Chapter 2 Market Forces: Demand and Supply

Which of the following will cause a decrease in the supply of "farm-to-fork" vegetables?

- An increase in the Price of fertilizer used on these farms -A reduction in the number of "farm-to-fork" vegetable producers - An increase in government regulations on agriculture

Determine the effect in the market for chicken if the federal government subsidizes chicken production and, at the same time, the price of pork, a substitute, decreases.

- Equilibrium price decreases - The effect on equilibrium quantity is uncertain

Which of the following occur when the supply of a good or service increases but the demand remains the same?

- Equilibrium price decreases -Equilibrium quantity increases

Comparative static analysis assumes which of the following?

- No price ceiling - Goods are allocated by price - No price floors

The following function, Qsx = f(Px, Pr, W, H), shows that the quantity produced in a market depends on the price of the good, Px, and

- the price of technology and technology-related goods - the price of inputs such as labor costs - the price of other supply shifters such as taxes

Which of the following describes supply and demand analysis

-A qualitative tool -A forecasting tool -Use to predict pricing trends

Other things remaining constant, when demand for a good or service decreases, which of the following occur(s)?

-Equilibrium price decreases - Equilibrium quantity decreases

Which of the following occurs when the supply of a good or service decreases?

-Equilibrium price increases - Equilibrium quantity decreases

The law of demand analyzes the relationship between price and quantity demanded holding which of the following variables constant

-Prices and related goods -Income Everything else that might influence buyer decisions, such as consumer income, advertising, and the prices of other goods such as shirts, is held constant.

A decrease in supply is shown by which of the following

A leftward shift of the supply curve

What type of analysis studies the movement from one equilibrium to another?

Comparative static analysis

If the price of good A increases and, as a result, the demand for good B decreases, then goods A and B are considered to as

Complements ex) increase in the price of a good such as computer software may lead consumers to purchase fewer computers at each price. ex) Beer and pretzels are another example of complementary goods. If the price of beer increased, most beer drinkers would decrease their consumption of pretzels.

The difference between what consumers are willing to pay for a good or service and the market price is known as

Consumer Surplus

If a product is not perishable and firms expect the market price of the product to increase in the future, then the current supply of the good ____________.

Decreases If a firm suddenly expects prices to be higher in the future and the product is not perishable, producers can hold back output today. This has the effect of shifting the supply curve to the left

What do economists use to describe the amount of good X that will be purchased at different prices of good X, at different prices of related goods and at alternative income levels?

Demand Function The demand function for good X describes how much X will be purchased at alternative prices of X and related goods, alternative levels of income, and alternative values of other variables that affect demand

An increase in demand is best characterized by which of the following

Demand curve shifts to the right

What is the economic condition where there is neither a surplus nor a shortage?

Equilibrium

What can we predict about the market for craft beer if both demand and supply decrease simultaneously?

Equilibrium quantity decreases

As input prices rise, producers are willing to produce ______________ goods and services at all prices. As a result, supply _____________.

Less ; Decrease

Consider the following linear demand function where Py is the price of related goods, M is income, and H is other factors: Qdx = a0 +axPx+ayPy+amM+ahH According to the Law of Demand, the Value of aX is

Negative By the law of demand, an increase in Px leads to a decrease in the quantity demanded of good X. This means that αx < 0. The sign of αy will be positive or negative depending on whether goods X and Y are substitutes or complements

Which of the following describes supply and demand analysis

Negative if goods x and y are complements Positive if goods x and y are substitute

Demand is given by : Qd = 20 - 3P Supply is given by: Qs = 2 +3P Determine the equilibrium price (P*) and Quantity (Q*).

P = 3 Q= 11

Consider the following demand function: Qd = 900 - 15P Solve for the inverse demand function

P = 60 - 1/15 Qd

Which of the following is true according to the law of demand?

Price increase -> Demand decrease Price decrease -> Demand Increase

The difference between the market price and the amount at which producers are willing and able to sell a good is called

Producer Surplus

Consider the following function: Qsx = 15Px - 300

Px = 20 + 1/15Qsx

According to the law of supply, as the prices of a good increases

Quantity supplied increases

If the price of a good or service is less than the equilibrium price, a _____________ exists. As a result, the price tends to ____________.

Shortage ; rise

Which area forms consumer surplus?

The area below the demand curve and above the price This "extra" value is known as *consumer surplus*—the value consumers get from a good but do not have to pay for. This concept is important to managers because it tells how much extra money consumers would be willing to pay for a given amount of a purchased product. *More generally, consumer surplus is the area above the price paid for a good but below the demand curve*

What can we predict about the market for red wine if both demand and supply increase simultaneously?

The effect on equilibrium price is uncertain

Consider the following linear demand function where Py is the price of related goods, M is income, and H is other factors: Qdx = a0 + a0Px + ayPy + amM + ahH According to the Law of Demand, the value of ax is

negative

A function that describes the relationship between output and various prices of that output, prices of inputs, and values of other variables is called

the supply function