ECON 101 Chapter 4

Inferior goods

A good is inferior if in response to an increase in income, individuals decrease their consumption of the good

Normal goods

A good is normal if in response to an increase in income, individuals increase their consumption of the good

Equilibrium

A market is in equilibrium, with an equilibrium price and an equilibrium quantity, when the quantity demanded equals the quantity supplied

A decrease in the price of the good itself

A movement along a supply curve; no change in supply

Supply

A table (schedule) or graph (curve) showing the quantity of a good that producers are willing to supply at each price, assuming that all possible influencing factors other than price remain constant

Capital

The buildings and physical improvements, machines, and tools that business use to produce goods and services

Number of sellers

Demand and supply changes

Tastes and preferences

Supply changes

An increase in the number of potential buyers will most likely cause which of the following? a. An increase in demand b. A decrease in demand c. An increase in the quantity demanded d. A decrease in the quantity demanded

a. An increase in demand

Inputs

The resources - labor, land, and capital - businesses use in producing goods and services; those resources are often described as factors of production

Indicate how a decrease in the cost of producing oranges (a substitute for apples will affect the equilibrium price and the equilibrium quantity in the market for apples. a. Increase; increase b. Increase; decrease c. Decrease; decrease d. Decrease; increase

c. Decrease; decrease

Movements along a demand curve

A change in quantity demanded caused by a change in a good's price

Assume that the tariff posed in the previous question still holds. How will that same tariff affect the market for domestic computers? The equilibrium price of domestic computers will _______ and the equilibrium quantity of domestic computes will ________. a. Increase; increase b. Increase; decrease c. Decrease; increase d. Decrease; decrease

a. Increase; increase

Indicate how an increase in tastes for apples will affect the equilibrium price and the equilibrium quantity in the market for apples. a. Increase; increase b. Increase; decrease c. Decrease; decrease d. Decrease; increase

a. Increase; increase

Price of related goods

Quantity supplied changes

A tax on the land used by the producer

Shift the supply curve to the left; a decrease in supply

How does a decrease in input costs affect suppliers? a. Demand increases b. Demand decreases c. Supply increases d. Supply decreases

c. Supply increases

Effects of simultaneous changes in supply and demand on equilibrium prices and quantities

1. Changes in demand - increase Changes in supply - increase Equilibrium price - indeterminate Equilibrium quantity - increase 2. Changes in demand - increase Changes in supply - decrease Equilibrium price - increase Equilibrium quantity - indeterminate 3. Changes in demand - decrease Changes in supply - decrease Equilibrium price - indeterminate Equilibrium quantity - decrease 4. Changes in demand - decrease Changes in supply - increase Equilibrium price - decrease Equilibrium quantity - indeterminate

The effects of only supply and demand shifting in a market

1. Changes in demand - increase Changes in supply - no change Equilibrium price - increase Equilibrium quantity - increase 2. Changes in demand - decrease Changes in supply - no change Equilibrium price - decrease Equilibrium price - decrease 3. Changes in demand - no change Changes in supply - increase Equilibrium price - decrease Equilibrium quantity - increase 4. Changes in demand - no change Changes in supply - decrease Equilibrium price - increase Equilibrium quantity - decrease

Movements along a supply curve

A change in quantity supplied caused by a change in a good's price

Shift in the demand curve

A change in the quantities consumers are willing and able to purchase at each price; the shift is caused by changes other than a change in prices; for instance, changes in income, tastes, expectations, the number of potential buyers, and prices of substitute and complementary goods may lead to shifts in demand

Shift in the supply curve

A change in the quantities producers are willing and able to sell at each price; the shift is caused by changes other than a change in price; for instance, rising labor costs (a price of an input) cause a shift to the left of the supply curve (a decrease in supply); changes in prices of other inputs or changes in technology will also shift the supply curve

Demand

A table or graph showing the quantity of a good demanded at each price, assuming that all possible influencing factors other than price remain constant

Shortage

At a single price, the quantity demanded is greater than the quantity supplied

Surplus

At a single price, the quantity supplied is greater than the quantity demanded

A decrease in the price of another good firms in the industry could produce

Shift the supply curve to the right; an increase in supply

Change in technology

Demand changes

Complementary goods

Goods that are used together; when the price of one good increases, the demand for its complementary good decreases

Substitute goods

Goods that can be used in place of one another; when the price of one increases, the demand for a substitute good increases

Markets

Means for individuals and businesses to exchange goods, services, assets, and labor

Expectations of rising prices of the good in the near future

Shift the supply curve to the left; a decrease in supply

A decrease in the price of an input, such as wages for labor

Shift the supply curve to the right; an increase in supply

Price of the good sold by a firm

Supply changes

Law of supply and demand

The market price and the quantity exchanged in a perfectly competitive market will move toward the price and quantity where quantity supplied is equal to quantity demanded

Equilibrium price

The price at which quantity supplied is equal to quantity demanded ; the market is in equilibrium, that is, equilibrium price will not change until something else changes

Law of demand

The principle that price and quantity demanded are inversely related; a decrease in price, assuming nothing else changes, will cause an increase in the quantity demanded and an increase in price will cause a decrease in the quantity demanded; the law of demand implies a negatively sloped demand curve

Equilibrium quantity

The quantity of a good bought and sold when quantity supplied equals quantity demanded; the equilibrium quantity will not change until something else changes

Quantity demanded

The quantity of a good or service that consumer intend to purchase throughout a given time period at a certain price

Quantity supplied

The quantity of a good or service that producers intend to sell throughout a given time period at a certain price

Consider the markets for ball-point pens and "rollerball" pens. Suppose that, due to an increased cost of the metal that is used in "rollerball" pens, the prices of "rollerball" pens increase. There are no other changes. What would happen to the demand schedules of both products? The demand curve for ball-point pens would _________; the demand curve for "rollerball" pens would __________. a. Increase; not change b. Increase; increase c. Decrease; not change d. Decrease; increase e. Not change; decrease

a. Increase; not change

A decrease in income will cause which of the following to happen to the demand for used cars? Assume used cars are inferior goods. a. The demand for used cars will increase b. The demand for used cars will decrease c. The quantity demanded for used cars will increase d. The quantity demanded for used cars will decrease

a. The demand for used cars will increase

Consider a decrease in the cost of land used in apple orchards. Select whether this change will affect either supply and demand of apples and whether this change will cause it to increase, decrease, or not change. a. Supply b. Demand c. Increase d. Decrease e. Neither f. Cannot tell

a. and c.

Consider the market for peaches. Suppose that the conditions for growing peaches in the southeast become unfavorable, and many of the southeastern peach farmers decide to leave the industry and look for other jobs. With this migration of farmers, what will happen to the supply of peaches from the southeast? a. Increase b. Decrease c. Not change

b. Decrease

What will happen to current purchases if people expect lower prices in the future? What will happen with expectations of higher incomes? a. Demand increases; demand increases b. Demand decreases; demand increases c. Demand increases; demand decreases d. Demand decreases; demand decreases

b. Demand decreases; demand increases

"Some people predict, however, that the prices of chocolate will increase drastically in about three years because of some unhealthy crops." Given this expectation for the future, what will happen to the demand for chocolate now? What will the demand do? a. Decrease as people switch to substitute goods b. Increase as consumers buy more now to avoid higher prices later c. Decrease; when prices increase, demand decreases d. Stay the same as consumers plan to adjust to the prices in the future

b. Increase as consumers buy more now to avoid higher prices later

Expectations of lower prices in the near future may cause some producers to do what? a. Increase the quantity supplied of the good now b. Increase the supply of the good now c. Decrease the supply of the good now d. Decrease the quantity supplied of the good now

b. Increase the supply of the good now

Recently, stores have been reporting increased sales of DVD players and a reduction in their prices. In accordance with this trend, one might predict that there has been a(n) _________ in demand and a(n) __________ in supply. a. Increase; no change b. No change; increase c. Decrease; no change d. No change; decrease

b. No change; increase

Consider the markets for ball-point pens and the market for "rollerball" pens. Suppose that, due to an increased cost of the metal that is used in "rollerball" pens, the prices of "rollerball" pens and ball-point pens increase. There are no other changes. This is true because the two products have a unique relationship. What is the likely relationship between "rollerball" pens and ball-point pens? What are they? a. Complementary goods b. Substitute goods c. Normal goods d. Inferior goods

b. Substitute goods

What does a single point on the demand curve represent? a. The value of film to the consumer as judged by the producer b. The value of consuming one more roll of film c. The amount of film the consumer demands d. The cost of producing film at that quantity

b. The value of consuming one more roll of film

Consider an increase in the number of potential buyers. Select whether this change will affect either the supply or demand of apples and whether this change will cause it to increase, decrease, or not change. a. Supply b. Demand c. Increase d. Decrease e. Neither f. Cannot tell

b. and c.

Consider the market for peaches. Suppose that the conditions for growing peaches in the southeast become unfavorable, and many of the southeastern peach farmers decide to leave the industry and look for other jobs. In which direction will the demand curve for peaches shift? a. Left b. Right c. Not change

c. Not change

What does a single point on the supply curve represent? a. The cost of producing the given quantity of film b. The amount of profit the producer hopes to receive c. The cost, at the current level of production, of producing one more roll of film d. The price the consumers are willing to pay for a roll of film

c. The cost, at the current level of production, of producing one more roll of film

An increase in the cost of an input will cause which of the following? a. An increase in supply and a shift to the right of the supply curve b. An increase in supply and a shift to the left of the supply curve c. A decrease in supply and a shift to the right of the supply curve d. A decrease in supply and a shift to the left of the supply curve

d. A decrease in supply and a shift to the left of the supply curve

How will an increase in the price of DVDs affect the demand for DVD players? Why? a. Quantity demanded of DVD players increases b. Demand for DVD players increases c. Quantity demanded of DVD players decreases d. Demand for DVD players decreases

d. Demand for DVD players decreases

Which of the following does not cause a change in demand? a. Tastes and preferences b. Income c. Prices of related goods - substitutes and compliments d. Price of the good e. The number of potential buyers

d. Price of the good

Six months ago, the cost of an important input in an industry increased. Then, three months later another change occurred. Production engineers invented a new method that uses fewer raw materials for the same level of production. If these were the only two events that influenced production in the last six months, what has been the influence on the supply? a. Six months ago the supply curve shifted to the left, and then three months ago the quantity supplied at each price fell b. The first event caused production to decrease and supply to drop, but the second event increased supply above what it had been originally c. The influences of both events had equal effects on the supply, only one was negative and the other positive so that they perfectly balanced out d. The event of six months ago caused added costs to production and then lowered supply. The event of three months ago allowed more to be produced at each price, so the supply increased

d. The event of six months ago caused added costs to production and then lowered supply. The event of three months ago allowed more to be produced at each price, so the supply increased