exam 1

From the early twentieth century to the 1970s

there were modest declines in oil price.

"According to the supply and demand model, all else equal, if the technology used to produce a good improves, supply will increase, causing the price to fall, which causes the quantity demanded to rise as well." This statement is:

true

What happened to the demand for oil from the early twentieth century to the 1970s?

It increased steadily.

What did Vernon Smith's laboratory experiments reveal about the supply and demand model?

It successfully predicts real-life behavior.

Imagine that a major car company has been able to plan production to coincide with sales forecasts. As new inventory comes into the showroom, customers purchase it, and there is no unsold inventory and no unfilled orders. How can we BEST describe this phenomenon?

This is a market in equilibrium.

Holding demand constant, if the supply curve shifts to the right, there will be a(n) _____ in equilibrium price and a(n) _____ in equilibrium quantity

decrease, increase

The elasticity of demand is generally _____ because there is an inverse relationship between price and quantity demanded for most goods

negative

A vertical demand curve represents a(n) __________ demand.

perfectly inelastic

What were OPEC countries able to work together to achieve by the early 1970s?

reduced oil supply and higher oil prices

Lower production costs:

result in higher equilibrium price.

According to the text, a 1 percent increase in the supply of oil would lead to a:

1.25 percent decrease in price.

Imagine that a major car company is producing large, fuel-inefficient SUVs during a period of rising gas prices. As a result, dealerships are overstocked with inventory that is not selling. How can we BEST describe this phenomenon?

This is a surplus, because the quantity supplied is greater than the quantity demanded.

The financial crisis of 2007-2010 had a huge impact on the U.S. housing market, causing the number of uninhabited houses to be far greater than the number of people able and willing to buy a house. Which is the BEST analysis of this situation?

This surplus of houses led to decreases in housing prices.

What do lower production costs result in?

result in higher equilibrium price.

A good with few substitutes, such as insulin, has a(n) _____ demand curve

steep

"According to the supply and demand model, all else equal, if consumer preferences change in favor of a good, demand for the good will rise, causing the price to rise, which causes the supply to rise as well." This statement is

false, because quantity supplied, not supply, will rise.

A good with inelastic demand is likely to

have its elasticity of demand increase in the long run.

What does a decrease in supply result in?

higher equilibrium price

In the late 1990s, Beanie Babies became very popular collectible toys. Many buyers spent a great deal of time visiting multiple retail locations to find specific Beanie Babies that retailers had a very hard time keeping in stock. What probably describes the eBay prices for Beanie Babies during that time?

The eBay prices were higher than the retail prices because the retail prices led to shortages of Beanie Babies.