Economics I Chapter 3

What are the shift factors for the demand curve?

(1) changes in income (2) changes in preferences (3) changes in prices of related goods (4) changes in the number of buyers (5) changes in expectations of future prices.

What can cause a change in DEMAND?

(1) changes in income (2) changes in preferences (3) changes in prices of related goods (4) changes in the number of buyers (5) changes in expectations of future prices.

What causes supply to change?

1) changes in the prices of relevant resources 2) changes in technology 3) changes in the prices of other goods 4) changes in the number of sellers 5) changes in expectations of future price 6) changes in taxes and subsidies 7) changes in government restrictions.

A movement to the right ALONG a demand curve shows what?

An increase in quantity demanded.

How can demand change?

Demand can increase, and demand can decrease.

"If the price of apples rises, the supply of apples will rise." True or false? Explain your answer.

False. If the price of apples rises, the quantity supplied of apples will rise-not the supply. We are talking about a movement from one point on a supply curve to a point higher up on the supply curve, not about a shift in the supply curve.

A change in quantity supplied refers to ________________________

a movement along a given supply curve.

What happens to the supply curve if each of the following occurs? a.The number of sellers decreases. b.A per-unit tax is placed on the production of a good. c.The price of a relevant resource falls.

a.The supply curve shifts to the left. b.The supply curve shifts to the left. c.The supply curve shifts to the right.

Subsidies have the _______ effect of taxes.

opposite

Buyers who expect the price of a good to be lower next month may ____________________. This would ________ the current (or present) demand for the good.

wait until next month to buy it decrease

If it takes $100 to produce 40 units of a good, the per-unit cost is ____. If an advance in technology makes it possible to produce 50 units at a cost of $100, then the per-unit cost falls to ______.

$2.50 $2.00

Licensure or requirements to legally carry out a task like day-care, reduces the number of day-care centers and shifts the supply curve of day-care centers _______.

leftward

According to the law of diminishing marginal utility, individuals obtain _____ utility from additional units of a good. Therefore, they will buy_______ quantities of a good only at______ prices, and this is the law of demand.

less larger lower

If the price of wood falls, producing doors becomes_______ and door producers will _______________and the supply curve of doors will ________.

less costly produce more doors shift rightward

The law of supply holds for the production of most goods but not _____________ or when __________.

when there is no time to produce more units of a good a good cannot be produced over any period of time. (Stradivarius violins)

Unless both _________ and ________ to buy are present, there is no demand.

willingness ability

The factors that actually shift the curves are sometimes called ____________.

shift factors.

Some taxes increase per-unit costs and can lead to a __________ in the supply curve. If the tax is eliminated, _____________________.

leftward shift the supply curve shifts rightward

If the price of a good is expected to be higher in the future, producers _____________________________. This will cause the current supply curve to ___________.

may hold back some of the product today (if possible-perishables cannot be held back). and then they will have more to sell at the higher future price. shift leftward

An increase in demand means consumers are willing and able to buy ______ of a good at every price.

more

The factors that cause movement along curves are sometimes called ______________.

movement factors

What are ways to show the law of supply?

1. In Words: The law of supply states that as the price of a good rises,the quantity supplied of the good rises, and as the price of a good falls, the quantity supplied of the good falls ceteris paribus. 2. In symbols: P↑Qs↑ P↓Qs↓ ceteris paribus 3. A Supply Schedule is the numerical representation of the law of supply in a table that shows the price and at each price, the quantity supplied. 4. A Supply Curve which is the graphical representation of the law of supply that shows the price-quantity combinations from a supply schedule plotted on a graph with the points connected showing an upward-sloping supply curve.

Why would the number of buyers increase?

1. increased birthrate 2. increased immigration 3. the migration of people from one region of the country to another

What is the difference between an individual demand curve and a market demand curve?

An individual demand curve represents the price-quantity combinations of a PARTICULAR good for a SINGLE buyer. A market demand curve is derived by "adding up" individual demand curves or from the market demand schedule

If people decide that rainboots are out of style, what will happen to the demand curve?

It will shift leftward.

If people begin to like rainboots more as a stylish item, what will happen to the demand curve for rainboots?

It will shift rightward.

Why will quantity supplied of a good increase when the per unit production costs decrease?

Lower per-unit costs increase profitability and therefore provide producers with an incentive to produce more.

If the prices of other goods increase, ________________ so a change in the price of one good can lead to a ________________________.

a producer might switch to that other, higher priced product. change in the supply of another good

Two goods are complements if they are ______________. like tennis rackets and tennis balls

consumed jointly

As a person's income increases, an individual's demand for an inferior good will ________.

decrease

If two goods are complements, as the price of one rises, the demand for the other _____.

falls

Economists state that the more utility you receive from a unit of a good, the ________ the price you are willing to pay for it.

higher

More buyers = ______ demand; fewer buyers, _______ demand.

higher lower

As a person's income decreases, an individual's demand for an inferior good will ________.

increase

If tennis racket prices decrease the demand for tennis balls will _______.

increase

The less utility you receive from a unit of a good, the _______ the price you are willing to pay for it.

lower

If you hear that house prices are expected to rise in a few months, you would probably ________________.

make your purchase now.

The demand for a good in a particular market area is ______ to the number of buyers in the area:

related

Two goods are substitutes if they _____________________________. like Coca-Cola and Pepsi-Cola

satisfy similar needs or desires

An increase in supply ____________ _____________.

shifts the entire supply curve to the right.

The price of a good and the quantity supplied of the good are _____________, ceteris paribus.

directly related

What factors can change demand? What factors can change quantity demanded?

A change in income, preferences, prices of related goods, the number of buyers, and expectations of future price can change demand. A change in the price of the good changes the quantity demanded of it. For example, a change in income can change the demand for oranges, but only a change in the price of oranges can directly change the quantity demanded of oranges.

A movement to the left ALONG a demand curve shows what?

A decrease in quantity demanded.

Why is a demand curve always downward sloping?

A demand curve is downward sloping because of the inverse relationship between price and quantity demanded specified by the law of demand.

How is an incease in demand shown graphically?

An outward shift (to the right) of the entire demand curve.

Demand

The willingness and ability of buyers to purchase different quantities of a good at different prices during a specific time period (per day, week, etc.).

An increase in the supply of a good means that suppliers are _______ ___________________________.

willing and able to produce and offer to sell more of the good at all prices.

Why would the number of buyers decrease?

1. increased death rate 2. war 3. the migration of people from one region of the country to another, and so on.

Quantity demanded

is the number of units of a good that individuals are willing and able to buy at a particular price during a time period.

Government Restrictions like a U.S. import quota on Japanese television sets that reduces the supply of Japanese television sets in the United States will shift the supply curve ________. The elimination of the import quota allows the supply of Japanese television sets in the United States to shift _______.

leftward rightward

A decrease in demand means consumers are willing and able to buy _____ of a good at every price.

less

If a theater in Atlanta is sold out for tonight's play, and increase in price of the tickets _____________ because the quantity supplied is _______.

would not increase the quanity supplied fixed

A change in supply refers to __________.

a shift in the supply curve

What does the supply curve look like in the above examples?

a vertical line

Buyers who expect the price of a good to be higher next month may _________. This would ________ the current demand for the good.

buy it now increase

As a person's income decreases, an individual's demand for an normal good will ________.

decrease.

If you are planning to buy a house. and hear that house prices are expected to go down in a few months, you would probably ________________.

delay your purchase

As a person's income increases or decreases their demand for a neutral good __________.

does not change.

If Coca-Cola and Pepsi are substitutes, an increase in the prices of Coca-Cola will __________ the demand for Pepsi-Cola as people substitute Pepsi for the higher priced Coke

increase

If the per-unit production costs of a good decline, the quantity supplied of the good at each price will _______.

increase

As a person's income increases, an individual's demand for a normal good will ________.

increase.

What would the supply curve for houses (in a given city) look like for a time period of (a) the next ten hours and (b) the next three months?

increasing the quantity supplied of houses over the next ten hours would be difficult; so the supply curve in (a) is vertical, as in Exhibit 8. Increasing the quantity supplied of houses over the next three months is possible; so the supply curve in (b) is upward sloping.

Economists often distinguish between

1) factors that can bring about movement along curves and 2) factors that can shift curves.

4 Ways to represent demand

1). In Words. As the price of a good rises, quantity demanded falls, and as price falls, quantity demanded rises, ceteris paribus. 2). In Symbols. We can also represent the law of demand in symbols, which we have also already done. In symbols, the law of demand is: P↑Qd↓ P↓Qd↑ ceteris paribus 3). A Demand Schedule, which is the numerical representation of the law of demand in a table that shows the price and at each price, the quantity demanded. 4). A Demand Curve, which is a graphical representation of the law of demand that show the price-quantity combinations froma demand schedule plotted on a graph with the points connected showing a downward-sloping emand curve.

Why does quantity demanded move in the opposite direction of price?

1. People substitute lower priced goods for higher priced goods. Since many goods serve the same purpose, customers can substitute them for one another when the price of one increases. 2. The law of diminishing marginal utility states that for a given time period, the marginal (or additional) utility or satisfaction gained by consuming equal successive units of a good will decline as the amount consumed increases. For example, you may receive more utility, or satisfaction, from eating your first hamburger at lunch than from eating your second and, if you continue on.

The factors that can change supply (i.e., shift the supply curve) are

1. prices of relevant resources 2. technology 3. prices of other goods 4. the number of seller 5. expectations of future prices 6. taxes and subsidies 7 government restrictions.

How is a decrease in demand shown graphically?

An inward (to the left) shift of the entire demand curve.

Why are demand curves downward sloping?

As price rises, people substitute lower-priced goods for higher-priced goods and because individuals receive less utility from an additional unit of a good they consume, they are only willing to pay less for the additional unit. The second reason is a reflection of the law of diminishing marginal utility.

The law of demand states

As the price of a good rises, the quantity demanded of the good falls and conversely as the price of a good falls, the quantity demanded of the good rises, ceteris paribus.

How is a change in demand depicted on a graph?

Change in demand = Shift in demand curve

How is a change in quantity demanded depicted on a graph?

Change in quantity demanded = A movement from one point to another point on the SAME demand curve caused by a change in the price of the good. NOT A SHIFT OF THE CURVE ITSELF

What is the difference between demand and quantity demanded?

Demand is different from quantity demanded because demand speaks to the willingness and ability of buyers to buy DIFFERENT QUANTITIES of a good at DIFFERENT PRICES but quantity demanded speaks to the willingness and ability of buyers to buy a SPECIFIC QUANTITY at a SPECIFIC PRICE.

What would the supply curve for houses (in a given city) look like for a time period of (a) the next ten hours and (b) the next three months?

Increasing the quantity supplied of houses over the next ten hours would be difficult; so the supply curve in (a) is vertical, as in Exhibit 8. Increasing the quantity supplied of houses over the next three months is possible; so the supply curve in (b) is upward sloping.

Is a change in quantity demanded is not the same as a change in demand.

NO!!!!!!!!

A change in supply is ____ the same as a change in quantity supplied.

NOT

Do shift factors appear in the economic diagrams usually?

No, We just know what they are and that they can shift the demand curve.

A change in quantity supplied is brought about only by a change in __________

OWN PRICE

The only thing that can change the quantity demanded of a good is ________.

OWN PRICE

As Sandi's income rises, her demand for popcorn rises. As Mark's income falls, his demand for prepaid telephone cards rises. What kinds of goods are popcorn and telephone cards for Sandi and Mark?

Popcorn is a normal good for Sandi. Prepaid telephone cards are an inferior good for Mark.

Give an example that illustrates how to derive a market demand curve.

Suppose only two people, Bob and Alice, have a demand for good X. At a price of $7, Bob buys 10 units and Alice buys 3 units; at a price of $6, Bob buys 12 units and Alice buys 5 units. One point on the market demand curve represents a price of $7 and a quantity demanded of 13 units; another point represents $6 and 17 units. A market demand curve is derived by adding the quantities demanded at each price.

What happens to the supply curve if each of the following occurs? The number of sellers decreases. A per-unit tax is placed on the production of a good. The price of a relevant resource falls.

The supply curve shifts to the left. The supply curve shifts to the left. The supply curve shifts to the right.

Supply

The willingness and ability of sellers to produce and offer to sell different quantities of a good at different prices during a specific time period (per day, week, etc.).

In many economic diagrams, such as the demand curve, the movement factor is ________ and is located on the _________ axis.

price vertical

Technology refers to the ability to produce more output with a fixed amount of resources which _____________________

reduces per-unit production costs.

If two goods are substitutes, as the price of one rises, the demand for the other _________ and vice versa.

rises

(A change in supply refers to a ________________

shift in the supply curve.

If more sellers begin producing a good, perhaps because of high profits, the supply curve will ____________ If some sellers stop producing a good, perhaps because of losses, the supply curve will _______.

shift rightward. shift leftward

If the supply of oranges has increased then the supply curve for oranges has ____________.

shifted rightward

If government subsidizes the production of corn by paying corn farmers $2 for every bushel of corn, the quantity supplied of corn is greater at each price, and the supply curve of corn _________. The removal of the subsidy shifts the supply curve of corn ______. A rough rule of thumb is that we get more of what we_______and less of what we ____.

shifts rightward leftward subsidize tax

A decrease in supply ____________ ______________________.

shifts the entire supply curve to the left.

What are the two types of related goods?

substitutes and complements

The quantity supplied is ___________________________________ .

the number of units that sellers are willing and able to produce and offer to sell at a particular price.

The law of supply states that as the price of a good rises,__________, and as the price of a good falls, ______________________, ceteris paribus.

the quantity supplied of the good rises the quantity supplied of the good falls