ECON 239 CH 2

Which of the following describes supply and demand analysis?

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

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

The demand function indicates that the quantity of a good consumed depends on:

- Effect of the demand shifters - Price of the good - Income of the buyers

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

- Prices of related goods - Income

Comparative static analysis assumes which of the following?

- no price ceilings - goods are allocated by price - no price floors

The following function, Qxs = 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 value of other variables that affect supply such as taxes.

Suppose the government has imposed a price ceiling of $1 on a loaf of bread. If the nonpecuniary price is $2, the full economic price for a loaf of bread is $

3

Suppose the government has imposed a price ceiling of $2 on a gallon of milk. If the nonpecuniary price is $3, the full economic price of a gallon of milk is $

5

Which of the following events show an increase in supply?

A rightward shift of the supply curve

Suppose there is an increase in the price of pork. If chicken is a substitute for pork, what can producers and consumers of chicken expect to see in the market for chicken?

An increase in the price of chicken An increase in the quantity of chicken purchased

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

Comparative static analysis

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

Consumer Surplus

What is the effect of a binding price floor on consumers?

Consumers pay more and purchase less

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

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

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 occur(s) when the supply of a good or service increases but the demand remains the same?

Equilibrium price decreases Equilibrium quantity increases

Which of the following occur(s) when the supply of a good or service decreases and demand remains the same?

Equilibrium quantity decreases Equilibrium price increases

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

Equilibrium quantity decreases.

True or false: When a price floor applies to a product, rather than labor, the deadweight loss will always be less.

False

Increases in population or population density tend to __________ the demand for goods and services, all things equal.

Increase

According to the law of demand, as market price decreases, quantity demanded ____.

Increases

Which of the following is an example of a price floor?

Minimum wage

Consider the following linear demand function where Py is the price of related goods, M is income, and H is other factors: Qxd = α0 + αxPx + αyPy + αMM + αHH According to the law of demand, the value of αx 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

Demand is given by: Qd = 100 - 2P Supply is given by: Qs = 60 + 2P Determine the equilibrium price (P*) and quantity (Q*).

P = $10; Q = 80

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

Consider the following demand function: Qd = 210 - 3P. Solve for the inverse demand function.

P = 70 - 1/3Qd

What type of price control will the government impose if it considers the equilibrium price to be too high?

Price ceiling

Consider the following function: Qxs = 5Px - 200. Determine the inverse supply function.

Px = 40 + 1/5Qxs

Consider the following function: Qxs = 15Px - 300. Determine the inverse supply function.

Px=20+(1/15)QxS

A binding price ceiling tends to create what type of condition in the market?

Shortage

What is the effect of a decrease in an ad valorem tax?

Supply increases

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

Graphically, what area represents producer surplus?

The area above the supply curve and below the price.

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

The effect on equilibrium price is uncertain

Which of the following shows a decrease in the quantity supplied?

a movement down along the supply curve

If the price of a good rises, this will cause:

an upward movement along the demand curve

Which area forms consumer surplus?

area below the demand curve and above the price

When a price floor is applied to a product and the government buys and discards the resulting surplus, the deadweight loss from the price floor _________.

becomes larger

A price ceiling is considered effective if it is set _________ the equilibrium price.

below

An increase in consumer income _________ the demand for normal goods and ________ the demand for inferior goods.

increases; decreases

A price ceiling is defined as the __________ legal price that can be charged in the market.

maximum

A price floor is defined as the ________________ legal price that a firm can charge in a market.

minimum

In the following linear demand function, Qxd = α0 + αxPx + αyPy + αMM + αHH where Py is the price of related goods, M is income, and H is other factors, the value of αM is:

negative if good X is inferior. positive if good X is normal.

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

producer

According to the law of supply, as the price of a good decreases

quantity supplied decreases.

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

quantity supplied increases.

When a shortage exists, there is a tendency for price to ________ in order to equate quantity demanded and quantity supplied.

rise

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

If the price of a good or service exceeds the equilibrium price, a _____ exists. As a result, price tends to _____.

surplus; fall

In labor markets, an effective price floor creates ____________.

unemployment