ECON1 - Principles of Microeconomics #3

In a market with an upward sloping supply curve and a downward sloping demand curve, when the actual price must be higher than the equilibrium price, there will be

excess supply. (The actual price being higher than the equilibrium price does lead to excess supply.)

Suppose Congress passes legislation that offers subsidies to orange farmers. The impact on the market for orange juice will be a rightward shift of

the supply curve. (Financial help from the government to suppliers is likely to shift the supply.)

Miriam owns a small shop selling custom headbands and accessories. Last month, she sold 335 headbands for $10 each. According to the law of demand, what quantity might Miriam expect to sell if she drops the price to $6?

415 (The law of demand describes the inverse relationship between price and quantity demanded. If the price falls, the quantity demanded would rise.)

A new tool manufacturer opened a plant in town three months ago and hired 3000 new employees. People now have extra cash to spend and are out spending in the town. What is an example of how this extra money may shift the demand curve for goods and services in the town?

A local restaurant has a 40% increase in the number of dinners. (Higher income would shift the demand for restaurant meals up.)

According to the law of demand, assuming other factors are held constant

As the price of milk decreases, the quantity of milk demanded will increase

How would you need to shift the supply and demand curves in a market to result in a situation where equilibrium quantity increases while the equilibrium price change is indeterminate?

Both supply and demand must increase.

Which country has characteristics of a command economy?

Cuba (The Cuban economy is very much controlled by the government.)

Tangi Tumolo carves and creates beautiful furniture on the island of Kiribati. Each month he takes the furniture to the capital city of South Tawara and sells what he can for the best prices he can. He also takes orders from people each month to build certain furniture indicating what is currently in demand. Each month the prices and products vary a bit depending on the demand in the market. Tangi enjoys the ebb and flow of the changing market as it keeps his business interesting and current with demand. Kiribati's government takes a 'hands off' approach with the economy and the market is thriving on its own. Tangi Tumolo lives in what type of economy?

Free Market (The government is not involved in the economy.)

Two common ways to discourage tobacco use are taxes on tobacco and information campaigns on the hazards of tobacco use. Which one causes a shift in the demand curve for smoking?

Information campaign on hazards of tobacco.

If an increase in the price of Nike shoes increases the demand for Adidas shoes, this means that

Nike shoes and Adidas shoes are substitutes (An increase in the price of Nike shoes would cause consumers to substitute for Adidas and the demand for Adidas shoes would increase.)

A major hurricane is headed towards Southern Florida and as a result panic buying has set in. What would you conclude about the third step of the four step process in this example?

The economic change will shift the affected curve rightwards. (Determining the change in the affected curves is the third step.)

A free market is described by which of the following statements?

The government does not set or influence market prices in any way. (Decisions are made through markets)

This year, nine national retail big box technology companies started and opened many retail stores across the nation. Now there are many more big box retail tech companies in the market. With many more competitors, what will likely happen to the supply of goods for customers?

The supply of goods will increase and cause a decreases in the price of goods. (With more suppliers in the market, quantity will rise and prices are likely to fall)

The supply curve will shift to the right if which of the following occurs?

There is an improvement in production technology. (An improvement in technology would shift the supply to the right.)

Cocoa nibs from Nigeria last year was supplied at $9 per 10 pounds. This year the demand has increased and that same supply of Nigerian cocoa nibs is priced at $12 per 10 pounds. What will most likely happen to supply of Nigerian cocoa nibs this year?

There will be an increase in quantity supplied. (A higher demand will lead to a new higher equilibrium quantity.)

A decrease in the quantity supplied can result from

a decrease in price. (A decrease in price would reduce the quantity suppliers are willing to produce.)

When ________, business firms will collectively supply a lower quantity of output at any given price, and the supply curve will shift to the left.

costs of production increase (Higher production cost would shift the supply to the left.)

Complete the following sentence: If people think that the price of televisions will decrease in the near future, that belief may cause a(n)

decrease in the demand for televisions today. (If people think that the price of televisions will decrease in the near future, they are likely to postpone car purchases and the demand will fall today.)

The point at which quantity demanded equals quantity supplied is called

equilibrium. (Equilibrium is The point at which quantity demanded equals quantity supplied.)

Decreased competition because of fewer producers in a market will cause

higher prices due to an decrease in the quantity supplied at every price. (Fewer producers causes a lower supply and therefore the equilibrium quantity is lower.)

Excess supply will result in suppliers ________ prices, which encourages consumers to be willing and able to purchase ________ .

lowering; more (An excess supply leads to price decrease and quantity increase until reaching equilibrium.)

Market economies are based on both private enterprise and the idea that allocation decisions of what and how much to produce are decided by

the interaction of supply and demand. (The decisions over what to produce, how and for whom are decided through the interactions of sellers and buyers in markets.)

After the death of the queen in the country of Chedeux, her daughter, Chantasia became the new queen and ruler. Chantasia is known to be a ruler of the people, but as she gains more power from the populus, she begins to instigate sweeping changes to the economy and government, all in the name of helping the 'most downtrodden among us'. One of her first actions is to enforce a command economy to control all aspects of the country and regulate its wealth. As one of the queen's subjects, you've seen the changes she made. Which of these actions would be in line with this new command economy she is creating?

Chantasia creates a new government body called the Ministry of Planning which will set wages, prices and production targets to reach each month. (These measures would increase the control of the government over the economy.)

Silicon is used for the manufacturing of semiconductor chips. At the end of last year a large new source of silicon has been discovered this year and the price of silicon has decreased by 15%. Semiconductor chips are used in devices, cell phones, gaming systems, and this year many new devices are now using chips. If you were drawing a supply and demand graph to illustrate the changes to the semiconductor market since last year, what would you say has happened to the supply and demand curves and the equilibrium price and quantity this year?

Both the demand and supply of semiconductor chips will increase shifting the curves to the right with equilibrium quantity increasing but it is impossible to pinpoint the equilibrium price change.

In East Germany, back before the Berlin wall fell, there was one manufacturer of cars (VEB Sachsenring Automobilwerke Zwickau). They produced one type of car, the Trabant, with a maximum speed of 55 mph (26 horsepower lawnmower type engine). Anyone who wished to buy a car put their name on a list and waited for two or three years to be able to purchase a 'Trabbi'. Whatever was available when their name came up was what they got--no choice of color, style, or engine size. East Germans were living with what type of economy?

Command (The East German economy was very much controlled by the government.)

What is the second step of the four-step process?

Determine whether the economic changes affect demand or supply.

It is the end of the year and party supply stores have added the things needed for a fantastic New Years Eve party. According to the law of supply, what scenario would you expect to see with the party supply stores?

The supply of New Year's party supplies have increased since November. (As sellers expect more customers to buy party supplies and prices to increase as a result, then suppliers are likely to increase production.)

The largest national herbal supplement store is running a sale on its excess supply of Vitamin C supplements. With this new price change what do you think will happen to the Vitamin C supplement market?

There will be an increase only in the quantity demanded. (A decrease in price will increase the quantity demanded.)

This year the cost of steel used in manufacturing cars has increased by 15%. With the costs for manufacturing cars now up, what effect will this have on the car market?

This will decrease the quantity demanded. (An increase in cost would decrease supply and the equilibrium quantity would be lower.)

There is a tax rebate that everyone in the nation receives from the government of $1000. The market for laptops notices a shift because of this. What effect will this rebate have on the laptop market?

This will increase demand (The tax rebate is like an increase in income and increases the demand for laptops.)

Last year Hawaii did not received many rain storms and with eight months of little rain there was low demand for umbrellas. This year however, there have been three months of big rain storms and only a few weeks of sunny weather. If you were to draw a graph depicting the changing market for umbrellas from last year to this, how would the new equilibrium price and quantity demanded compare to last year's market?

With supply of umbrellas being constant, equilibrium price and quantity demanded increase for umbrellas compared to last year. (As the demand increases, so do price and quantity at equilibrium.)

Which of the following will cause the supply curve to shift to the right?

lower product taxes (Lower product taxes would shift the supply to the right.)

A supply curve is a graphical illustration of the relationship between quantity supplied and

price (A supply curve is a graphical illustration of the relationship between quantity supplied and price)

Excess demand will result in suppliers ________ prices, which encourages consumers to buy ________ .

raising prices; less (An excess demand leads to price increase and quantity decrease until reaching equilibrium.)

When higher prices result in a lower quantity demanded, economists call this relationship

the law of demand. (The law of demand is the inverse relationship between price and quantity demanded.)