Econ Study Set

What factors determine the amount demanded of some good, service, or asset? How will the amount demanded change in response to an increase in each of these factors? What is the difference between a complementary good and a substitute good?

- (Q^d= Price, Income, Price of Substitutes, Price of compliments, Tastes, Number of Buyers, Expected Price) -(-)Price, (+) income, (+) price of substitutes, (-) Price of Compliments, (+) Tastes, (+) Number of Buyers, (+) Expected Price - A complementary good is a good we can have that goes along with something, ex: Buns is Complimentary of Hotdogs. A substitute good is a different version, for example, Coke and Pepsi are substituted for each other. Price of coke goes up, Pepsi goes up. check price of substitutes response since it is positive.

What is the Law of Demand? What explains the Law of Demand? Is the Law of Demand a theoretical law or an empirical law? Explain.

- The Demand Curve slopes down, or there is an inverse relationship between P and quantity demanded -The law of demand is explained by the diminishing marginal utility, the income effect, the substitution effect, and with the help of indifference curve analysis -Empirical because if it were theoretical you could prove that a demand curve slopes down; but you cannot prove the demand curve ahead of time*************

What is a market? What two questions are answered by the supply and demand model?

- for any good, consists of all buyers and sellers of that good -The quantity that demanders will be willing to buy, and the quantity that suppliers of that good would be willing to sell

Distinguish between a change in demand and a change in quantity demanded. What causes a change in quantity demanded? What causes a change in demand?

-A change in demand is caused by a change in all factors except price that shifts the demand curve right or left, a change in quantity demanded by an increase or decrease in price shifting along the demand curve************************

How many potential demand curves are there? How many of these can exist at a time? What determines which of these demand curves exists at any point in time?

-There are infinite possible curves - Only one can exist at a time - The shift variables (except price)

How do we derive a two-dimensional demand curve from this (multi-dimensional) relationship? What does ceteris paribus mean, and what does it have to do with the derivation of the demand curve?

-You have to graph one factor and hold all of the others constant. - Ceteris Paribus is keeping all things constant in the variables, *******

Draw a graph showing the supply and demand curves superimposed. Indicate the equilibrium price and quantity. Choose a price above equilibrium and indicate the excess supply at this price. Choose a price below equilibrium and indicate the excess demand at this price. How would you define an excess supply? An excess demand?

An excess supply is- an increase in supply+decrease in demand An excess in demand is caused by an increase in demand and a decrease of supply

Why is it that, in order to raise revenue, governments impose an excise tax on goods (e.g., gasoline, liquor, cigarettes) that have steep (i.e., inelastic) demand curves and not on goods that have flat (i.e., elastic) demand curves?

ELASTIC AND INELASTIC

What happens to price, quantity demanded, and quantity supplied when there is excess demand in a market? What happens to price, quantity demanded, and quantity supplied when there is excess supply in a market?

When there is an excess demand in a market,

Are the variables that are held constant in the derivation of the demand curve the same as variables that cause the demand curve to shift?

Yes

What would you expect to happen to the equilibrium price and equilibrium quantiy in the designated market in each of the following cases? a) the market is U.S. made automobiles and the price of Japanese cars falls b) the market is 4kHDTVs and high profits encourage entry of new firms c) the market is cosmetic surgery and average household income rises d) the market is electric cars and the price of electricity falls (thinking here of electricity being a complementary good) e) the market is electric cars and the price of electricity falls (thinking here of electricity being an input to the production of cars) f) the market is electric cars and the price of electricity falls (thinking here of electricity being both a complementary good and an input to the production of cars) g) the market is new residential housing and the price of lumber rises h) the market is diamonds and prices are expected to be lower next year i) the market is Armani suits and an advertising campaign persuades consumers that you can't get ahead in business if you don't wear one J) the market is oil and new recovery techniques permit oil companies to extract oil from fields thought previously to be depleted

a) P↓ and Q↓ b) P↓ and Q↑ c) P↑ and Q↑ d) P↑ and Q↑ e) P↓ and Q↑ f) ∆P cannot be determined and Q↑ g) P↑and Q↓ h) P↓ and ∆Q cannot be determined i) P↑ and Q↑ j) P↓ and Q↑

What will happen to the demand curve in each of the following cases? to the demand for mass transit if urban highways get more congested to the demand for Dell computers if the price of Hewlett Packard computers falls to the demand for personal computers if household incomes rise to the demand for ipads in response to a successful advertising campaign to the demand for automobiles if auto makers boost their prices by 5% to the demand for computer software if the price of computers rises

a) increase (since time spent can be considered a "cost" of consuming a good) b) decrease c) increase d) increase e) no shift! f) decrease

In what direction will each of the following shift the supply curve for personal computers? a) an increase in the price of hard disk drives b) a technological breakthrough that permits manufacturers to fit more circuits onto microprocessors c) the price of personal computers is expected to be lower next month d) the price of computers falls e) more suppliers enter the industry in response to the abnormally high profits being earned there

a) left (decrease) b) right (increase c) right (increase) d) no shift! e) right (increase)

In what direction will each of the following shift the demand curve for Pepsi? a) an increase in average household income b) a decrease in the price of Coke c) a widely publicized incident in which someone finds a dead mouse in the bottom of a can of Coke (supposedly a true story) d) an increase in the price of Pepsi e) an increase in the price of pizza (assuming pizza is a complementary good) f) the price of pepsi is expected to rise tomorrow g) people lose their taste for carbonated drinks

a) rightward b) leftward c) rightward d) no shift! e) leftward f) rightward g) leftward