Managerial Economics (Chapter 2)

1. market demand schedule 2. graphic representation 3. negatively sloped 4. shifts the demand curve

A ____________1__________ is a table showing the quantity demanded of a commodity at each price over a given time period while holding constant all other relevant economic variables on which demand depends. The market demand curve is the ___________2___________ of the demand schedule. It is _____________3_____________, which reflects the inverse price-quantity relationship or the law of demand. A change in consumers; incomes, tastes for the commodity, the number of consumers in the market, or the price of substitutes or complements _______________4_____________.

1. market supply schedule 2. market supply curve 3. positively sloped

A ______________1________________is a table showing the quantity supplied of a commodity at each price over a given time period. The _______________2______________ is the graphic representation of the supply schedule. Because of rising marginal costs, the supply curve is usually _____________3______________, which indicates that producers supply more of the commodity at higher prices. A change in technology, resource prices, and, for agricultural commodities, weather conditions shifts the supply curve.

True

A decline in input prices will cause the quantity demanded in the output market to increase True or False

True

A given supply curve assumes that input prices, production technology, and any other relevant factors except the price of the product, are held constant True or False

True

A market can be defined as an institutional arrangement under which buyers and sellers can exchange goods and services for a mutually agreeable price. True or False

Perfectly competitive market

A market where no buyer or seller can affect the price of the product, all units of the product are homogeneous, resources are mobile, and knowledge of the market is perfect.

Nonclearing market

A market where shortages and surpluses persist (i.e., it does not clear).

Price floor

A minimum price for a commodity. If the ____________is above the equilibrium price, it leads to a surplus of the commodity.

1. nation's excess demand 2. above-equilibrium prices 3. intersection of the demand and supply curves 4. inflow of imports of the commodity

A nations' demand for imports is derived from the _________________1________________ for the importable commodity at below-equilibrium prices in the absence of trade. On the other hand, the foreign supply of exports of the commodity is derived from the foreign excess supply of the commodity at _________________2___________________ in the absence of trade. The equilibrium price and quantity of the traded commodity are given at the _______________3_________________ of imports of the commodity. In today's interdependent world, the tendency for the domestic price of a commodity to rise is moderated by the ___________________4_______________.

Import tariff

A per-unit tax on imports.

1. leads to a shortage of the commodity and possibly black markets 2. leads to a surplus of the commodity 3. the steeper the demand for the commodity

A price ceiling below the equilibrium price (such as rent control) ________________1_______________. A price floor above the equilibrium price (as for some agricultural commodities) _______________2_______________. Given the supply of a commodity, _____________________3________________, the grater is the burden or incidence of a per-unit tax on consumers. Sometimes, some markets do not clear.

False

A price ceiling imposed above the market equilibrium price will result in a shortage of the product. True or False

True

A rent control set below the market equilibrium price will result in a reduction of rental units supplied in the market, assuming the supply is consistent with the law of supply. True or False

Market demand schedule

A table showing the quantity of a commodity that consumers are willing and able to purchase during a given period of time at each price while holding constant all other relevant economic variables on which demand depends.

Market supply schedule

A table showing the quantity supplied of a commodity at each price for a given period of time while holding constant technology, resource prices, and, for agricultural commodities, weather conditions.

Excise tax

A tax on each unit of the commodity.

Market

All the actual and potential buyers and sellers of a particular product.

1. a rightward shift in the demand curve 2. opposite effect 3. a rightward shift in the supply curve 4. supply

An increase in demand (___________1___________) results in an increase in both the equilibrium price and quantity of the commodity. A decrease in demand has the _____________2__________. On the other hand, an increase in supply (____________________3_______________) results in a lower equilibrium price but a higher equilibrium quantity. A decrease in ____________4____________has the opposite effect.

an increase in equilibrium price and quantity.

An increase in the demand for a good will cause a. an increase in equilibrium price and quantity. b. a decrease in equilibrium price and quantity. c. an increase in equilibrium price and a decrease in equilibrium quantity. d. a decrease in equilibrium price and an increase in equilibrium quantity.

a decrease in equilibrium price and an increase in equilibrium quantity.

An increase in the supply of a good will cause a. an increase in equilibrium price and quantity. b. a decrease in equilibrium price and quantity. c. an increase in equilibrium price and a decrease in equilibrium quantity. d. a decrease in equilibrium price and an increase in equilibrium quantity.

True

An upward slopped supply curve is consistent with the law of supply. True or False

The supply should increase.

Assume that firms in an industry observe a 10% increase in the productivity of labor, but to get there they had to increase the cost of labor by 5%. What should be expected to happen in the output market as a result of this development? a. The supply should increase b. The supply should decrease c. The supply should remain unchanged d. The demand should increase e. The demand should decreased

True

Assume that the production of corn and wheat utilize the same resources (substitutes in production). If the price of corn increases, then we can expect the price of wheat to also increase, all else held constant. True or False

more than 19,000 units per quarter..

At a price of $299.95, the manufacturer of a portable gas-powered generator is willing to produce 19,000 units per quarter. At a price of $349.95, it is likely that the manufacturer will be willing to produce a. more than 19,000 units per quarter. b. 19,000 units per quarter. c. less than 19,000 units per quarter. d. It is impossible to predict the effect of a higher price on the number of units of a product that a firm will be willing to produce.

more than 9,000 copies

At a price of $4.95, a pulp fiction novel is expected to sell 9,000 copies. If the novel is offered for sale at a price of $3.95, then the publisher can expect to sell a. less than 9,000 copies. b. 9,000 copies. c. more than 9,000 copies. d. It is impossible to predict the effect of a lower price on sales.

False

Car manufactures use many commodities in their production process. If prices of those commodities increase, then we should expect the supply curve to shift downwards (to the right). True or False

The rise in demand outpaced the rise in supply.

During 2002 - 2005 we saw significant increases in the construction of new housing stock in the US. During the same time period we also observed significant rises in the demand for homes. We know that during that time period both price and the level of homes traded increased. Based on that information what most likely happened in the market? a. The rise in supply outpaced the rise in demand. b. The rise in demand outpaced the rise in supply. c. The rise in demand was perfectly matched by rise in the supply. d. None of the above

Demand will shift to the left

During a recession, economies experience increased unemployment and a reduced level of activity. How would a recession be likely to affect the market demand for new cars? a. Demand will shift to the right. b. Demand will shift to the left. c. Demand will not shift, but the quantity of cars sold per month will decrease. d. Demand will not shift, but the quantity of cars sold per month will increase.

True

Excise taxes can be used to generate revenue to the government, but also to alter the behavior of consumers and discourage consumption of certain products. True or False

True

Historically the US government has employed various types of programs to subsidize US agricultural sector. True or False

there is an excess demand and price can be expected to increase..

If a computer software company introduces a new program and finds that orders from wholesalers far exceed the number of units that are being produced, a. there is an excess supply and price can be expected to decrease. b. there is an excess supply and price can be expected to increase. c. there is an excess demand and price can be expected to decrease. d. there is an excess demand and price can be expected to increase.

The equilibrium price will fall while the equilibrium quantity will rise.

If a rise in supply exceeds a rise in demand, then we should expect a. the equilibrium price and quantity levels will rise. b. the equilibrium price will rise while the equilibrium quantity will decline. c. The equilibrium price will fall while the equilibrium quantity will rise. d. the equilibrium price and quantity levels will decline.

there is an excess supply and price can be expected to decrease.

If automobile manufacturers are producing cars faster than people want to buy them, a. there is an excess supply and price can be expected to decrease. b. there is an excess supply and price can be expected to increase. c. there is an excess demand and price can be expected to decrease. d. there is an excess demand and price can be expected to increase.

False

If both, the supply and the demand increase at the same time, the equilibrium price will definitely increase. True or False

False

If buyers and sellers of homes start to expect inflation in housing values, then both, the current demand and the supply functions will increase True or False

a decrease in demand.

If the price of a good decreases while the quantity of the good exchanged on markets decreases, then the most likely explanation is that there has been a. an increase in demand. b. a decrease in demand. c. an increase in supply. d. a decrease in supply.

an increase in supply..

If the price of a good decreases while the quantity of the good exchanged on markets increases, then the most likely explanation is that there has been a. an increase in demand. b. a decrease in demand. c. an increase in supply. d. a decrease in supply.

a decrease in supply.

If the price of a good increases while the quantity of the good exchanged on markets decreases, then the most likely explanation is that there has been a. an increase in demand. b. a decrease in demand. c. an increase in supply. d. a decrease in supply.

an increase in demand.

If the price of a good increases while the quantity of the good exchanged on markets increases, then the most likely explanation is that there has been a. an increase in demand. b. a decrease in demand. c. an increase in supply. d. a decrease in supply.

Reduced supply and unchanged demand.

In 2010 Russia was affected by a significant draught. Russia is a major producer and exporter of several agricultural commodities. As a result of the draught, Russia reduced some of its agricultural exports. In the context of the world supply/demand model for the affected agricultural commodities we should observe: a. Reduced demand and reduced supply b. Reduced supply and unchanged demand c. Reduced supply and increased demand d. Increased supply and unchanged demand e. Increased supply and reduced demand

A rise in the demand, causing prices to increase.

In November of 2010 the US Central Bank, the Federal Reserve, embarked on a policy of quantitative easing. Since this policy essentially represents an increase in the supply of money, it may create inflationary expectations. Let's assume (and this is a strong assumption), that as a result of this policy, US households start to expect inflation (price increases) in the housing market. The effect on the housing market will be: a. A rise in the demand, causing prices to increase b. A rise in the supply, causing prices to decrease c. A decline in the demand, causing prices to decrease d. None of the above

True

In the last few years we observed significant volatility in the price of gasoline. If we assume that the demand for gasoline is not price sensitive, then a significant rise in the price of gasoline will increase spending on gasoline and increase spending on inferior goods. True or False

If supply declines while demand increases, and the decline in supply exceeds the increase in demand..

In which instance can we observe a rise in the equilibrium price accompanied by a decline in the equilibrium quantity? a. If both demand and supply decline, but the decline in demand exceeds the decline in supply. b. If supply declines while demand increases, and the decline in supply exceeds the increase in demand. c. If both demand and supply increase. d. None of the above.

When demand and supply increase, but the rise in demand exceeds the rise in supply..

In which instance will both the equilibrium price and quantity rise? a. When demand and supply increase, but the rise in demand exceeds the rise in supply. b. When demand and supply increase, but the rise in supply exceeds the rise in demand. c. When demand and supply decline, but decline in the demand exceeds the decline in supply. d. When demand and supply decline, but the decline in supply exceeds decline in the demand.

is at a level where there is neither a shortage nor a surplus.

Market equilibrium refers to a situation in which market price a. is high enough to allow firms to earn a fair profit. b. is low enough for consumers to buy all that they want. c. is at a level where there is neither a shortage nor a surplus. d. is just above the intersection of the market supply and demand curves.

1. how individual markets operate 2. equilibrium 3. Markets 4. specific place or location 5. no buyer or seller can affect the price of the product

Most of economic analysis is devoted to the study of _____________1___________. A market is in ___________2____________ when no buyer or seller has any incentive to change the quantity of the good, service, or resource that he or she buys or sells at the given price. ________3___________ provide the framework for the analysis of the forces of demand and supply that determine commodity and resource prices. A market can, but need not, be a __________4_________. A perfectly competitive market is a market in which _____________5___________, all units of the products are homogeneous, resources are mobile, and knowledge of the market is perfect.

False

Operating system software such as Windows is a complement product to computer processors. If the price of computer processors declines, then we should expect the demand for operating system software to decrease. True or False

True

Regardless of whether the legal tax incidence (who is supposed to collect and remit the tax to the taxing government) of a per-unit sales tax is on the seller or the buyer, the outcome on the quantity traded will be the same in each case. True or False

Market demand curve

Shows the quantity demanded of a commodity in the market per time period at various alternative prices of the commodity while holding everything else constant.

1. equilibrium price and quantity of a commodity 2. leads sellers to lower their prices 3. to bid prices up to the equilibrium level 4. once achieved, tends to persist 5. auction

The _______________1_________________ are defined at the intersection of the market demand and supply curves of the commodity. At higher than equilibrium prices, there is a surplus of the commodity, which ___________2____________ to the equilibrium level. At lower than equilibrium prices, there is a shortage of the commodity, which leads consumers ____________3___________. Equilibrium is the condition that, ______________4____________. In the real world, the approximate equilibrium price is often reached by __________5___________.

Excess demand

The amount by which the quantity demanded of a commodity is larger than the quantity supplied of the commodity at below-equilibrium prices; with a tradable commodity, it gives the quantity demanded of imports of the commodity.

Excess supply

The amount by which the quantity supplied of a commodity is larger than the quantity demanded of the commodity at above-equilibrium prices; for a tradable commodity, it gives the quantity supplied of exports of the commodity.

Comparative static analysis

The analysis of the effect of a change in demand and/or supply on the equilibrium price and output of a commodity.

True

The ceteris paribus assumption means that all other relevant factors remain unchanged. True or False

Equilibrium

The condition that, once achieved, tends to persist. It occurs when the quantity demanded equals the quantity supplied of a good or service.

True

The equilibrium price is the price level at which there is no surplus or shortage in the market. True or False

Shortage

The excess quantity demanded of a commodity at lower than equilibrium prices.

Surplus

The excess quantity supplied of a commodity at higher than equilibrium prices.

Market supply curve

The graphic representation of the market supply schedule showing the quantity supplied of a commodity per time period at each commodity price, while holding constant all other relevant economic variables on which supply depends.

Law of demand

The inverse relationship between the price and the quantity demanded of a commodity per time period.

True

The law of supply arises from the fact that the marginal costs are rising with the level of output True or False

he quantity of a good that consumers would like to purchase at different prices..

The market demand curve shows a. the effect on market supply of a change in the demand for a good or service. b. the quantity of a good that consumers would like to purchase at different prices. c. the marginal cost of producing and selling different quantities of a good. d. the effect of advertising expenditures on the market price of a good.

the quantity of a good that firms would offer for sale at different prices.

The market supply curve shows a. the effect on market demand of a change in the supply of a good or service. b. the quantity of a good that firms would offer for sale at different prices. c. the quantity of a good that consumers would be willing to buy at different prices. d. All of the above are correct.

Price ceiling

The maximum price allowed for a commodity. If the ______________is below the equilibrium price, it leads to a shortage of the commodity.

Equilibrium price

The price at which the quantity demanded equals the quantity supplied of a good or service.

Auction pricing

The pricing strategy for Internet purchases in which the consumer names the price that he or she is willing to pay for an item without being able to choose the seller or the brand.

incidence of a tax

The relative burden of a tax on buyers and sellers.

lower than

To be an exporter of a product the country must have its domestic price of the product be _____ the foreign price a. higher than b. lower than c. equal to

higher than.

To be an importer of a product the country must have its domestic price of the product be _____ the foreign price a. higher than b. lower than c. equal to

Supply will shift to the left..

Unionized workers may be able to negotiate with management for higher wages during periods of economic prosperity. Suppose that workers at automobile assembly plants successfully negotiate a significant increase in their wage package. How would the new wage contract be likely to affect the market supply of new cars? a. Supply will shift to the right. b. Supply will shift to the left. c. Supply will not shift, but the quantity of cars produced per month will decrease. d. Supply will not shift, but the quantity of cars produced per month will increase.

True

When a rent control is imposed below the current market equilibrium rental rate, the market is likely to develop a shortage of rental housing. True or False

True

When the demand decreases while the supply increases, the market equilibrium price declines True or False

An increased productivity of domestic labor.

Which of the following will help a country become an exporter of a product (assume that the product is a normal good given the median consumer income)? a. An increase in incomes of domestic consumers b. A recession abroad c. An increased productivity of domestic labor d. An increased cost of domestic labor