Economics Module 3: Applications of Supply and Demand

A price floor is inefficient because

resources are over allocated to produce an item in a quantity greater than what consumers are demanding

Assume that banks currently pay 2% interest on money that customers deposit in savings accounts. Suppose more individuals decide to put money into savings accounts. As the overall amount of money held in savings accounts increases, in financial markets

the supply of savings increases

Consider the market for corn flour below. What is the producer surplus?

$2,000

Consider the market for corn flour below. What is the social surplus?

$6,000

The price ceiling of $500 is shown on the graph by the horizontal dotted line. What is the new quantity demanded?

19,000 units

Look at the graph provided. What area on the graph represents consumer surplus?

A

This graph shows the original supply and demand curves, S0 and D0. You can see the original equilibrium point, E0, at $500 and 15,000 units. What do you think will be the effect of greater income or an increase in the town's popularity?

Demand curve will shift to the right.

price ceiling

a legal maximum price for a product

price floor

a legal minimum price for a product

Some countries set price ceilings on basic necessities like cooking oil, sugar or flour. Consider the market for corn flour information below. To be binding, the price ceiling should be set

below $3.00

marginal analysis

comparing the benefits and costs of choosing a little more or a little less of a good.

Online mortgage companies have been growing in numbers and size. If all other things are equal, as a result of this growth, traditional banks have had to

decrease the interest on their mortgage loans as the demand for traditional mortgage loans decreased

After hurricane Harvey, you would expect the wages for home repair workers to

increase as the demand for home repair workers increases

financial markets

supply and demand for financial services; i.e. saving & borrowing

labor markets

supply and demand for jobs

social (or economic or total) surplus

the sum of consumer and producer surplus at some quantity and price of output

producer surplus

the value to producers of their sales above their cost of production

From the graph above, one could conclude that, all else remaining constant

there is a trade-off between x and y

Refer to the figure below. Consumer surplus is:

$30

Consider the market for corn flour below and assume that a price ceiling of $2 is imposed. Calculate the deadweight loss:

The deadweight loss id $1,500

Consider the market for purple potatoes below and assume that a price ceiling of $30 is imposed by the government. Calculate the deadweight loss:

The deadweight loss is $5,000

If Kay is willing to pay $25,000 for a truck and finds the model he wants for $22,500, Kay has

a consumer surplus of $2,500

Gas companies lobby their government for guaranteed prices in order to undertake massive pipeline infrastructure investments. The government then sets minimum gas prices for the next 10 years. This is an example of

a price floor on gas prices

Consider the equation x=3. How would this be represented in an XY graph and what does it say about the relationship between X and Y?

a single pint (x=3) on the x-axis and a vertical line upwards from that point that says x is not dependent upon y

Consider the aluminum market below where the government imposed a price floor of $150/ton. The price floor will lead to

a surplus of 25 tons/day

The local government is concerned about poverty so it institutes a minimum wage of $9 per hour. If the demand and supply for labor are given in the graph, there will be

a surplus of 6 workers

Supply and demand for bushels of wheat (millions) are shown in the following table. A $9.00 government mandated price floor would result in

an excess supply of 2 million bushels of wheat

law of diminishing marginal utility

as we consume more of a good or service, the utility we get from additional units of the good or service tend to become smaller than what we received from earlier units

After earthquakes hit the California coast and damaged tens of thousands of cars, there was a growing demand and need for automotive repair, glass replacement, dent repair and repainting. In the labor market for car repair, the demand would be represented by ________, while supply would be represented by ________.

automotive body shops and glass repair and replacement companies; automotive workers

A price ceiling when it is set ________ the equilibrium price creates ________.

below; excess demand

Country A has great expertise in the production of planes and produces a large quantity of planes while country B has expertise in the production of automobiles and produces large quantities of cars. When the two countries trade planes for automobiles

both countries benefit because they gain access to products with higher value to them and lower cost

After hurricane Harvey hit Texas and flooded thousands of homes, there was a critical need for cleaning, repair and rebuilding. In the labor market for home repair, the demand would be represented by

construction and home repair firms, while the supply would be represented by the construction workers

Country A has great expertise in the production of planes and produces a large quantity of planes while country B has expertise in the production of automobiles and produces large quantities of cars. If Country A values the last plane produced at $3 million while country B values that plane at $4 million, then

country A should trade the last plane to country Bin exchange for automobiles

price control

government laws to regulate prices instead of letting market forces determine prices

When binding price ceilings are introduced, the market price mechanism is unable to bring the market to equilibrium and alternative methods of distributing goods in short supply have to be used such as 'first come first served'. This method is:

less efficient because of the time spent in line and searching for the products

If all else remains constant and the values of two variables move in the same direction it indicates a

positive slope relationship

When creating a graph for your economics course, which axis is most commonly used to represent price (p)?

price is most commonly represented on the y-axis

deadweight loss

the loss in social surplus that occurs when a market produces an inefficient quantity

Some countries set price ceilings on basic necessities like cooking oil, sugar or flour. Consider the market for corn flour information below. With a price ceiling set at $2,

the quantity demanded would be 2500 pounds/day while the quantity supplied would be 1500 pounds/day would occur.

binding price ceiling

when a price ceiling is set below the equilibrium price, resulting in a shortage

binding price floor

when a price floor is set above the equilibrium price and results in a surplus

allocative efficiency

when benefits of trade are maximized and the mix of goods being produced represents the mix that society most desires