Microeconomics Chapter 3

Use the point drawing tool to show a change in quantity demanded given the combination of price and​ quantity-demanded shown at point A.

As price falls, the quantity demanded increases. So, the point would move along the demand curve (on the actual line) - it would move down.

Surplus

When the market price is above equilibrium

Shortage

When the market price is below equilibrium (puts upward pressure on the price)

​Instead, consider an inferior good. If income increases​, then the demand for an inferior good

decreases

When Red Bull entered the U.S. market in​ 1997, it was one of the very few energy drinks available.​ Now, dozens of energy drinks are being sold. Discuss the effect on Red​ Bull's demand curve from the entry of these new energy drinks. Will your answer be different if it turns out that the advertising of these new drinks has increased​ consumers' taste for energy drinks in​ general? Briefly explain. 1. Absent​ advertising, entry of new energy drinks will 2. If advertising of these new drinks has increased​ consumers' taste for energy drinks in​ general, then the advertising could

1. shift the demand curve for Red Bull to the left. 2. shift the demand curve for Red Bull to the right because consumer tastes influence market demand.sh

Identify whether each of the following statements describes a change in supply or a change in the quantity supplied. a) To take advantage of high prices for snow shovels during a very snowy​ winter, Alexander​ Shovels, Inc., decides to increase output. b) The success of​ Apple's iPod leads more firms to begin producing digital music players. c) In the six months following Hurricane​ Katrina, production of oil in the Gulf of Mexico declined by 25 percent.

a) A change in quantity supplied b) A change in supply c) A change in supply

On the diagram to the​ right, a movement from Upper B to Upper C represents a

A change in supply. The S1 just moved completely to the right and became S2.

From the list​ below, select the variable that will cause the supply curve to​ shift: A. Prices of related goods B. Population and demographics C. Consumer income D. The cost of raw materials

D. The cost of raw materials

Steamed rice is considered an inferior good. Show how a decrease in consumer income affects the demand for steamed rice.

Decrease in income would result in an increase in demand for an inferior good. The demand curve would shift to the right.

Complements

Goods and services that are consumed together. If good X is a complement for good Y, an increase in the price of good X will cause the demand of good Y to shift left. A decrease in the price of good X will cause the demand curve of good Y to shift right.

Substitute goods

Goods and services that can serve the same purpose. If good X is a substitute for good Y, an increase in price of good X will cause the demand curve of good Y to shift right. A decrease in the price of good X will cause the demand curve of good Y to shift left.

​"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." 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.

Inferior good

a good for which its demand decreases when income increases and increases when income decreases. Demand decreases when income increases Demand increases when income decreases

If the market price ​'Pmkt​' is equal to the price ​'P0​', then quantity supplied is ______________ quantity demanded and the market is in ___________

equal to, equilibrium

Suppose household income increases. According to the​ graph, when income increases​, the demand for iPhones

increases