intro to Microeconomics Exam 1

Refer to the accompanying figure. The equilibrium price is ______, and the equilibrium quantity is ______.

$6;4

The tendency of markets to automatically gravitate toward equilibrium is an application of the

Incentive principle

The entire group of buyers and sellers of a particular good or service makes up

a market -A market for any good consists of all buyers and sellers of that good.

if the demand curve for a good decreases as income decreases, then the good is:

a normal good

If the demand for computers increases as consumers' incomes rise, then computers are

a normal good -A normal good is a good for which an increase in income leads to an increase in demand and a decrease in income leads to a decrease in demand.

If the demand for steak increases as income increases, then steak is

a normal good -A normal good is a good for which an increase in income leads to an increase in demand and a decrease in income leads to a decrease in demand.

Refer to the accompanying figure. At a price of $3, there will be

an excess demand of 5 units

Refer to the accompanying figure. Assume the market is originally at point W. Movement to point Z is a combination of

an increase in supply and an increase in demand -Movement from W to Z is the result of a rightward shift in both the demand curve and the supply curve.

What might cause a demand curve to shift to the right?

an increase in the price of a substitute -Two goods are substitutes if an increase in the price of one good leads to a rightward shift in the demand for the other.

two goods complements if

an increase in the price of one good leads to decrease in demand for the other

When the price of a good changes, the amount of that good that buyers wish to buy changes

because of both substitution and the income effects -Both the substitution effect and the income effect impact the quantity demanded when price changes.

Equilibrium price and quantity are determined by

both supply and demand

a movement along a demand curve from one price-quantity combination to another is called a

change in quantity demanded

Suppose that both the supply of iPads and the demand for iPads decrease. One can predict that the

equilibrium quantity will fall, but the change in equilibrium pice is uncertain -A decrease in supply and a decrease in demand both decrease equilibrium quantity but have opposing effects on equilibrium price.

Suppose that when the price of oranges is $3 per pound, the quantity demanded is 4.7 tons per day and the quantity supplied is 3.9 tons. In this case

excess demand will lead the prices pop oranges to rise -If the quantity that sellers wish to sell is 3.9 tons, and the quantity that buyers wish to buy is 4.7 tons, then there is excess demand, which will lead the price of oranges to rise.

Refer to the accompanying figure. At a price of $9, there will be

excess supply and downward pressure on he price

Which of the following is not a characteristic of rent controls?

greater availability for apartments

Refer to the accompanying figure. If the price is $4 today and there is no change in either supply or demand, one would expect the price in the future to be

greater than 4

If the local slaughterhouse gives off an unpleasant stench, then the equilibrium quantity of meat will be _____ the quantity that maximizes total economic surplus.

higher than -If the production of meat imposes costs on people other than those who buy and sell the meat, then the equilibrium quantity will be higher than the socially optimal quantity.

Which of following is not true of the equilibrium price?

it ism fair in the sense that everyone can afford basic goods and services -The equilibrium price is determined by supply and demand, with no regard for fairness.

The buyer's reservation price for a particular good or service is the

largest price the buyer would be willing to pay for it -By definition, a buyer's reservation price is the largest dollar amount the buyer would be willing to pay for a good.

According to the textbook, government price controls fail because

legislation cannot alter basic economic incentives

If the production of oranges reduces global warming, then the equilibrium quantity of oranges will be ______ the socially optimal quantity.

lower than -If the production of oranges generates benefits that are enjoyed by people other than those who buy and sell the oranges, then the equilibrium quantity will be less than the socially optimal quantity.

As a price of a good rises

more firms can cover their opportunity costs of producing the good

Suppose the market demand curve is given by Qd = 64 − 8P, and the market supply curve is given by Qs = 8 + 8P. What is the equilibrium price and quantity?

p=$3.50 and Q*=36 -The equilibrium price and quantity are the values found at the intersection of the supply and demand curves. These can be found by setting Qs = Qdand solving for P, then returning P into either of the two equations to find Q.

In a free market, if the price of a good is above the equilibrium price, then

sellers, dissatisfied with growing in inventors, will lower the; prices

A market equilibrium might not maximize total economic surplus because

sometimes goods entail costs and benefits that do not fall on buyers and sellers -In a market equilibrium, buyers and sellers take advantage of all opportunities for individual gain, but if people other than buyers benefit from a good, or if people other than sellers bear costs because of it, then what's best for individual buyers and sellers may not be best for society as a whole.

f the demand for olives falls when the price of cheese falls, then we know that cheese and olives are

substitute -Two goods are substitutes if an increase in the price of one good leads to an increase in the demand for the other (and a decrease in the price of one good leads to a decrease in the demand for the other).

"All else constant, consumers will purchase more of a good as the price falls." This statement reflects the behavior underlying

the demand curve -A fundamental property of the demand curve is that it is downward sloping with respect to price. That is, as price falls, quantity demanded rises.

When a market is not in equilibrium

the economic motives of sellers and buyers will move the market to its equilibrium

Suppose you bought a concert ticket from Ticketmaster for $50, but when you get to the concert, there are a large number of people waiting outside who offer to pay you more than $50 for your ticket. What is probably true?

there is an excess demand for tickets at the Ticketmaster price -If there are people waiting outside offering to pay you more than $50 for your ticket, then this suggests that there is an excess demand for tickets at a price of $50.

When a market is in equilibrium

there is neither excess demand nor excess supply

If supply and demand both increase, the new equilibrium price will be ______ and the new equilibrium quantity will be ______.

uncertain; higher -An increase in demand and an increase in supply will both cause equilibrium quantity to increase, but will have opposing effects on equilibrium price.

excess demand occurs

when price is below the equilibrium price