Ch. 3 Econ

What causes a movement along the demand curve? What causes a movement along the supply curve? 27. Does a price ceiling attempt to make a price higher or lower?

A change in the price received by sellers will cause a movement along the supply curve. A change in the price demanded by buyers will cause a movement along the demand curve.

Does a price floor attempt to make a price higher or lower?

A price floor prevents the price from rising below a certain level, keeping prices high.

Table 3.8 shows information on the demand and supply for bicycles, where the quantities of bicycles are measured in thousands. Price Qd Qs $120 50 36 $150 40 40 $180 32 48 $210 28 56 $240 24 70 A. What is the quantity demanded and the quantity supplied at the price of $210? B. At what price is the quantity supplied equal to 48,000?

A. Quantity demanded is 28,000 and quantity supplied is 56,000 B. At $180

What is the relationship between quantity demanded and quantity supplied at equilibrium? What is the relationship when there is a shortage? What is the relationship when there is a surplus?

At equilibrium, quantity demanded and quantity supplied are equal to one another. In a shortage, quantity demanded exceeds quantity supplied. In a surplus, quantity supplied exceeds quantity demanded.

When analyzing a market, how do economists deal with the problem that many factors that affect the market are changing at the same time?

Economists try to isolate one variable to study at a time, holding all other factors constant. This can be challenging in the real world, but is useful in economic models.

What term would an economist use to describe what happens when a shopper gets a "good deal" on a product?

Economists use the term consumer surplus to describe what happens when a shopper gets a "good deal" on a product because the consumer surplus is the amount that individuals are willing to pay, minus the amount they actually paid.

What determines the level of prices in a market?

Prices are determined by a combination of the level of demand for a good and how much of that good is being supplied.

Name some factors that can cause a shift in the demand curve in markets for goods and services.

Changes in the wealth of consumers, such as in a recession or economic boom, can shift the demand curve. Changes in prices of substitute and complement goods can also have an effect.

If the price is above the equilibrium level, would you predict a surplus or a shortage? If the price is below the equilibrium level, would you predict a surplus or a shortage? Why?

If the price is above the equilibrium level, there will be excess supply known as a surplus. If the price is below the equilibrium level, there will be excess demand, known as a shortage. This happens because the number of people who want to buy the good is not equal to the number of people who want to sell it at the given price.

How does one analyze a market where both demand and supply shift?

When both demand and supply shift, they will generally have opposite effects on either quantity or price. In this case it is necessary to know the magnitude of the changes in order to analyze them.

When the price is above the equilibrium, explain how market forces move the market price to equilibrium. Do the same when the price is below the equilibrium.

When price is above the equilibrium, there will be more sellers than buyers and the surplus goods will start to pile up. The only way for sellers to get rid of their excess goods is to lower prices. Conversely, if the price is too low, there will be more buyers than sellers, and those who demand the good will be willing to offer higher prices for them.

How does a price ceiling set below the equilibrium level affect quantity demanded and quantity supplied?

A price ceiling set below the equilibrium price will result in a greater quantity demanded than the quantity supplied otherwise known as a shortage.

How does a price floor set above the equilibrium level affect quantity demanded and quantity supplied?

A price floor set above the equilibrium level results in a greater quantity supplied than the quantity demanded, otherwise known as a surplus.

Name some factors that can cause a shift in the supply curve in markets for goods and services.

Supply shocks such as natural disasters can shift the supply curve. Changes in technology or the price of inputs can also have an effect.

How can you locate the equilibrium point on a demand and supply graph?

The equilibrium is the point where the demand curve and the supply curve cross.

Explain why the following statement is false: "In the goods market, no buyer would be willing to pay more than the equilibrium price."

The equilibrium price merely equalizes the number of willing sellers and buyers. There would still be people willing to buy even if the price were to rise.

Review Figure 3.4 in your textbook again. Suppose the price of gasoline is $1.00. Will the quantity demanded be lower or higher than at the equilibrium price of $1.40 per gallon? Will the quantity supplied be lower or higher? Is there a shortage or a surplus in the market? If so, of how much?

The quantity demanded will be higher than at the equilibrium price and the quantity supplied will be lower, resulting in a shortage of 300 million gallons.