HW #1 Microeconomics

A shift of the supply curve to the right reflects a(n) __________ (increase/decrease) in supply, while a shift of the supply curve to the left reflects a(n) __________ (increase/decease) in supply.

increase; decrease

the law of demand describes a __________ (positive/negative) relationship between the price of a good or service and the quantity demanded of that good or service.

negative

An increase in __________ (one word), while holding demand constant, results in a decrease in equilibrium price, but an increase in equilibrium quantity.

supply *Note* Start at a market in equilibrium. The statement asks what needs to happen in order for the new equilibrium to occur below and to the right of your starting point. In this case, the supply curve shifts to the right while the demand curve does not change.

True or False: The law of demand can be supported by the income effect.

True

If the increase in demand is greater than the increase in supply, the equilibrium price will __________ . a. rise b. fall c. stay the same

a. rise

Products that have decreased demand when consumer incomes rise and increased demand when consumer incomes fall are called __________ goods. a. exogenous b. inferior c. luxury d. normal

b. inferior

If the increase in demand is greater than the decrease in supply, the equilibrium quantity will __________ . a. fall b. rise c. not change

b. rise

True or False: A change in one of the determinants of supply results in a movement along the supply curve.

False

If the government subsidizes the production of a good, it in effect __________ the producers' costs and __________ supply. a. lowers; increases b. lowers; decreases c. raises; increases d. raises; decreases

a. lowers; increases

On a simple supply model, a change in quantity supplied is illustrated by a __________ and a change in supply is illustrated by a __________ . a. movement along the supply curve; shift of the supply curve b. shift of the demand curve; shift of the supply curve c. shift of the supply curve; movement along the supply curve

a. movement along the supply curve; shift of the supply curve

A change in __________ refers to a movement along the demand curve in response to changes in the price fo a good or service, whereas a change in __________ refers to a shift of the demand curve leftward or rightward in response to anything other than changes in the price of a good or service. a. quantity demanded; demand b. demand; quantity demanded c. quantity supplied; supply d. supply; quantity supplied

a. quantity demanded; demand

Which of the following results in a decrease in the equilibrium quantity and an indeterminate change in price? a. Fewer home builders and an increase in the price of existing homes b. Government taxes on home builders and a decrease in consumer incomes d. Fewer home builders and a decrease in the price of existing homes e. Government subsidies to home builders and an increase in consumer incomes

b. Government taxes on home builders and a decrease in consumer incomes

Which of the following is a determinant of demand? a. Technology b. Income c. Resource prices d. Producer expectations

b. Income

If the decrease in the supply of a good is greater than the decrease in the demand for the good, the equilibrium price will __________ . a. stay the same b. rise c. fall

b. rise

When each additional worker of a firm produces less additional output than previously added workers, then the marginal cost of additional units of output __________ . a. falls b. rises c. stays the same

b. rises

The effects on equilibrium price and quantity due to an increase in supply and a simultaneous decrease in demand are shown by __________ . a. an increase in equilibrium price and quantity b. an indeterminate change in equilibrium price and indeterminate change in equilibrium quantity c. a decrease in equilibrium price an an indeterminate change in equilibrium quantity d. an indeterminate change in equilibrium price and an increase in equilibrium quantity

c. a decrease in equilibrium price and an indeterminate change in equilibrium quantity

True or False: Other things equal, as buyer's income rises, the willingness and ability to buy a normal product increases.

True

If the supply of corn increases while demand remains constant, the equilibrium price of corn will __________ and the equilibrium quantity will __________ . a. decrease; increase b. decrease; decrease c. increase; decrease d. increase; increase

a. decrease; increase

The demand for a normal good would likely increase in which of the following cases? a. A decrease in consumer income b. An increase in the price of the good c. An increase in the number of buyers D. A increase in the price of complementary goods (Select All that Apply)

C. An Increase in the number of buyers and D. A decrease in the price of complementary goods

True or False: A complementary good is one that is used in place of another good.

False

True or False: A decrease in supply and a simultaneous and proportional decrease in demand will result in an increase in equilibrium quantity, with no effect on equilibrium price.

False

True or False: The fundamental characteristic of demand, other things equal, is that as the price falls, the quantity demanded for a product decreases.

False

True or False: The supply curve of a good is an upward-sloping curve because as the price of the good decreases, producers will be willing to supply more of the good.

False

True or False: According to the law of supply, price and quantity supplied are directly related.

True

True or False: All else equal, a change in quantity supplied is caused by an increase or decrease in the price of a good or service.

True

True or False: An increase in the number of buyers in a market, ceteris paribus, is likely to increase demand.

True

True or False: In the supply and demand model, quantity demanded is illustrated on the horizontal axis, while price is illustrated on the vertical axis.

True

Which of the following types of goods affect the demand for another product due to a change in their price? a. Complimentary goods b. Substitute goods c. Inferior goods d. Normal goods (Select All That Apply)

a. Complimentary goods & b. Substitute goods

Which of the following are substitute goods? a. Pepsi and Coca-Cola b. Peanut butter and crackers c. Bleach and cheese d. Guns and bullets

a. Pepsi and Coca-Cola

Choose all of the following that will cause a change in supply; not quantity supplied. a. Technology b. Producer expectations c. Number of sellers d. Product price e. Consumer expectations (Select All That Apply)

a. Technology and b. Producer expectations and c. Number of sellers

An increase in the equilibrium price of a good and an indeterminate change in the equilibrium quantity is the result of __________ . a. an increase in demand and decrease in supply b. an increase in demand and no change in supply c. a decrease in demand and decrease in supply d. a decrease in supply and no change in demand

a. an increase in demand and decrease in supply

The effects on equilibrium price and quantity due to a decrease in supply and a simultaneous decrease in demand can be shown by __________ . a. an indeterminate equilibrium price and a decrease in quantity b. an indeterminate equilibrium quantity and an increase in price c. an indeterminate equilibrium price and an increase in quantity d. an indeterminate equilibrium quantity and a decrease in price

a. an indeterminate equilibrium price and a decrease in quantity

The price actually paid for a good is not reflected in the demand because demand is merely a statement of __________ buying of the good. a. buyers' intentions regarding the b. buyers' funds available for c. ideal conditions for d. of buyers' history of

a. buyers' intentions regarding the

According to the law of supply, price and quantity supplied have a(n) __________ relationship. a. direct b. negative c. exponential d. inverse

a. direct

If a decrease in demand is greater than a decrease in supply, equilibrium price will __________ . a. fall b. stay the same c. rise

a. fall

An inverse relationship between two variables is a(n) __________ relationship. a. negative b. complex c. positive

a. negative

An increase in equilibrium price and indeterminate effect on equilibrium quantity is a result of which of the following? a. A simultaneous decrease in supply and demand b. A decrease in supply and a simultaneous increase in demand c. An increase in supply and simultaneous decrease in demand d. A simultaneous increase in supply and demand

b. A decrease in supply and a simultaneous increase in demand

An increase in equilibrium quantity and indeterminate change in equilibrium price is a result of which of the following? a. An increase in supply and decrease in demand b. A simultaneous and proportional increase in supply and demand c. A decrease in supply and increase in demand d. A simultaneous and proportional decrease in supply and demand

b. A simultaneous and proportional increase in supply and demand

A decrease in equilibrium quantity and indeterminate change in equilibrium price is a result of which of the following? a. A decrease in supply and increase in demand b. A simultaneous decrease in supply and demand c. An increase in supply and decrease in demand d. A simultaneous increase in supply and demand

b. A simultaneous decrease in supply and demand

A decrease in demand while holding supply constant results in __________ . a. an increase in equilibrium price and decline in equilibrium quantity b. a decrease in both equilibrium price and quantity c. an increase in both equilibrium price and quantity d. a decrease in equilibrium price and an increase in equilibrium quantity

b. a decrease in both equilibrium price and quantity

If a decrease in demand is greater than a decrease in supply, equilibrium price will __________ . a. stay the same b. fall c. rise

b. fall

Suppose the market for a good is in equilibrium. Assume that there is a decline in the supply of the good and an increase in the demand for the good. If the decline in supply is larger than the increase in demand, the equilibrium quantity will __________ . a. not change b. fall c. rise

b. fall

Other things equal, if consumers believe that gas prices will rise in a week, the demand for gas today will __________ . a. decrease b. increase c. not change d. be lower than next week

b. increase

Beyond some quantity of production each added worker produces less added output. In other words, firms encounter __________ in marginal cost. a. decreases b. increases c. no changes d. proportional changes

b. increases

A __________ the supply curve represents a change in supply while a __________ the supply curve represents a change in the quantity supplied. a. rotation of; movement along b. shift of; movement along c. movement along; rotation of d. movement along; shift

b. shift of; movement along

A change in demand is represented by a __________ the demand curve while a change in quantity demanded is represented by a __________ the demand curve. a. movement along; movement along b. shift of; movement along c. shift of; shift of d. movement along; shift of

b. shift of; movement along

Firms that produce a particular product can sometimes use their facility to produce an alternative product; therefore, when the price of the alternative good increases, the producer may switch to that alternative good in order to increase profits. This decision is called __________ . a. change in supply b. substitution in production c. substitution of producer expectations d. substitution of technology

b. substitution in production

The market supply is derived by summing the quantity __________ by each firm at each price. a. demanded b. supplied c. equilibrium

b. supplied

An increase in the number of hair salons will cause: a. an upward movement along the supply curve of hair salon services b. the supply curve of hair salon services to shift to the right c. the supply curve of hair salon services to shift to the left d. a downward movement along the supply curve of hair salon services

b. the supply curve of hair salon services to shift to the right

Which of the following reflects an increase in demand, while holding supply constant? a. A decrease in both equilibrium price and quantity b. An increase in equilibrium price and a decrease in equilibrium quantity c. An increase in both equilibrium rice and quantity d. An increase in equilibrium quantity and a decrease in equilibrium price

c. An increase in both equilibrium price and quantity

A decrease in supply and a simultaneous decrease in demand will result in __________ equilibrium quantity, with __________ equilibrium price. a. an increase in; an increase in b. an increase in; an indeterminate effect on c. a decrease in; an indeterminate effect on d. a decrease in; a decrease in

c. a decrease in; an indeterminate effect on

The concept of demand can be summarized by a schedule or curve showing the quantity of a product that would be __________ . a. given away at only one price b. subsidized at various possible prices c. consumed at various possible prices d. produced at various possible prices

c. consumed at various possible prices *Note* Product purchased or consumed represents the demand curve described here.

The "other things equal" in the relationship between price and quantity supplied refer to the: a. determinants of demand b. determinants of sellers c. determinants of supply d. factors of production

c. determinants of supply

If a decline in demand is greater than an increase in supply, the equilibrium quantity will __________ . a. not change b. rise c. fall

c. fall

As a result of a simultaneous increase in supply and decrease in demand, __________ . a. price and quantity rise b. quantity falls and the change in price is indeterminate c. price falls and the change in equilibrium quantity is indeterminate d. price and quantity fall

c. price falls and the change in equilibrium quantity is indeterminate

A change in __________ causes a movement along the supply curve. a. number of sellers b. demand c. product price d. the price of inputs

c. product price

A decrease in demand while holding supply constant __________ equilibrium price and __________ equilibrium quantity. a. raises; raises b. raises; reduces c. reduces; reduces d. reduces; raises

c. reduces; reduces

Diminishing marginal __________ states that, in any specific time period, buyers will derive less satisfaction from each additional unit of the product consumed. a. incentives b. demand c. utility d. returns

c. utility

A necessary condition for the demand of a good is that a consumer must be __________ . a. working and have sufficient income b. merely willing to buy the good c. willing and able to buy the good d. able to buy the good but not necessarily willing to buy it

c. willing and able to buy the good

__________, while holding demand constant, results in an increase in the equilibrium price of the good, but a decrease in the equilibrium quantity of the good. a. An unchanged supply of a good b. A rightward shift of the supply curve of a good c. An increase in the supply of a good d. A decrease in the supply of a good

d. A decrease in the supply of a good *Note* A decrease is illustrated as a shift of the supply curve upward or to the left.

A decrease in equilibrium quantity and indeterminate change in equilibrium price is a result of which of the following? a. A simultaneous increase in supply and demand b. A decrease in supply and increase in demand c. An increase in supply and decrease in demand d. A simultaneous decrease in supply and demand

d. A simultaneous decrease in supply and demand

Which of the following show the effects on equilibrium price and quantity due to an increase in supply and a proportional and simultaneous increase in demand __________ . a. equilibrium price rises and an indeterminate change in equilibrium quantity b. equilibrium quantity falls and an indeterminate change in equilibrium price c. equilibrium price falls and an indeterminate change in equilibrium quantity d. equilibrium quantity rises and the equilibrium price changes by an indeterminate amount

d. equilibrium quantity rises and the equilibrium price changes by an indeterminate amount

A decrease in supply while holding demand constant results in a(n) __________ in equilibrium price, and a(n) __________ in equilibrium quantity. a. increase; increase b. decrease; decrease c. decrease; increase d. increase; decrease

d. increase; decrease

An increase in supply while holding demand constant __________ equilibrium price and __________ equilibrium quantity. a. lowers; lowers b. raises; lowers c. raises; raises d. lowers; raises

d. lowers; raises

The law of supply states that as price __________, the quantity supplied (Q) rises; as price __________, the quantity supplied falls. a. rises; rises b. falls; rises c. falls; falls d. rises; falls

d. rises; falls

The market supply curve is the horizontal __________ of all the __________ supply curves for a good or service. a. subtraction; total b. summation; total c. multiplication; individual d. summation; individual

d. summation; individual

All of the following are determinants of demand except __________ . a. consumer expectations b. the prices of related goods c. consumer tastes d. consumers' incomes e. price of substitutes in production

e. price of substitutes in production *Note* Do not confuse this with "price of related goods" on the demand side. This clearly states substitutes in production which hint to the supply side of the market.

A demand __________ organizes the relationship between price and quantity in a tabular format, whereas the demand __________ is a graphical representation of this relationship. (One word per blank.)

schedule ; curve

Market __________ is a schedule or curve showing the various amounts of a product that producers are willing and able to make available for sale at each possible price during a specific period.

supply