Econ chapter 4

What is the quantity supplied at $.10?

2000.0 At $0.10, firms are willing to supply 2,000 units.

Why does the quantity supplied decrease as prices fall?

As the price falls (assuming everything else remains the same), there is less of an incentive to produce goods. Therefore, companies will produce less. Explanation: Your answer should include the following ideas: As prices fall, assuming everything else remains the same, profits will fall, incentives to produce will be less, and companies will reduce their production.

Predict what would happen if you offered to purchase used smartphones from your fellow students for $20, $50, $100, or even $200.

As the price increased, more individuals would bring you more smartphones. This is no different than multinational firms reacting to higher prices by producing more.

What is the quantity demanded at $.10?

At $0.10, consumers demand 8,000 units.

Can you think of a good that someone might buy less of if his or her income increases?

Bus rides. If income increases, most individuals will choose to buy a car and no longer ride the bus.

What will happen to current purchases if people expect lower prices in the future? What will happen with expectations of higher incomes?

If individuals expect lower prices, they will wait to purchase items (this leads to a decrease in demand). If individuals expect a higher wage, they are more likely to buy more now (leading to an increase in demand).

Expectations of lower prices in the near future may cause some producers to do what?

Increase the supply of the good now If producers expect lower prices in the future they will increase supply now if they can.

Can you think of a recent example of how changing tastes affected demand?

So when my mom was growing up claw clips and scrunchies were a huge thing. As all fashion trends do, they went out of style. Now that people are making them trendy again, the demand for them is greater.

Suppose a farmer has a choice between planting soybeans and planting corn. If the price of corn increases, what will happen to the eventual production of soybeans and corn? Why?

Eventually, the farmer will produce fewer soybeans and more corn. The opportunity cost of growing soybeans increases. The farmer is giving up more revenue by not planting corn and growing more soybeans. To maximize profit, the farmer will increase corn production and decrease soybean production.

Assume that homeowners can sell their house whenever they want and they don't have to worry about finding a new home. How will a homeowner's decision to sell their home change if they expect housing prices to increase? What will happen to the number of houses in the market?

If homeowners expect higher prices in the future, they may decide to delay listing their house for sale. The future supply of houses for sale will be larger, but the supply in the present will shrink.

If the price of individual songs online were to increase, how would your decision about how many songs to buy change? Do you buy more music? Do you buy less? Why?

In almost every case, individuals will buy less music if the price increases. Consumers have to decide what they will spend their money on; if music becomes more expensive, that would mean they could buy less of other goods if the quantity of music they purchase stays the same.

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?

Substitute goods Substitute goods are goods that can replace one another and still achieve the same purpose. Complementary goods are goods that must be used together, so when the price of one changes the demand for the other is also effected. Raising the price of rollerball pens, will increase the demand for the substitute good, ball-point pens. This increased demand for ball-point pens will cause their price to increase as well. Normal and inferior goods refer to the consumers' reactions depending on changes of income, which we do not have enough information to determine.

Can you think of exceptions to the law of demand?

Ramen is one of the cheapest foods and many poor people live off of it. If the price of ramen went up, a homeless person might buy more of it because they are afraid the price of it will continue to go up. They buy more ramen because they can't afford to buy a more expensive and ramen is the cheapest.

Consider a decrease in the cost of land used in apple orchards. Select whether this change will affect either the supply of apples or the demand for apples and whether this change will cause it to increase, decrease or not change.

Supply Increase This is a supply issue. Inputs such as land, labor, and capital will influence production. If there is a decrease in the cost of land, that means that the price of inputs is going down. When the cost of producing goods decreases, producers are willing to produce more goods at each price. With the quantities supplied increasing, the supply curve shifts out and supply increases.

How does a decrease in input costs affect suppliers?

Supply increases The answer is very similar to the reasoning about firm behavior in response to changes in prices. A decrease in costs (whether it is due to changes in the methods used to manufacture goods or changes in prices of inputs) will increase profits and increase incentives to produce more of the good. Thus a typical business will respond by producing more at each price.

Which of the following are causes of a change in demand?

Tastes and preferences Income Prices of related goods - substitutes and complements The number of potential buyers

Is this Wall Street Journal analysis correct: "Demand for coffee increased. As a result, prices soared. The rapidly rising prices, in turn, caused demand to come back down. Thus, prices fell."?

The Wall Street Journals analysis is incorrect. They don't understand what quantity demand is. If simply the demand increased, there would be a shortage of coffee at that price. The producers would increase the quantity supplied and the quantity demanded would decrease. The increase in price would cause the quantity demand to decrease.

What are the key influences on buyers' decision-making? Summarize the demand discussion in your own words.

The amount of income that I have defiantly effects my decision making. Also if the off brand product is a lot cheaper than the name brand, I will buy the off brand to save money.

If the price of oranges were $3.00, what would happen in the market depicted in Table 4.6? Explain the process.

The supply of oranges would be way higher than the demand of oranges, causing a surplus.

An increase in the cost of an input will cause which of the following?

A decrease in supply and a shift to the left of the supply curve The correct answer is that an increase in the price of an input will cause producers to decrease their supply and that will be a shift to the left of the supply curve. Producers will be less willing to supply the same quantities at each price. When looking at shifts in supply and demand, left is a decrease and right is an increase. Neither curve is shifting "up" or "down".

An increase in the number of potential buyers will most likely cause which of the following?

An increase in demand The entire demand relationship will likely change and an increase in the number of buyers will increase the market demand for a product. The difference between demand and quantity demanded is very important.

Sometimes changes in income will not increase or decrease the quantity of a good or service purchased. Can you think of an example?

An individual's consumption of water does not change much with income. Individuals typically consume and use the same amount of water for drinking, cooking, and bathing regardless of their income.

Lady Gaga performed at the 2017 Super Bowl halftime show for free (the NFL covered production costs). Why would an artist who regularly grosses $1.3 million per concert agree to perform for free?

By preforming for free at the Super Bowl, she is exposing her music to millions of people. People that have never listen to her music might start listening to it afterwards. This change in taste can result in Lady Gaga earning more money after her performance.

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.

No change; increase If the equilibrium quantity increases and the price decreases, there are a variety of combination of changes that could be the cause. The possible answers listed in the question describe only one curve shifting. The only possible change to result in lower prices and higher quantities is an increase in supply. A decrease in demand would lower prices and quantities. An increase in demand would raise prices. A decrease in supply would raise prices and lower quantities.

Using the information provided in the previous question, in which direction will the demand curve for peaches shift? The information is repeated for you below: 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.

Not change The demand for peaches should not change, as none of the factors influencing demand have changed.

Suppose the U.S. supply and demand schedules for computers manufactured in Japan are in the table below. What is the equilibrium price?

$11 A market is in equilibrium when the quantity demanded equals the quantity supplied. $11 has to be right because it is the only selection where the quantity demanded and the quantity supplied are equal.

Suppose that a change in U.S. attitudes toward goods made abroad reduces the quantity demanded at each price by a half-million computers per year. What is the new equilibrium price? ​[Same table as in Question 4.47]

$9 This question introduces a change in demand. This changes one of the schedules and it means that the equilibrium price and quantity also change. By subtracting .5 from all the quantity demanded values, you find equilibrium at $9.

At what level of output is each additional roll of film worth more to consumers than it costs to produce? ​[Image description: The graph shows the market for rolls of film. Vertical axis is price and horizontal axis is rolls of film/week. There is a linear upward-sloping supply curve and a downward-sloping demand curve. The two curves intersect at a price of about 1.07 and a quantity of 100 rolls of film/week.]

50 The demand curve represents what a good is worth to the consumer, or what consumers are willing to pay at each level of output. Along the demand curve, the value will change as the quantity changes. If the value to consumers is above the price at which a producer is willing to supply the good, then the value of one more unit of output is more than the cost. A production level of 50 represents this situation.

Indicate which of the following will cause a movement along a supply curve. Which will shift the supply curve to the left? Which will shift the supply curve to the right? Will supply increase or decrease?

A decrease in the price of an input¸ such as wages for labor Shift the supply curve to the right; an increase in supply A decrease in the price of another good that firms in the industry could produce Shift the supply curve to the right; an increase in supply A decrease in the price of the good itself A movement along a supply curve; no change in supply A tax on the land used by the producer Shift the supply curve to the left; a decrease in supply Expectations of rising prices of the good in the near future Shift the supply curve to the left; a decrease in supply If labor is cheaper, the profit margin of the company becomes larger. They may increase profit by expanding production or bringing more goods to market and, as a result, increase supply. If another production option has a lower price, supply of the good will increase. Firms react to an increased relative incentive to produce a good or bring more to market, which leads to an increase in supply. A decrease in the price of a good only affects the quantity supplied of a good. You can think of a tax on land as an effect that is similar to increasing the input cost of producing goods. If it is more expensive to produce goods, production decreases. If prices are expected to increase, the profit maximizing firm will take fewer goods to market in an effort to maximize profit. This leads to an overall decrease in supply.

In your own words, explain how and why changes in prices cause the amounts supplied by producers to change.

A firm is always trying to maximize profit. If prices increase, there is an increased benefit to producing more output. Therefore, firms have an incentive to increase production to earn more profit.

What would the demand in the entire market be if there were 1000 individuals, each with demand schedules identical to that depicted in Table 4.1? Fill in the schedule for the market.

A-8000 B-5000 C-4000 D -2000 E-1000 Every person (1,000 people) would demand an orange at $3, so 1,000 oranges would be demanded. Every person (1,000 people) would demand 2 oranges a $2, so 2,000 oranges would be demanded and so on.

Match the economic change to its associated effect on demand, supply, quantity demanded, or quantity supplied.

Change in technology Supply changes Price of the good Quantity supplied changes Number of sellers Supply changes Tastes and preferences Demand changes Price of related goods Demand and supply change A change in technology makes it cheaper (or, in rare cases, more expensive) to produce goods. This changes the willingness of firms to supply to the market at every price level. The price a firm receives for a good provides the incentive for firms to produce a good. If the price changes they will change quantity that they are willing to supply to the market (no shift of the curve change in quantity supplied only). If the number of sellers changes this directly changes the supply curve in the market. Tastes and preferences affect the quantity demanded at every price level. If something becomes more popular, there is a higher quantity demanded at every price level, and therefore a change in demand as a whole. The price of related goods will change both supply and demand. For firms, if a related good can command a higher price in the market, they will shift production to that good, decreasing the supply of another good (assuming they are substitutes). For consumers, if the price of another good becomes cheaper, they will buy more of that good and less of another good (assuming they are substitutes).

How will an increase in the price of DVDs affect the demand for DVD players? Why?

DVDs and DVD players are complementary goods. If the price of one increases, an individual is less likely to want the other.

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?

Decrease In this question, the farmers are the firms producing the peaches. When the farmers move from peach farming, the number of firms decreases in the southeast. When the number of firms decreases, the supply decreases.

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.

Decrease; decrease Since the lower price of the substitute good, oranges, will attract consumers, the demand for apples will decrease. Apple suppliers will still have all of their apples and inventories will grow since suppliers cannot sell all they want at the going market price. To sell off the excess goods, suppliers will begin to lower prices and some consumers will offer lower prices. As the price drops, the quantity demanded will increase as the quantity supplied decreases, since farmers will produce less for the lower price. This will continue until the surplus does not exist and a new equilibrium price is reached. This equilibrium is a lower price and a lower quantity, therefore the correct answer is decrease/decrease. The best way to work through these is to suggest examples, to draw the graphs, and to explain why the prices and quantities adjust.

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.

Demand Increase The number of potential buyers influences demand. If the number of potential buyers increases, that means that there are just more people consuming goods. As the number of people increases, the number of goods demanded also increases and then demand goes up.

"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?

Increase as consumers buy more now to avoid higher prices later Expectations of future changes are an influence on demand. When consumers expect prices to increase, they will often purchase now to avoid the higher prices in the future. This will increase demand now. After the prices have increased, people will then search for cheaper substitutes and the demand for the more expensive item will decrease, so "decrease as people switch to substitute goods" is what will happen in the future, but not right now. "Decrease; when prices increase, demand decreases" confuses quantity demanded and demand. The Law of Demand states that if everything else remains unchanged, then an increase in price will cause a decrease in the quantity demanded. "Stay the same as consumers plan to adjust to the prices in the future" indicates that there will be no market reaction, which does not seem likely given that the expectations do often influence current behavior.

Suppose that a tariff is established on computers made abroad. The equilibrium price will ______________ and the equilibrium quantity will ______________. ​[Same table as in Question 4.47]

Increase; decrease A tariff will cause a change in the quantity supplied of a foreign good. This question asks what will happen to the U.S. market for foreign computers with the tariff. A tariff will increase costs for a foreign producer for each product going to the U.S. That is like an increase in the prices of inputs, and it means that the quantity supplied will decrease at every price. Since supply is going to decrease, that means that the new equilibrium point, where the quantity supplied equals the quantity demanded, will have a higher price and smaller quantity.

Indicate how an increase in tastes for apples will affect the equilibrium price and the equilibrium quantity in the market for apples.

Increase; increase The first part brings up changes in taste. As we learned, tastes and preferences influence demand. In this situation, as tastes for apples increase, the demand will increase. This means that at the current price, the quantity demanded will be higher than the quantity supplied, and a shortage is formed. As suppliers learn that consumers are willing to pay more, they will produce more apples and charge higher prices. As prices increase, some consumers pull out of the market and the quantity demanded is reduced. This continues until the quantity demanded equals the quantity supplied. A new equilibrium is created with a higher quantity supplied and higher 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 computers will ______________.

Increase; increase This question asks what will happen in the domestic market for computers after the tariffs. Since foreign computers and domestic computers are substitute goods, the tariff will have the opposite effect on the domestic market. With the lower quantities and higher prices for foreign computers, the demand will increase for domestic computers. The new equilibrium will show a higher quantity and a higher price.

What are the key determinants of supply? Summarize in your own words how changes in each affect supply and quantity supplied.

Increases in prices of inputs will increase the cost of producing, decrease supply, and shift the supply curve to the left. Decreases in prices of inputs and improvements in technology will decrease costs, increase supply, and shift the supply curve to the right. Changes in the price of the good alone will cause a change in the quantity supplied and a movement along a supply curve. The analysis is similar for the other factors that shift supply: number of firms, changes in technology, future

What does a single point on the supply curve represent? ​[Image description: The graph shows the market for rolls of film. Vertical axis is price and horizontal axis is rolls of film/week. There is a linear upward-sloping supply curve and a downward-sloping demand curve. The two curves intersect at a price of about 1.07 and a quantity of 100 rolls of film/week.]

The cost, at the current level of production, of producing one more roll of film Each price represented on the supply curve is the minimum price that is necessary to convince businesses to produce the corresponding quantity supplied. Any market price below that price will cause businesses to reduce production. At any single point, the price is the cost of producing one more unit of a good. The cost of producing the given quantity of film is close. Except that it is the cost of producing only the marginal unit, not the entire quantity. Profit is not shown on the supply curve and the price consumers are willing to pay is represented on the demand curve.

Compare the two numbers. Can you predict what will happen?

The demand for oranges is greater than the supply of oranges. Therefore, there is a shortage of oranges.

A decrease in income will cause which of the following to happen to the demand for used cars? Assume used cars are inferior goods.

The demand for used cars will increase. Used cars may be inferior goods for many individuals. As their incomes increase, they will likely buy fewer used cars and more new cars. However, if their incomes decrease, they will be more likely to buy a used car instead of a new automobile. If used cars were classified as normal goods, the answer would be a decrease in demand.

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?

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. Overall, the shift in supply is uncertain. When the cost of an input increases, the cost of production increases. This increase leads to a decrease in the amount businesses are willing to produce at each price; thus supply falls. So, the first event that occurred six months ago caused a decrease in supply. Technology is another important influence on supply. When enhanced technology allows each worker to produce more, the labor cost per unit produced decreases. If fewer resources are needed, costs will fall, and supply will increase. The overall effect cannot be determined without knowing the magnitude of each effect.

When you buy songs online, many factors influence your decision. Make a list of the characteristics that might affect how many songs you, as a consumer, purchase in a typical month. If you do not purchase music, list the characteristics that determine how many books or magazines you buy or movies you attend.

The number one thing that would influence how many songs I bought that month would be the price. I would then compare that price to how bad I want the song. If the price is too high, I would consider not buying the song because I don't need it.

Describe the resulting situation. Nintendo released a limited supply of their original system, a product that many people wanted to buy. Due to a misestimate of potential demand, there were significantly more people that wanted the system than there were systems available for sale.

The price will increase. Stores sold out of the original Nintendo system, and secondary markets such as Craigslist and eBay began listing them. A product that sold for $60 in stores sold for as much as $280 on eBay. This was clearly a shortage.

What does a single point on the demand curve represent? ​[Image description: The graph shows the market for rolls of film. Vertical axis is price and horizontal axis is rolls of film/week. There is a linear upward-sloping supply curve and a downward-sloping demand curve. The two curves intersect at a price of about 1.07 and a quantity of 100 rolls of film/week.]

The value of consuming one more roll of film A single point on the demand curve represents what consumers are willing to pay for one more unit of a good. Thus, it is the value to the consumer who is willing to pay that price. The value to the consumer as judged by the producer is incorrect, as the producer is not directly reflected in the demand curve. The amount of film the consumer demands is partially correct, but each point shows how much a consumer demands, at each price. The cost of producing film at that quantity is reflected in the supply curve.

Consider a hypothetical situation where there is a simultaneous change in demand and supply. How will the equilibrium quantity and price change as a result of the possible combination of changes to supply and demand in demand and in supply? Explain why.

When both supply and demand increase, there is an indeterminate in equilibrium price and an increase in equilibrium quantity. When demand increases and supply decrease, there is an increase in equilibrium price and an indeterminate in equilibrium quantity. When both supply and demand decrease, there is an indeterminate in equilibrium price and an decrease in equilibrium quantity. When demand decreases and supply increase, there is an decrease in equilibrium price and an indeterminate in equilibrium quantity.

How would a market equilibrium change if people decided they didn't like a good anymore?

When people decided that they don't like a good, their preference changes. Since they don't like the good, the demand will decrease causing a surplus of the good. Since there is a surplus, the people that make the good will sell them for a lower price then they anticipated. When the price decrease, quantity demanded will increase and quantity supplied will decrease. This will continue until we reach the market equilibrium; which is where quantity demanded and supplied are equal.

Analyze the process following an increase in the prices of the inputs used to produce the good.

When the prices of inputs increase, the people making the goods aren't able to make a profit. Therefore, there is a decrease in supply which causes a shortage. The quantity supplied is less than the quantity demanded. People will buy the good at a higher price because there is a higher demand. This will eventually cause the producers to raise their prices in the market so they can make a profit. Once the producers are making a profit, they will increase the quantity supplied. We wont reach an equilibrium until both quantity demanded and supplied are equal.

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 ______________.

increase; not change The rule with substitute goods is that when the price of one increases, the demand for the substitute good increases. This happens as people buy the substitute good instead of the now more expensive good. This describes what will happen with the two different types of pens. The demand schedules show the relationship between prices and quantities demanded. The price of rollerball pens increases. The demand for rollerball pens does not change. Consequently, the demand for ball-point pens, the substitute good, increases and the curve shifts right.