LC2: LearningCurve: Ch. 2: Supply and Demand

The inverse demand curve for M&B chardonnay (wine) is P = 200 − 0.1QD. The quantity demanded at which demand is unit elastic is: 1,000. 2,000. 1,500. 500.

1,000. > At this quantity, the price elasticity of demand is -1. REMEMBER!: E = (1/slope) * (P/Q) >>plug and chug

[NEED HELP] The inverse demand curve for M&B chardonnay (wine) is P = 200 − 0.1QD. Demand will be inelastic at a price of: 200. 50. 150. 100.

E = - infinity (where consumers don't demand any units of good at A when price is $20; Q = 0 , P/Q = infinity, elasticity is negative infinity) E < -1 "ELASTIC" (between A and B: ex P = $15; Q = ~3, P/Q = 5, elasticity is negative so | -5 | ) E = - 1 "unit elastic" (Point B; P = $10, Q = 5, P/Q = 2 & slope in example is -2) -1 < E < 0 "inelastic" (between points B and C, P/Q is greater than -1 (less than 1 in absolute value); Ex: P/Q = $3/9 = 0.333) E = 0 (At point C, P = 0, P/Q = 0) REMEMBER: (1/slope) * P/Q 50 > At any price below 100, the price elasticity of demand is greater than -1. > Hint: was not 150

A store sells three different brands of paper towels. This is an example of: supply shifts. substitutes. elasticities. normal goods.

NOT NORMAL GOODS [Normal goods are those for which the income elasticity of demand is positive --> experience an increase in demand due to an increase in income, unlike inferior goods, for which the opposite is observed; examples = houses, luxury cars, organic foods]. substitutes. > Substitutes may be of lower, equal, or higher quality, but they serve the same function as other products.

A company produces a flying car; however, it is so expensive that no one is willing to buy it. The price they are charging is: - a price lower than or equal to the equilibrium price. - the choke price. - the equilibrium price. - a price greater than or equal to the demand choke price.

NOT the choke price. > The choke price is the lowest price for which there is no demand. If the company was charging higher prices, there would still be no demand for the product. a price greater than or equal to the demand choke price. >> The choke price is the lowest price for which there will be no demand for a product. Any higher price will also have zero demand.

The Beartown grocery store has been out of stock of a popular brand of chocolate since the manufacturer lowered the price. This is an example of _____. excess supply a shortage cross-price elasticity of demand price elasticity

a shortage > A shortage occurs when quantity demanded exceeds quantity supplied at the existing price.

A decrease in production costs usually causes: - movement along a single supply curve. - a change in quantity supplied. - an increase in supply. - a decrease in demand.

an increase in supply. > In general, lower costs result in more supply.

A shoe company decreases their prices after finding a way to make production less expensive. If nothing else changes, this will cause a(n) _____ in _____. an increase; quantity demanded a decrease; quantity demanded an increase; demand a decrease; demand

an increase; quantity demanded > This is a movement along the demand curve that occurs in response to a change in a product's price. Lower prices increase the quantity demanded.

Increased interest in running causes an increase in the purchase of running shoes. Many of those buying running shoes also buy socks and running shorts. The socks and running shorts are _____ to the running shoes. complements elasticities corollary normal

complements > Complements are items that are often purchased and used together; a hot dog and hot dog bun is one example.

The cross-price elasticity of demand between good A and good B is −10.4. That means A and B are: luxury goods. complements. inferior goods. substitutes.

complements A negative cross-price elasticity of demand means that an increase in the price of B causes a decrease in quantity demanded of A. A and B cannot be substitutes. think side by side graphs?

A tomato farmer switched to a cheaper fertilizer. This change to his _____ may result in a lower selling price. search costs supply curve costs of production outside options

costs of production

In Tinyburg, a town with 1000 inhabitants, most residents work for a car manufacturing company in one capacity or another. Increased automation causes the company to cut 100 jobs. This results in a(n) _____ in the average income, which is likely to cause a(n) _____ in demand/the consumption of normal goods. decrease; decrease decrease; increase increase; decrease increase; increase

decrease; decrease > The decrease in income will lower the ability to purchase.

An equilibrium price is the price at which there is neither excess supply nor excess _____.

demand

Apples and Opals Boutique has stocked a large number of feather fans. Very few of the fans sell. This is an example of: a choke price. a demand shock. excess supply. sunk costs.

excess supply. > Any time a price is higher than the equilibrium point, supply will exceed demand.

The price of technology (computers, cell phones, etc.) has fallen drastically over the last two decades. As a result, there has been a(n): increase in quantity demanded. decrease in demand for complements. increase in the choke price. decrease in substitutes.

increase in quantity demanded. > If everything else is held constant, price would move down the demand curve to a higher corresponding quantity demanded.

Because of what we know about the supply curve, the price elasticity of supply: is always negative. is always equal to 1. is always positive. is always zero.

is always positive. > More precisely, the price elasticity of supply is always nonnegative.

Which of the following factors DOES NOT influence demand in product markets? consumer income or wealth the number of consumers consumer tastes number of sellers

number of sellers > Number of sellers affects supply, not demand.

The graph below illustrates _____ demand. [graph with Price on Y-axis and Quantity on X-axis, Demand is a horizontal line at P'] perfectly inelastic inelastic unit elastic perfectly elastic

perfectly elastic > Perfect elasticity occurs at the point where E = 0. Note: E = (1/slope) * (P/Q) >> since line is horizontal, there is no slope and slope = 0; plugged into this equation E = 0 >> conceptually think also about the spectrum with elastic at top, then unit elastic in middle, and inelastic at bottom

* The equation ED = %ΔQD/%ΔP describes the: - income elasticity of supply. - price elasticity of demand. - income elasticity of demand. - price elasticity of supply.

price elasticity of demand. > The price elasticity of demand is the ratio of the percentage change in the quantity of a product demanded in response to a change in the price of that product.

[CLARIFY ] The main reason economists use price elasticity of demand instead of the slope of the demand curve is that: - elasticity changes when the units of measurement (price and quantity) change, but slope does not change when the units change. - elasticity changes when the units of measurement (price and quantity) change, but the reciprocal of the slope does not change when the units change. - slope changes when the units of measurement (price and quantity) change, but price elasticity of demand does not change when the units change. - elasticity does not change when the units of measurement (price and quantity) change, and the slope also does not change when the units change.

slope changes when the units of measurement (price and quantity) change, but price elasticity of demand does not change when the units change > This is valuable because it allows economists to make comparisons between markets. NOT elasticity changes when the units of measurement (price and quantity) change, but slope does not change when the units change.

To economists, "search costs" are: the cost of finding a St. Bernard rescue dog to track someone lost in a snowstorm. the costs of finding a person who is lost. the costs incurred by an unemployed worker looking for a job. the costs incurred by buyers and sellers as they attempt to find each other.

the costs incurred by buyers and sellers as they attempt to find each other. > In principle, the buyers in a market should be able to find the sellers in that market. If search costs are high enough, this may become difficult.

The supply choke price is: - the price at which no seller is willing to supply a good and quantity supplied is zero; the vertical intercept of the supply curve. - the price at which no seller is willing to sell a good and quantity supplied is zero - the vertical intercept of the inverse supply curve.the quantity sellers are willing to supply when the price is zero; the horizontal intercept of the inverse supply curve - the price at which no seller is willing to sell a good and quantity supplied is zero; the horizontal intercept of the inverse supply curve.

the price at which no seller is willing to sell a good and quantity supplied is zero; the vertical intercept of the inverse supply curve. > quantity supplied will also be zero at any price below the supply choke price.