ECON - MOD 7

Which of the following is certainly true if demand and supply increase at the same time? a. The equilibrium price will increase. b. The equilibrium price will decrease. c. The equilibrium quantity will increase. d. The equilibrium quantity will decrease. e. The equilibrium quantity may increase, decrease, or stay the same.

c

In the following three situations, the market is initially in equilibrium. After each event described below, does a surplus or shortage exist at the original equilibrium price? What will happen to the equilibrium price as a result? a. In 2014 there was a bumper crop of wine grapes. b. After a hurricane, Florida hoteliers often find that many people cancel their upcoming vacations, leaving them with empty hotel rooms. c. After a heavy snowfall, many people want to buy second-hand snowblowers at the local tool shop.

A) The decrease in the price of gasoline results in a shift to the right in the demand for large cars. Equilibrium price for large cars will increase and equilibrium quantity of large cars bought will rise. B) The supply of recycled paper will shift to the right. The equilibrium price will fall and the equilibrium quantity bought will rise. C) A leftward shift in the demand for movies will occur. Equilibrium price will drop and equilibrium quantity will also fall.

market-clearing price

The equilibrium price is also known as the market-clearing price; it is the price that "clears the market" by ensuring that every buyer willing to pay that price finds a seller willing to sell at that price, and vice versa.

equilibrium price

The price that matches the quantity supplied and the quantity demanded

An increase in the number of buyers and a technological advance will cause a. demand to increase and supply to increase. b. demand to increase and supply to decrease. c. demand to decrease and supply to increase. d. demand to decrease and supply to decrease. e. no change in demand and an increase in supply.

a

The equilibrium price will rise, but the equilibrium quantity may increase, decrease, or stay the same if a. demand increases and supply decreases. b. demand increases and supply increases. c. demand decreases and supply increases. d. demand decreases and supply decreases. e. demand increases and supply does not change.

a

For each of the following examples, explain how the indicated change affects supply or demand for the good in question and how the shift you describe affects the equilibrium price and quantity. a. As the price of gasoline fell in the United States during the 1990s, more people bought large cars. b. Technological innovation in the use of recycled paper has lowered the cost of paper production. c. When a local cable company offers cheaper pay-per- view films, local movie theaters have more unfilled seats.

a- because bumper crop means more productive than normal, there will be a lot more of the crop supplied. So, there will be a surplus of supply b- because there are so many people cancelling hotel reservations, there are more hotel rooms supplied than people are demanding, so there is a surplus of rooms c- because so many more people want to buy snowblowers than usual, there is a shortage of snowblowers

Which of the following will lead to an increase in the equilibrium price of product "X"? A(n) a. increase in consumer incomes if product "X" is an inferior good b. increase in the price of machinery used to produce product "X" c. technological advance in the production of good "X" d. decrease in the price of good "Y" (a substitute for good "X") e. expectation by consumers that the price of good "X" is going to fall

b

Which of the following describes what will happen in the market for tomatoes if a salmonella outbreak is attributed to tainted tomatoes? a. Supply will decrease and price will increase. b. Supply will decrease and price will decrease. c. Demand will decrease and price will increase. d. Demand will decrease and price will decrease. e. Supply and demand will both decrease.

d

Draw a correctly labeled graph showing the market for cups of coffee in equilibrium. On your graph, show the effect of a decrease in the price of coffee beans on the equilibrium price and the equilibrium quantity in the market for cups of coffee.

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Draw a correctly labeled graph showing the market for tomatoes in equilibrium. Label the equilibrium price and the equilibrium quantity. On your graph, draw a horizontal line indicating a price, labeled "P," that would lead to a shortage of tomatoes. Label the size of the shortage on your graph.

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equilibrium quantity

the quantity bought and sold at the equilibrium price

equilibrium

when no individual would be better off doing something different.

shortage

when the quantity demanded exceeds the quantity supplied. Shortages occur when the price is below its equilibrium level.

surplus

when the quantity supplied exceeds the quantity demanded. Surpluses occur when the price is above its equilibrium level.