Quiz 2 Economics

Assume there is an increase in demand. What will be the ending result?

The demand curve will shift to the right causing an increase in the equilibrium price and equilibrium quantity.

If there is an increase in demand and a decrease in supply, what can you predict with certainty?

A rightward shift of the demand curve and a leftward shift of the supply curve will cause a definite increase in the equilibrium price. However, any effect on the equilibrium quantity will be uncertain.

When supply increases and demand decreases, which outcome is uncertain in the supply/demand model?

A rightward shift of the supply curve combined with a leftward shift of the demand curve will definitely cause the equilibrium price to decrease. However, we are unable to state if the equilibrium quantity will decrease, remain the same, or increase.

What is true when there is a surplus?

A surplus is the opposite condition to a shortage. With a surplus, the quantity supplied is larger than the quantity demanded, and there is a downward pressure on the price.

Assume there is an improvement in productivity and consumers expect lower income. How would you summarize the results for equilibrium price and equilibrium quantity?

An improvement in productivity causes the supply curve to shift right. If consumers expect lower income, this causes the demand curve to shift left. The result will be E*p decreases, but E*q = ?

Assume there is an increase in income and a decrease in the number of firms. How would you summarize the results for equilibrium price and equilibrium quantity?

An increase in income causes the demand curve to shift right (always assume a normal good unless told otherwise or you are given an obvious example of an inferior good). A decrease in the number of firms causes the supply curve to shift left. The result will be E*p definitely increases, but E*q = ?

If there is an increase in demand and supply, what can you predict with certainty?

In this case, both the demand curve and the supply curve will shift to the right. While the equilibrium quantity will definitely increase, the equilibrium price could be higher, lower, or the same.

Assume there is an increase in income in the case of an inferior good. Which curve moves, and which way does it move?

The demand curve will shift to the left causing a decrease in the equilibrium price and a decrease in the equilibrium quantity.

Assume there is a decrease in demand. What will be the ending result?

The demand curve will shift to the left causing a decrease in the equilibrium price and equilibrium quantity.

Assume there is a negative change in consumer tastes. Which curve moves, which way does it move, and what is the result?

The demand curve will shift to the left causing a decrease in the equilibrium price and equilibrium quantity.

Assume there is a decrease in supply. What will be the ending result?

The supply curve will shift to the left causing an increase in the equilibrium price and a decrease in the equilibrium quantity.

Assume there is an increase in taxes. Which curve moves, which way does it move, and what is the result?

The supply curve will shift to the left causing an increase in the equilibrium price and a decrease in the equilibrium quantity.

Assume there is an increase in supply. What will be the ending result?

The supply curve will shift to the right causing a decrease in the equilibrium price and an increase in the equilibrium quantity.

When supply and demand both decrease, which outcome is uncertain in the supply/demand model?

When both curves shift to the left, it is unknown if the equilibrium price will increase, remain the same, or decrease. However, we do know for sure that the equilibrium quantity will decrease.

When there is a shortage, which is larger, quantity demanded, or quantity supplied?

When there is a shortage, quantity demanded is larger than quantity supplied. This causes an upward pressure on the price.

In the demand/supply graphs, _______ is on the vertical axis and _______ is on the horizontal axis

price, quantity

Assume there is an increase in the cost of an input and a negative change in consumer tastes. How would you summarize the results for equilibrium price and equilibrium quantity?

An increase in the cost of an input causes the supply curve to shift left. A negative change in consumer tastes causes the demand curve to shift left. The result will be E*p = ?, but E*q decreases

Assume there is an increase in the price of a substitute and a decrease in the price of a substitute in production. How would you summarize the results for equilibrium price and equilibrium quantity?

An increase in the price of a substitute causes the demand curve to shift right. A decrease in the price of a substitute in production causes the supply curve to shift right. The result will be E*p = ? (uncertain), but E*q increases.

At prices above the equilibrium price, what is true?

At price above the equilibrium price, the quantity supplied is larger than the quantity demanded, there is a surplus, and there is a downward pressure on the price.

At prices below the equilibrium price, what is true?

At price below the equilibrium price, the quantity demanded is larger than the quantity supplied, there is a shortage, and there is an upward pressure on the price.

At the point where the demand and supply curves intersect, what is true?

At the point of intersection (called equilibrium), the quantity demanded equals the quantity supplied and there is no force for change. There is no shortage and there is no surplus.

Assume there is a decrease in the price of a complement. Which curve moves, which way does it move, and what is the result?

The demand curve will shift to the right causing an increase in the equilibrium price and equilibrium quantity.

Assume there is an increase in the number of firms in an industry. Which curve moves, which way does it move, and what is the result?

The supply curve will shift to the right causing a decrease in the equilibrium price and an increase in the equilibrium quantity.