Demand, Supply, Equilibrium

- Necessity - Substitutability - Income

3 factors that determine elastic or inelastic demand

- technology - other goods: price of goods - # of sellers: how many firms in the market - expectations: consider future prices and economic conditions - resource costs: cost to purchase factors will influence decisions

5 things that shift supply curves

"everything else remains the same"

Centeris Paribus

Price-Quantity Relationship

Demand

quantities of a product or service that consumers are able/willing to pay at different prices during a specified period of time

Demand

consumers drive the demand of a good or service

Elastic Demand

price at which quantity supplied and quantity demanded meet, price at which goods and services are sold (supply > demand = surplus) (demand > supply = shortage)

Equilibrium

total satisfaction received from consuming a goof or service

Utility

the act of buyers and sellers freely and willingly engaging in market transactions

Voluntary Exchange

Ceteris paribus is a Latin phrase that literally means a. "other things being equal." b. "after this therefore because of this." c. "to respond slowly to a change in price." d. "There's no such thing as a free lunch."

a. "other things being equal."

According to Graph 6-3, a binding price floor would exist at a price of a. $6.00. b. $5.00. c. $2.00. d. none of the above.

a. $6.00.

Suppose you like banana cream pie made with vanilla pudding. Assuming all other things are constant, you notice that the price of bananas is higher. How would your demand for vanilla pudding be affected by this? a. It would decrease. b. It would increase. c. It would be unaffected. d. There is insufficient information given to answer the question.

a. It would decrease.

What will happen in the rice market if buyers are expecting higher prices in the near future? a. The demand for rice will increase. b. The demand for rice will decrease. c. The demand for rice will be unaffected. d. The supply of rice will increase.

a. The demand for rice will increase.

If the price of a substitute to good X increases, then a. the demand for good X will increase. b. the market price of good X will decrease. c. the demand for good X will decrease. d. the demand for good X will not change

a. the demand for good X will increase.

If, at the current price, there is a shortage of a good, a. the price is below the equilibrium price. b. the market can be in equilibrium. c. sellers are producing more than buyers wish to buy. d. All of the above answers are correct.

a. the price is below the equilibrium price.

When the price of a good or service changes, a. there is a movement along a stable demand curve. b. demand shifts in the opposite direction. c. demand shifts in the same direction. d. supply shifts in the opposite direction

a. there is a movement along a stable demand curve.

Refer to the Graph 4-6. In this market, equilibrium price and quantity would be a. $15, 400. b. $20, 600. c. $25, 500. d. $25, 800.

b. $20, 600.

Refer to the Graph 4-6. If price is $15, quantity supplied would be a. 200. b. 400. c. 500. d. 700.

b. 400.

The downward-sloping demand curve reflects which of the following? a. The price is positively related to quantity supplied. b. There is an inverse relationship between price and quantity demanded. c. There is a direct relationship between price and quantity demanded. d. When the price falls, buyers willingly buy less.

b. There is an inverse relationship between price and quantity demanded.

When we move up or down a given demand curve, a. only price is held constant. b. all nonprice determinants of demand are assumed to be constant. c. income and the price of the good are held constant. d. all determinants of quantity demanded are held constant.

b. all nonprice determinants of demand are assumed to be constant.

Holding all else constant, a higher price for ski lift tickets would be expected to a. increase the number of skiers. b. decrease demand for skis. c. decrease the demand for other winter recreational activities. d. decrease the supply of ski resorts.

b. decrease demand for skis.

In which panel(s) in Graph 6-1 would there be a shortage for CDs at the market price? a. panel (a) b. panel (b) c. panel (a) and panel (b) d. neither panel (a) nor panel (b)

b. panel (b)

In Graph 6-1, a binding price ceiling is shown in a. panel (a). b. panel (b). c. both panel (a) and panel (b). d. neither panel (a) nor panel (b).

b. panel (b).

When there is a shortage in a market, a. there is downward pressure on price. b. there is upward pressure on price. c. the market could still be in equilibrium. d. the price must be above equilibrium.

b. there is upward pressure on price.

Refer to Graph 4-5. According to the graph, at a price of $7, a. there would be a shortage of 40 units. b. there would be a surplus of 40 units. c. there would be a surplus of 20 units. d. the market would be in equilibrium.

b. there would be a surplus of 40 units.

Refer to Graph 4-5. According to the graph, equilibrium price and quantity are a. $7, 20. b. $7, 60. c. $5, 40. d. $3, 60.

c. $5, 40.

Refer to the Graph 4-6. At a price of $20 a. the market would be in equilibrium. b. 600 units would be bought and sold. c. there would be no pressure for price to change. d. All of the above are true.

d. All of the above are true.

Which of the following would NOT shift the demand curve for a good or service? a. a change in income b. a change in the price of a related good c. a change in expectations about the price of the good or service d. a change in the price of the good or service

d. a change in the price of the good or service

Which of the following is a determinant of demand? a. the price of a substitute good b. the price of a complement good c. the price of the good next month d. all of the above

d. all of the above

if the price of the good or service change there is no effect on the demand

Inelastic Demand

as a price of goods and services fall a larger quantity will be bought, as prices rise a smaller quantity will be bought

Law of Demand

all else equal, as consumption increases the marginal utility derived from each additional unit declines

Law of Diminishing Marginal Utility

at higher prices there is greater supply; lower prices less supply

Law of Supply

how much of an item consumers are willing to purchase

Marginal Utility

when the government intervenes

Market Intervention

limit on how high a price is charged for a product ex. rent control

Price Ceiling

lowest legal price that a quantity can be sold at ex. minimum wage

Price Floor

money a business has left over after it covers costs

Profit

Single Quantity

Quantity Demanded

total amount of goods or services demanded at any point in time

Quantity Demanded

Negative Relationship

Slope Downward

slopes upward due to costs and profits

Supply Curve

Holding the nonprice determinants of supply constant, a change in price would a. result in a change in supply. b. result in a movement along a stable supply curve. c. result in a shift of demand. d. have no effect on the quantity supplied.

b. result in a movement along a stable supply curve.

Suppose that a decrease in the price of X results in less of good Y sold. This would mean that X and Y are a. complementary goods. b. substitute goods. c. unrelated goods. d. normal goods.

b. substitute goods.

Suppose that there is an increase in input prices. We would expect a. supply to increase. b. supply to decrease. c. supply could increase or decrease. d. supply to remain unchanged.

b. supply to decrease.

Wheat is the main input in the production of flour. If the price of wheat increases, all else equal, we would expect a. the supply of flour to be unaffected. b. the supply of flour to decrease. c. the supply of flour to increase. d. the demand for flour to decrease.

b. the supply of flour to decrease.

Refer to Table 4-2. In the table shown, if the price were $8, a. a surplus of 30 units would exist and price would tend to fall. b. a surplus of 60 units would exist and price would tend to rise. c. a surplus of 60 units would exist and price would tend to fall. d. a shortage of 30 units would exist and price would tend to rise.

c. a surplus of 60 units would exist and price would tend to fall.

Suppose that the number of buyers in a market increases and a technological advancement occurs also. What would we expect to happen in the market? a. The equilibrium price would increase, but the impact on the amount sold in the market would be indeterminate. b. The equilibrium price would decrease, but the impact on the amount sold in the market would be indeterminate. c. Both equilibrium price and equilibrium quantity would increase. d. Equilibrium quantity would increase, but the impact on equilibrium price would be indeterminate.

d. Equilibrium quantity would increase, but the impact on equilibrium price would be indeterminate.

According to Graph 6-4, when the supply curve for gasoline shifts from S1 to S2 a. the price will increase to P3. b. a surplus will occur at the new market price of P2. c. the market price will stay at P1 due to the price ceiling. d. a shortage will occur at the price ceiling of P2.

d. a shortage will occur at the price ceiling of P2.

Which of the following would NOT be a determinant of demand? a. the price if related goods b. income c. tastes d. the price of the inputs used to produce the good

d. the price of the inputs used to produce the good

A higher price for batteries would tend to a. increase the demand for flashlights. b. decrease the demand for electricity. c. increase the demand for electricity. d. increase the demand for batteries.

c. increase the demand for electricity.

1. Personal Income - normal goods (demand increases with income) - inferior goods (demand decreases with income) 2. Prices of related goods - Substitutes - Complements 3. Tastes 4. Expectations 5. Population

Reasons for Demand Shift

- price quantity relationship - "quantity supplied"; single # - change in the price does not shift supply - slope upward

Supply

the various quantities of a good or service that producers are willing to sell at all possible market prices

Supply

Refer to Graph 4-4. On the graph, the movement from S to S1 could be caused by a. a decrease in the price of the good. b. an increase in income. c. an improvement in technology. d. an increase in input prices.

c. an improvement in technology.

Refer to Graph 4-1. The movement from point A to point B on the graph shows a. a decrease in demand. b. an increase in demand. c. an increase in quantity demanded. d. a decrease in quantity demanded.

c. an increase in quantity demanded.

When the price is higher than the equilibrium price, a. a shortage will exist. b. buyers desire to purchase more than is produced. c. sellers desire to produce and sell more than buyers wish to purchase. d. quantity demanded equals quantity supplied.

c. sellers desire to produce and sell more than buyers wish to purchase.

Other things equal, when the price of a good rises, the quantity supplied of the good also rises. This is a. the law of increasing costs. b. the law of diminishing returns. c. the law of supply. d. the law of demand

c. the law of supply.