded equals quantity supplied is________ and the corresponding quantity is ________ .

$14, 31

Figure: Demand and Supply of Gasoline Reference: Ref 3-4 (Figure: Demand and Supply of Gasoline) Look at the figure Demand and Supply of Gasoline. Given the initial equilibrium of S1 and D, any price lower than _____ will exert pressure for the price to _____.

$2.50; rise

all supply curves share a basic similarity: they slope

up from left to right

In a planned economy, government determines the prices for goods and services, and

what goods will be produced

_____ illustrates a positive relationship between price and quantity.

A supply curve

Indicate which of the following pairs of goods are likely to be classified as substitutes or complement by entering substitute or complement in the box provided. 1. peanut butter and jelly 2. cereal and milk 3. Nike and Reebok brand sneakers 4. Airlines and hotels 5. ham and bacon

1. Complement 2. Complement 3. Substitute 4. Complement 5. Substitute

For each of the goods below, indicate if the good is normal good or an inferior good by entering either inferior or normal in the box. 1. spam (canned meat) 2. used clothing 3. used car 4. new Lexus car 5. refurbished computer

1. Inferior 2. Inferior 3. Inferior 4. Normal 5. Inferior

Analyze the following diagram: In this graph, the y-axis represents price and the x-axis represents quantity. There are two lines, S1 and D1. S1 starts at (0,2) and has an upward slope. D1 starts at approximately (0,16) and has a downward slope. The two lines cross at the point (31,14). At a price of $13, quantity demanded is ________, quantity supplied is ________ ; therefore excess ________ has occurred.

45, 27; demand

Analyze the following diagram: In this graph, the y-axis represents price and the x-axis represents quantity. There are two lines, S1 and D1. S1 starts at (0,2) and has an upward slope. D1 starts at approximately (0,16) and has a downward slope. The two lines cross at the point (31,14). At a price of $16, quantity demanded is ________, quantity supplied is ________; therefore excess ________ has occurred.

5, 35; Supply

Analyze the following diagram: In this graph, the y-axis is price in dollars per gallon and the x-axis is quantity of gasoline in millions of gallons. The demand line is not a straight line and has a downward slope. There are seven points labeled on the line, starting from the upper-left and moving to lower-right of the line. The first point is $2.20 per gallon, 420 millions gallons. The second point is $2.00 per gallon, 460 million gallons. The third point is $1.80 per gallon, 500 million gallons. The fourth point is $1.60 per gallon, 550 million gallons. The fifth point is $1.40 per gallon, 600 million gallons. The sixth point is $1.20 per gallon, 700 million gallons. The seventh point is $1.00 per gallon, 800 million gallons. If price was $1.40 per gallon and increased to $2.00 per gallon, how does quantity of gasoline demanded change?

600 million gallons to 460 million gallons

Analyze the diagram from this page: In this graph, the y-axis is price in dollars per gallon and the x-axis is quantity of gasoline in millions of gallons. The demand line is not a straight line and has a downward slope. There are seven points labeled on the line, starting from the upper-left and moving to lower-right of the line. The first point is $2.20 per gallon, 420 millions gallons. The second point is $2.00 per gallon, 460 million gallons. The third point is $1.80 per gallon, 500 million gallons. The fourth point is $1.60 per gallon, 550 million gallons. The fifth point is $1.40 per gallon, 600 million gallons. The sixth point is $1.20 per gallon, 700 million gallons. The seventh point is $1.00 per gallon, 800 million gallons. If price was $1.60 per gallon and increased to $2.20 per gallon, how does quantity supplied of gasoline change?

640 million gallons to 720 million gallons

Analyze the diagram from this page: In this graph, the y-axis is price in dollars per gallon and the x-axis is quantity of gasoline in millions of gallons. The demand line is not a straight line and has a downward slope. There are seven points labeled on the line, starting from the upper-left and moving to lower-right of the line. The first point is $2.20 per gallon, 420 millions gallons. The second point is $2.00 per gallon, 460 million gallons. The third point is $1.80 per gallon, 500 million gallons. The fourth point is $1.60 per gallon, 550 million gallons. The fifth point is $1.40 per gallon, 600 million gallons. The sixth point is $1.20 per gallon, 700 million gallons. The seventh point is $1.00 per gallon, 800 million gallons. If price was $2.20 per gallon and decreased to $1.60 per gallon, how does quantity supplied of gasoline change?

720 million gallons to 640 million gallons

As the owner of a hotel, you have decided to lower the price for all rooms in the month of October. What should you expect to happen?

As the price is lowered, the quantity demanded of rooms will increases

Which of the following will cause the supply curve to shift to the left?

Explain the determinants of supply -improved technology -higher product taxes x a fall in input taxes

According to the law of supply, what is the relationship between price and quantity supplied?

Direct

An increase in the price of contact lenses will increase the supply of contact lenses.

False

The point at which quantity demanded equals quantity supplied is called

Equilibrium

An increase in the price of sugar (an ingredient for soft drinks) and an increased concern about tooth decay caused by the consumption of soft drinks will result in which of the following in the soft drink market?

Equilibrium quantity will decrease, but equilibrium price may decrease, increase, or stay the same.

Suppose that two things happen simultaneously in the market for fish. First, a new technology allows fishing boats to catch more fish with using the same number of crewmembers. At the same time a new study shows that eating fish at least three times a week helps prevent heart attacks. How will the market for fish respond?

Equilibrium quantity will increase but the effect on the price is unknown without more information.

Which of the following statements describe(s) a free market?

Government does not intervene in any way

Two common ways to discourage tobacco use are taxes on tobacco and information campaigns on the hazards of tobacco use. Which one causes a shift in the demand curve for smoking?

Information campaign on hazardous material

The following country has characteristics of a command economy:

North Korea

Figure: Shifts in Demand and Supply II Reference: Ref 3-11 (Figure: Shifts in Demand and Supply II) Look at the figure Shifts in Demand and Supply II. The graph shows how supply and demand might shift in response to specific events. Suppose consumer incomes decrease. Which panel BEST describes how this will affect the market for used clothing, an inferior good?

Panel A

Refer to the following image. When a market is in equilibrium, which of the following is true?

Quantity supplied is equal to quantity demanded

You are a producer of calculators. In the market for calculators, two events happened simultaneously last month. There was a fire at your calculator factory that eliminated half of your firm's production capability. At the same time, your compensation costs increased by 5% because of an annual pay raise you give your employees. With these events happening simultaneously, which of the following is a consequence?

The fire causes the supply curve to shift a large amount but the increase in wages causes the supply curve to shift to the left by an even smaller amount

Information campaigns about tobacco hazards and taxes on tobacco are two ways to discourage its use. Which one causes a movement along the demand curve?

The information campaign on hazards of tobacco

A change in which of the following will cause a change in the quantity demanded of coffee?

The price of coffee

A change in which of the following will cause a change in the quantity supplied of coffee?

The price of coffee

Smoke detectors have been shown to effectively reduce the death rate due to fires. In order to ensure that as many individuals as possible install a smoke detector, the government recently decided to subsidize the production of smoke detectors. Which of the following will be the consequences of this subsidy? Select all the answer options that apply.

The supply curve shifts to the right The demand curve shifts to the left

Which of the following statements describe a competitive market?

There is a large numbers of buyers and sellers

Assuming that desktop computers are normal goods, which of the following will NOT increase demand for desktop computers?

a very large computer company going out of business

An decrease in the quantity supplied can result from

a decrease in price

A decrease in the price of eggs will result in:

a movement along the demand curve for eggs.

An ambiguous change in price and a decrease in quantity are most likely caused by

a shift to the left in supply and a shift to the left in demand.

Refer to the following figure. At a price of $5, this market is experiencing

a shortage.

When the price is _________ the equilibrium price, we would expect there to be a _________, causing the market to put _________ pressure on the price until it went back to the equilibrium price.

above; surplus; downward

A decrease in the price of a good will result in:

an decrease in the quantity supplied.

An increase in the quantity supplied can result from

an increase in price

Excess demand occurs when the actual price in some market is ________ the equilibrium price.

below

Market economies are based on private enterprise, which means

economic decision-making happens through markets

According to the law of demand, if the price of steak increases in Rhode Island, the demand for steak will decrease in Rhode Island.

false

From an initial equilibrium, suppose there's a decrease in supply. Once the market reaches its new equilibrium, there will be

fewer transactions, and they will take place at a higher price

A technological advance in the production of automobiles will _____ the _____ automobiles.

increase; supply of

According to the law of demand, what is the relationship between price and quantity demanded?

inverse

A demand schedule:

is a list of goods and services demanded at different prices. (incorrect) is a table representing the relationship between the price of a good or service and the quantity demanded.

A supply schedule:

is a table representing the relationship between the price of a good or service and the quantity supplied.

When higher prices result in higher quantity supplied, economists call this relationship

law of supply

From an initial equilibrium, suppose there's a increase in demand. Once the market reaches its new equilibrium, there will be

more transactions, and they will take place at a higher price

A demand curve shows the graphical relationship between quantity demanded and

price

A supply curve is a graphical illustration of the relationship between quantity supplied and

price

Alice goes to the local supermarket to purchase one package of her favorite taco shells. She often pays $1.50 for a package, but she finds they are on sale for $1 each. According to the law of demand, one can expect Alice to:

purchase more than one package of taco shells.

Market equilibrium occurs when:

quantity demanded equals quantity supplied. (Incorrect) there is no incentive for prices to change in the market, quantity demanded equals quantity supplied, and the market clears (Guess)

Suppose the market clearing (equilibrium) price of apples rises from $2.00 to $3.00 per pound, and the overall market clearing (equilibrium) output increases from 1 million to 2 million pounds. How can we explain the increase in equilibrium price and increase in market (equilibrium) output?

supply increased and demand remained unchanged (incorrect)

In the market for breakfast cereal, the market is currently in equilibrium. Suddenly there is a storm that destroys the wheat that farmers had been growing for the cereal manufacturer. What will happen to the cereal market after the storm?

supply will decrease

When firms want to sell more than consumers want to buy, a ______ occurs

surplus

When quantity demanded decreases in response to a change in price

the demand curve shifts to the left (incorrect) there is movement from one point to another along the demand curve

When the demand curve shifts to the right and the supply curve is held constant,

the equilibrium price and quantity increase.

A free market is described by which of the following statements?

the government does not intervene in any way

When higher prices result in a lower quantity demanded, economists call this relationship

the law of demand

If there is a shortage of product X, and the price is free to change:

the price of the product will rise

According to the law of demand, all other things being equal,

the quantity demanded falls when the price rises, and the quantity demanded rises when the price falls.

The law of supply states that, all other things being equal,

the quantity supplied falls when the price falls, and the quantity supplied rises when the price rises.

When quantity demanded increases in response to a change in price

there is a movement from one point to another along the demand curve