Macro econ chapter 3

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Demand curve

A curve that shows the relationship between the price of a product and the quantity of the product demanded.

Supply curve

A curve that shows the relationship between the price of a product and the quantity of the product supplied

Demand schedule

A table showing the relationship between the price of a product and the quantity of the product demanded.

From the list​ below, select the variable that will cause the supply curve to​ shift:

The cost of raw materials

Supply schedule

A table that shows the relationship between the price of a product and the quantity of the product supplied

Imagine that the table on the right shows the quantity demanded of UGG boots at five different prices in 2014 and in 2015. Which of the following variables could cause the demand for UGG boots to change as indicated from 2014 to​ 2015? ​(Check all that​ apply.)

A. A decrease in the number of buyers C. A decrease in the price of a substitute good.

Choose two products whose demand is likely to increase rapidly if the population in the following demographic group increases at a faster rate than the population as a​ whole: Children under five.

A. Big wheel tricycles E. Sesame Street educational software

When economists speak of a shortage​, they mean a situation in which

ALL OF THE ABOVE A. the market price is belowbelow the equilibrium price. B. some consumers aresome consumers are unable to makeunable to make a purchase ata purchase at the current price.the current price. C. the quantity demandeddemanded exceeds quantity suppliedsupplied.

Suppose that the table on the right shows the quantity supplied of UGG boots at five different prices in 2016 and in 2017. Refer to the table to the right and note the change in the supply of UGG boots from 2016 to 2017. Which of the following could explain the change in supply observed in​ 2017? ​(Check all that​ apply.)

C. An increase in worker productivity D. A decrease in the expected future price.

State whether each of the following events will result in a movement along the demand curve for​ McDonald's Big Mac hamburgers or whether it will cause the curve to shift. The price of Burger​ King's Whopper hamburger increases. This will cause ​McDonald's distributes ​$1.00 off coupons. This will cause The price of fries increases due to a potato shortage. This will The U.S. economy enters a period of rapid growth in incomes. This will cause

demand for​ McDonald's Big Mac hamburgers to increase. a movement along the demand curve for​ McDonald's Big Mac hamburgers. decrease the demand for McDonald's Big Mac hamburgers. demand for​ McDonald's Big Mac hamburgers to shift to the left if they are inferior goods.

Richard Posner is a federal court judge who also writes on economic topics. A newspaper reporter summarized​ Posner's views on the effect of online bookstores and​ e-books on the demand for​ books: ​"Posner's [argument] is that the disappearance of bookstores is to be celebrated and not​ mourned, partly because​ e-books and online stores will reduce the cost of books and thus drive up demand for​ them." ​Source: Christopher​ Shea, "Judge Posner Hails the Demise of​ Bookstores," Wall Street Journal​, January​ 13, 2011. Do you agree with​ Posner's statement, as given by the​ reporter?

​No, the accurate phrasing would be that​ "a reduced price drives up the quantity​ demanded."

Even though fuel prices rise as noted in the article and shown in the​ graph, can anything be said with certainty regarding the change in the equilibrium​ quantity?

​No, the given summer changes in demand and supply may increase the​ quantity, decrease​ it, or leave it unchanged.

Substitute goods

Goods and services that can be used for the same purpose.

Complementary goods

Goods that are used together

You observe that when the price of houses decreases the demand for household appliances increases.

Houses and household appliances are considered to be COMPLEMENTARY goods.

Since​ 1979, China has had a policy that allows couples to have only one child.​ (There are exceptionslong dash—couples in which both partners are single children may be allowed two​ children.) The population demographics have changed between the​ young, middle-aged, and​ old, and between young males and females. Between 2000 and​ 2010, the share of the population under 14 slumped from​ 23% to​ 17%, and to ensure that the lone child is a​ son, the number of newborn males relative to females has increased. ​Source: "China's Family​ Planning: Illegal Children Will Be​ Confiscated" and​ "China's Population: Only and​ Lonely," Economist​, July​ 21, 2011. How has the​ one-child policy changed the relative demand for goods and services in​ China?

It has undoubtedly shifted away from goods and services appealing to youthful​ buyers, particularly youthful female buyers.

Imagine that the curves shown in the accompanying figure represent two demand curves for traditional wings​ (basket of​ six) at Buffalo Wild Wings. The movement from point Upper AA to Upper BB on Upper D 1D1 is caused by Indicate which of the following could cause a movement from point Upper AA to Upper CC. ​(Check all that​ apply.)

A decrease in the price of baskets of traditional wings. A. A rise in buyer incomes. D. A decline in vegetarianism.

Inferior good

A good for which the demand increases as income falls, and decreases as income rises.

What do economists mean by market​ equilibrium?

A market outcome where quantity supplied is equal to quantity demanded.

What do economists mean when they use the Latin expression ceteris paribus​?

All else equal.

From the list​ below, select the variable that will cause the demand curve to​ shift:

Consumer income

A student was asked to draw a demand and supply graph to illustrate the effect on the market for smartphones of a fall in the price of processorsprocessors used in​ smartphones, holding everything else constant. She drew the graph to the right and explained it as​ follows: ​"ProcessorsProcessors are an input to​ smartphones, so a fall in the price of processorsprocessors will cause the supply curve for smartphones to shift to the right​ (from Upper S 1S1 to Upper S 2 right parenthesis .S2). Because this shift in the supply curve results in a lower price left parenthesis Upper P 2 right parenthesis commaP2, consumers will want to buy more smartphones and the demand curve will shift to the right​ (from Upper D 1D1 to Upper D 2 right parenthesis .D2). We know that more smartphones will be​ sold, but we​ can't be sure whether the price of smartphones will rise or fall. That depends on whether the supply curve or the demand curve has shifted farther to the right. I assume that the effect on supply is greater than the effect on​ demand, so I show the final equilibrium price left parenthesis Upper P 3 right parenthesisP3 as being lower than the initial equilibrium price left parenthesis Upper P 1 right parenthesis .P1.​" Where is the flaw in the​ student's argument?

Demand will not shift.

If the price of a good​ increases, is the increase in the quantity of the good supplied likely to be smaller or​ larger, the longer the time period being​ considered?

Larger

If a market is in equilibrium LOADING... ​, is it necessarily true that all potential buyers and sellers are satisfied with the market​ price?

No

Suppose the data in the table present the price of a base model Toyota Prius hybrid and the quantity of Priuses sold for three years. Do these data indicate that the demand curve for Priuses is upward​ sloping?

No

Will each firm in the smartphone industry always supply the same quantity as every other firm at each​ price? What factors might cause the quantity of smartphones supplied by each firm at each price to be​ different?

No Productivity differences due to variations in the use of existing technology.

The difference between a change in supply and a change in the quantity supplied is that the latter is

Produced by a change in the product's own price while the former is caused by a variety of variables other than the product's price

​Historically, the production of many perishable​ foods, such as dairy​ products, was highly seasonal.​ Thus, as the supply of those products​ fluctuated, prices tended to fluctuate tremendouslylong dash—typically by 25 to 50 percent or morelong dash—over the course of the year. One impact of mechanical​ refrigeration, which was commercialized on a large scale in the last decade of the nineteenth​ century, was that suppliers could store perishables from one season to the next. Economists have estimated that as a result of refrigerated​ storage, wholesale prices rose by roughly 10 percent during peak supply​ periods, while they fell by almost the same amount during the off season. ​Source: Lee A.​ Craig, Barry​ Goodwin, and Thomas​ Grennes, "The Effect of Mechanical Refrigeration on Nutrition in the​ U.S.," Social Science History​, Vol.​ 28, No. 2​ (Summer 2004), pp.​ 327-328. Choose the graph below that corresponds to the change for the peak season.

SUPPLY LEFT SHIFT

When smartphones based on the Android operating system were first​ introduced, there were relatively few​ applications, or​ "apps," available for them.​ Now, there are many more​ "apps" available for​ Android-based smartphones. With respect to the demand for Apple​ iPhones, the increase in the availability of​ "apps" for​ Android-based smartphones would be expected to

Smartphones and​ "apps" for smartphones are clearly COMPLEMENTS reduce the demand for Apple iPhones because enhancements​ (in the form of additional​ "apps") to​ Android-based smartphones increase the​ latter's relative appeal.

Which one is best suited to find the quantity demanded at a price of​ $4.00?

The demand schedule

Which one is best suited to find the quantity supplied at a price of​ $4.50?

The supply curve.

he demand for pearspears is highest during summer and lowest during winter. Yet pearpear prices are normally lower in summer than in winter. What must be happening to the supply of pearspears​, from winter to​ summer, for the equilibrium price to​ fall?

The supply increases more than the demand increases.

In The Wealth of Nations​, Adam Smith discussed what has come to be known as the​ "diamond and water​ paradox": ​"Nothing is more useful than​ water: but it will purchase scarce​ anything; scarce anything can be had in exchange for it. A​ diamond, on the​ contrary, has scarce any value in​ use; but a very great quantity of other goods may frequently be had in exchange for​ it." LOADING... Click in the icon for a reference diagram. It is possible for the price of water to be much lower than the price of diamonds if which of the following is​ true?

The supply of water is greater than the supply of diamonds.

During the summer of​ 2011, General Motors​ (GM) had trouble selling pickup trucks. According to an article in USA​ Today: ​"General Motors dealers had a​ 122-day supply of Chevrolet Silverado and GMC Sierra pickups in​ June, more than​ 50% above​ what's considered optimum. . . . Behind the​ glut: The year started strong and makers pumped up production. Then the economy slowed faster than they cut​ back." ​Source: Chris​ Woodyard, "Pickup Truck Glut Brings Hot Deals This​ Summer," USA Today​, July​ 11, 2011. A slowing economy helped cause the glut of pickup trucks because

The term glut implies that relative to the quantity supplied of GM pickup​ trucks, the quantity demanded was SMALLER Given the situation in the market for GM pickup trucks in the summer of​ 2011, their prices would be expected to FALL income growth was sluggish and GM pickup trucks are a normal good.

Years​ ago, an apple producer argued that the United States should enact a​ tariff, or a​ tax, on imports of bananas. His reasoning was​ that: ​"the enormous imports of cheap bananas into the United States tend to curtail the domestic consumption of fresh fruits produced in the United​ States." ​Source: Quoted in Douglas A.​ Irwin, Peddling​ Protectionism: Smoot-Hawley and the Great​ Depression, Princeton,​ NJ: Princeton University​ Press, 2011, p. 22. In a graph​ (not shown) of the banana market in the United​ States, the imposition of a tariff on banana imports would

This producer apparently assumed apples and bananas to be SUBSTITUTES . shift supply​ leftward, increasing equilibrium price and decreasing equilibrium quantity.

Identify whether each of the following statements describes a change in supply or a change in the quantity supplied.

To take advantage of high prices for snow shovels during a very snowy​ winter, Alexander​ Shovels, Inc., decides to increase output. A CHANGE IN QUANTITY SUPPLIED The success of​ Apple's iPod leads more firms to begin producing digital music players. A CHANGE IN SUPPLY. In the six months following Hurricane​ Katrina, production of oil in the Gulf of Mexico declined by 25 percent. A CHANGE IN SUPPLY.

Suppose that the curves in the figure to the right represent two supply curves for traditional wings​ (basket of​ six) at Buffalo Wild Wings. The movement from point Upper AA to Upper BB on Upper S 1S1 is caused by Indicate which of the following would cause a movement from point Upper AA to Upper CC. ​(Check all that​ apply.)

a decrease in the price of baskets of traditional wings. B. A decrease in worker productivity C. An increase in the prices of substitutes in production.

In early​ 2011, financial journalist Wolfgang Gruener made the following observation about forecasts of demand for tablet​ computers: ​"The conclusion can only be that the market is too young to sustain a reliable shortdash-​, middash- or longdash-term forecast. If you trust any number at this​ time, good luck with that. Only a fool would bet the farm and a business on any forecast for the tablet market right​ now." ​Source: Wolfgang​ Gruener, "240 Million​ Tablets: The​ Gazillion-Dollar Forecast​ Game," www.fool.com​, February​ 6, 2011. It might be particularly difficult to forecast the demand for a new product because In the case of tablet​ computers, a forecast of the demand was made particularly difficult by uncertainty regarding

all of the above appear to be legitimate arguments. ​consumers' perception of the​ tablet's usefulness.

A student writes the​ following: ​"Increased production leads to a lower​ price, which in turn increases​ demand." This student must be referring to

an increase in quantity demanded.

A student makes the following​ argument: ​"The chapter says that for consumers as a​ group, Quiznos sandwiches are normal goods and Subway sandwiches are inferior goods. But I like the taste of Subway sandwiches better than I like the taste of Quiznos​ sandwiches, so for me Quiznos sandwiches are inferior goods and Subway sandwiches are normal​ goods." This​ student's reasoning is

confused because the classification of a good as normal or inferior depends on the response of demand to a change in income.

Complete the following​ statement: ​"When there is a shortage of a good

consumers compete against one another by bidding the price upward. The process continues until the market is finally in​ equilibrium."

The law of demand is the assertion that An increase in the price of a product causes a decrease in quantity demanded because of the income and substitution effects. More​ specifically,

the quantity demanded of a product is inversely related to its price. the substitution effect is the decrease in quantity demanded because the product is more expensive relative to other goods and the income effect is the decrease in quantity demanded owing to the decline in​ consumers' purchasing power.

a. If the demand and supply for a product both​ increase, the equilibrium quantity of the product must also increase. b. If the demand and supply for a product both​ increase, the equilibrium price of the product must also increase. c. If the demand for a product decreases and the supply of the product​ increases, the equilibrium price of the product may increase or​ decrease, depending on whether supply or demand has shifted more.

true false false


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