ECON Chapter 3/5

The entire supply curve will shift when there is

a change in a nonprice determinant of supply.

A supply curve is

a graph showing the price-quantity combinations of producers.

A decrease in quantity demanded refers to

a leftward movement along the demand curve.

A decrease in demand refers to

a leftward shift of the demand curve.

Some amount of producer surplus is transferred to consumers if price is artificially

decreased

A line showing the maximum willingness to pay for all buyers is the __________ curve.

demand

The equilibrium price is sometimes called the market-clearing price because, at the equilibrium price,

every seller finds a buyer.

When the price is lowered below the equilibrium price, sellers gain some well-being at the expense of buyers; although both lose some well-being because there are fewer transactions taking place.

false

At prices above or below the market equilibrium price,

fewer trades take place, because some people are no longer willing to buy or sell.

When the price is _____ the equilibrium price, sellers gain some well-being at the expense of buyers, but they also lose some well-being because there are fewer transactions taking place.

greater than

Measuring consumer surplus tells us

how much better or worse off buyers are when the price changes.

Measuring producer surplus tells us

how much better or worse off sellers are when the price changes.

Some amount of producer surplus is transferred to consumers

if price is artificially low.

Improved technology causes supply to

increase

Consider the market for plane tickets to Hawaii. A bad winter in the mainland United States increases demand for tropical vacations, shifting the demand curve to the right. The supply curve stays constant. Total surplus will:

increase because both consumer and producer surplus increase.

Part of consumer surplus is transferred to producers when price is artificially

increased

When the prices of inputs increase, production costs __________.

increases

At prices above or below the market equilibrium price, fewer trades take place. When compared to a market at the equilibrium price, the value that would have been gained from voluntary trades

no longer exists.

When there is a shift of the demand curve,

nonprice determinants affect the quantity demanded at each price.

When supply and demand move in the opposite direction, we can predict the direction of the change in __________ but not the direction of the change in ___________.

price; quantity

Measuring _____ surplus tells us how much better or worse off sellers are when the price changes.

producer

When a non-price factor changes—such as technology, expectations, prices of related goods, prices of inputs, or the number of sellers, there is a change in: When there is a change in the amount firms produce due to a change in price, this is referred to as a change in:

supply and the entire curve shifts. quantity supplied and the supply curve does not shift.

A graph showing the price-quantity combinations of producers is called a

supply curve

If production costs increase, producers are willing to

supply less of the product at each price.

If a breakthrough in battery technology enabled cell phone manufacturers to construct phones with the same battery life for less money, then in the market for cell phones

supply would shift to the right.

Part of consumer surplus is transferred to producers

when price is artificially increased.

The supply curve is upward-sloping because producers are _________ to sell more at higher prices.

willing

Along the supply curve, at every price, each potential seller has a __________ to sell.

willingness

What is true about total surplus?

It is the sum of consumer and producer surplus It exists as a result of participation in market exchanges

Suppose a market is initially in equilibrium and supply increases. The consumer surplus will:

be higher since the price is lower and equilibrium moves down along the demand curve.

Suppose a market is initially in equilibrium and demand decreases. The producer surplus will:

be lower since the price is lower and equilibrium moves down along the supply curve.

Total surplus is a measure of the

combined benefits everyone receives from participating in an exchange.

If the price of land-line phone service suddenly skyrockets, then the

demand for cell phones will shift to the right.

The market is efficient at equilibrium because there is

no exchange that can make anyone better off without someone becoming worse off.

When a market is in equilibrium, the: The market for cell phones reaches equilibrium because cell phone sellers have an incentive:

quantity demanded equals the quantity supplied at the market price. for prices to rise and some cell phone consumers will not buy at higher prices, driving the price to equilibrium.

The law of supply says that

quantity supplied increases as price increases.

Economists call the maximum price that a buyer is willing to pay the __________price.

reservation

If the price of land-line phone service suddenly skyrockets, then in the cell phone market, ________.

the equilibrium price and quantity will increase

When there is a surplus,

the quantity supplied is higher than the quantity demanded.

is a way of measuring who benefits from

surplus

Measuring _______ surplus tells us how much better or worse off buyers are when the price changes.

consumer

Improved technology causes quantity supplied to

increase at each price.

Producer surplus is the ______ benefit that a producer receives from the sale of a good or service.

net

The difference between the producer's willingness to sell and the actual price is the

net benefit that a producer receives from the sale of a good or service.

The amount of a particular good or service that producers will offer for sale at a given price during a specified period is the

quantity supplied.

When supply and demand both increase, we can predict that

quantity will increase, but we cannot predict the change in price.

A supply ___________ is a table that shows the quantities of a particular good or service that producers will supply at various prices.

schedule

Willingness to sell is the __________ price that a seller is willing to accept in exchange for a good or service.

minimum

When demand changes, it

shifts horizontally

When nonprice determinants affect the quantity demanded at each price,

the demand curve shifts.

Equilibrium in a perfectly competitive, well-functioning market maximizes _________ surplus

total

In market equilibrium, _______ surplus is maximized.

total

In market equilibrium,

total surplus is maximized.

Graphically, surplus is represented as the _____ shaped area between a supply or demand curve and the market quantity.

triangle

Graphically, assuming an upward sloping supply curve, economic surplus is represented as the

triangular area between a supply or demand curve and the market price.

The areas of consumer surplus and producer surplus make up the total surplus.

true

When a perfectly competitive well-functioning market is in equilibrium, total surplus is maximized.

true

If the quantity demanded increases due to a change in the price of the good, there will be

a rightward movement along the demand curve.

A table showing the quantities of a particular good or service that producers are willing to supply at various prices is

a supply schedule.

Suppose that in addition to reducing the cost of production, new battery technology makes cell phones operate more efficiently. In the market for cell phones,

both the demand curve and the supply curve will shift to the right.

Calculations of surplus

can clearly show who benefits and who loses from policies such as taxes and minimum wages.

__________ loss is a loss of total surplus that occurs because the quantity traded is different from the market equilibrium quantity.

deadweight

When a non-price factor changes—such as income, expectations, prices of related goods, consumer preferences, or the number of buyers, there is a change in: When there is a change in the specific numerical quantity demanded due to a change in price this is referred to as a change in:

demand and the entire curve shifts quantity demanded and the demand curve does not shift

Total consumer surplus is represented graphically by the area underneath the _________ curve and _________ the equilibrium

demand; above

Prices of related goods, technology, prices of inputs, expectations of sellers, and the number of sellers are all classified as nonprice __________ of ___________.

determinants; supply

Consumer surplus is measured by the

difference between willingness to pay and the actual price.

Willingness to pay for a product represents the price at which the benefit received is

equal to the benefit of spending the money on another alternative.

Deadweight loss is a loss of total surplus that occurs because the quantity traded is different from the market _____ quantity.

equilibrium

The convergence of supply with demand happens at a point called the market

equilibrium

If a breakthrough in battery technology enabled cell phone manufacturers to construct phones with the same battery life for less money, then in the cell phone market:

equilibrium price decreases and equilibrium quantity increases

Suppose that in addition to reducing the cost of production, new battery technology makes cell phones operate more efficiently. In the market for cell phones

equilibrium quantity will increase, but we cannot predict the change in equilibrium price.

The market equilibrium shows the __________ price and the __________ quantity.

equilibrium; equilibrium

When both supply and demand increase, buyers and sellers "agree" that at any given price, the quantity they are willing to exchange is ______.

higher

a. A fruitworm infestation ruins a large number of apple orchards in the state of Washington. This event would cause a ____________ movement along shift of the supply curve in the market for apples. b. Demand for apples goes down, causing the price to fall. This event would cause a __________aa movement along shift of the supply curve. Considering the events described above, which of the following statements is true?

shift of movement along A change in price will mean a movement along an existing supply curve.

When one of the five nonprice determinants of demand changes, the demand curve

shifts right or left.

When the quantity demanded is higher than the quantity supplied, we say that there is a(n)

shortage.

The amount of a particular good or service that producers will offer for sale at a given price during a specified period is the quantity

supplied

A graph showing the price-quantity combinations from the supply schedule is a ___________ curve.

supply

According to the law of ____________, all else held equal, quantity supplied increases as price increases.

supply

The concept of ______________ describes how much of a good or service producers will offer for sale under given circumstances.

supply

The relationship showing producers' willingness to sell is the ____ curve.

supply

Total producer surplus is represented graphically by the area above the _________ curve and __________ the equilibrium price

supply; below

Suppose you get something for less than you would have been willing to pay, or sell it for more than the minimum you would have accepted. Economists use the word _____ to describe this concept.

surplus

Suppose you get something for less than you would have been willing to pay, or sell it for more than the minimum you would have accepted. Economists use the word _________ to describe this concept.

surplus

Using the concept of ______ is the best way to look at the benefits people receive from successful transactions.

surplus

Using the concept of ________ is the best way to look at the benefits people receive from successful transactions.

surplus

____________ is a way of measuring who benefits from transactions, and by how much.

surplus

You need to paint your fence but you really hate this task. You decide to hire the kid next door to do it for you. You would be willing to pay him up to $100, but you start by offering $50, expecting to negotiate. To your great surprise, he accepts your $50 offer. When you tell your friend about the great deal you got, she is shocked that you would take advantage of someone. To assure your friend that you did not cheat the kid next door, you tell her that:

with voluntary exchange both parties are better off, and are satisfied when accepting the exchange price.

The price at which every seller finds a buyer is sometimes called the _____ price.

market-clearing

The demand curve is a line showing the _______________ willingness to pay for all buyers.

maximum

Suppose an economic boom causes incomes to increase and, at the same time, drives up wages for the sales representatives who work for cell phone companies. This will cause the:

price of cell phones to rise, but the change in the equilibrium quantity is unclear and depends on whether the shift in demand is larger or smaller than the shift in supply.

Select all correct answers. The concept of surplus measures the benefit that people receive when they:

sell something for more than they would have been willing to accept. buy something for less than they would have been willing to pay.

The market equilibrium is the point where

the demand curve intersects the supply curve.

Sangjay is a professional photographer. His camera is broken and he needs a new one within the next hour or he will miss an important deadline. Keiko is a high school student who doesn't have a camera but wants to get one to take pictures at her prom next month. Who can be expected to have a higher willingness to pay for a particular camera today?

Sangjay, because he needs the camera for work and has little time to look for alternatives

When the price is _________ the equilibrium price, buyers gain some well-being at the expense of sellers, but they also lose some well-being because there are fewer transactions taking place.

below

In each of the following examples, name the factor that affects supply and describe its impact on the supply of cell phones. a. Economic forecasts suggest that the demand for cell phones will increase in the future. The supply will__________ b. The price of plastic goes up. The supply will____________ c. A new screen technology reduces the cost of making cell phones. The supply will____________

a. Expectations; decrease b. Prices of inputs; decrease c. Technology; increase

In each of the following examples, name the factor that affects demand and describe its impact on your demand for a new cell phone. a. You hear a rumor that a new and improved model of the phone you want is coming out next year. Your demand will_________ b. Your grandparents give you $500. Your demand will___________ c. A cellular network announces a holiday sale on a data package that includes the purchase of a new smartphone. Your demand will___________ d. A friend tells you how great his new phone is and suggests that you get one, too. Your demand will___________

a. Expectations; decrease b. income; increase c. Price of a related good; increase d. Consumer Preferences; increase

In a market where manufacturers produce and sell new products, the

minimum price will have to be high enough to cover the cost of production.

A supply curve slopes upward because sellers are willing to sell:

more at higher prices, because they have more revenue than they had when they offered lower prices.

Consider the following events: a. The price of cell phones goes down by 25 percent during a sale. This event would cause ____________ movement along a shift of the demand curve. b. You get a 25 percent raise at your job. This event would cause __________ movement along a shift of the demand curve. Which of the following statements is true?

movement along; a shift of; A change in price will mean a movement along an existing demand curve.

Consumer surplus is the __________ benefit that a consumer receives from purchasing a good or service.

net

Sellers' willingness to sell is determined by the __________ cost of the sale.

opportunity

The _________________ cost of selling a product is the use or enjoyment that the seller could get from keeping the product or from doing something else with the money that would be required to make it.

opportunity

Willingness to pay is the point at which the benefit that a person will get from the camera is equal to the ___________ cost.

opportunity

The use or enjoyment that the seller could get from keeping the product or from doing something else with the money that would be required to make it is the

opportunity cost of the seller.

A demand curve slopes downward because:

people are only willing to buy more at lower prices

When supply increases and demand decreases, we can predict that:

price will decrease, but we cannot predict the change in quantity.

A change in quantity supplied is due to a change in _______.A change in supply is due to a change in _________.

price; non-price determinants of supply

The market equilibrium shows the equilibrium ________ and the equilibrium __________.

price; quantity

The nonprice determinants of supply that shift supply include prices of related goods.

prices of related goods, prices of inputs, technology, producer expectations, the number of sellers.

A supply schedule shows the quantities of a particular good or service that __________ are willing to supply at various prices.

producers

When the quantity supplied is higher than the quantity demanded, we say that there is a(n)

surplus.

Total surplus is maximized at the equilibrium price and quantity. If the price increases due to an increase in demand, total surplus is still maximized because:

the market will adjust to a new equilibrium at which total surplus is maximized.

When there is a shortage,

the quantity supplied is lower than the quantity demanded.

When nonprice determinants affect the quantity supplied at each price,

the supply curve shifts.

When there is a change in one of the nonprice determinants of supply,

the supply curve shifts.