Chapter 3 Review Q's

Name some factors that can cause a shift in the demand curve in markets for goods and services.

Changes in the wealth of consumers, such as in a recession or economic boom, can shift the demand curve. Changes in prices of substitute and complement goods can also have an effect.

If the price is above the equilibrium level, would you predict a surplus or a shortage? If the price is below the equilibrium level, would you predict a surplus or a shortage? Why?

If the price is above the equilibrium level, there will be excess supply known as a surplus. If the price is below the equilibrium level, there will be excess demand, known as a shortage. This happens because the number of people who want to buy the good is not equal to the number of people who want to sell it at the given price.

How does one analyze a market where both demand and supply shift?

When both demand and supply shift, they will generally have opposite effects on either quantity or price. In this case it is necessary to know the magnitude of the changes in order to analyze them.

When the price is above the equilibrium, explain how market forces move the market price to equilibrium. Do the same when the price is below the equilibrium.

When price is above the equilibrium, there will be more sellers than buyers and the surplus goods will start to pile up. The only way for sellers to get rid of their excess goods is to lower prices. Conversely, if the price is too low, there will be more buyers than sellers, and those who demand the good will be willing to offer higher prices for them.

What determines the level of prices in a market?

Prices are determined by a combination of the level of demand for a good and how much of that good is being supplied.

What is the difference between the supply and the quantity supplied of a product, say milk? Explain in words and show the difference on a graph with the supply curve for milk.

Supply describes producers' willingness to sell at any price. Supply is shown by the position of a supply curve, in other words, how far away from the origin it is. Quantity supplied refers to how much will be sold at a single, specific price, that is, at one point on the supply curve. (Refer to Fig 3.11 in text for graph)

Name some factors that can cause a shift in the supply curve in markets for goods and services.

Supply shocks such as natural disasters can shift the supply curve. Changes in technology or the price of inputs can also have an effect.

How can you locate the equilibrium point on a demand and supply graph?

The equilibrium is the point where the demand curve and the supply curve cross.

What causes a movement along the demand curve? What causes a movement along the supply curve?

A change in the price received by sellers will cause a movement along the supply curve. A change in the price demanded by buyers will cause a movement along the demand curve.

What does a downward-sloping demand curve mean about how buyers in a market will react to a higher price?

A downward sloping demand curve means that buyers will demand less of a good the higher the price becomes.

Does a price ceiling attempt to make a price higher or lower?

A price ceiling prevents the price from rising above a certain level, keeping prices low.

How does a price ceiling set below the equilibrium level affect quantity demanded and quantity supplied?

A price ceiling set below the equilibrium price will result in a greater quantity demanded than the quantity supplied otherwise known as a shortage.

Does a price floor attempt to make a price higher or lower?

A price floor prevents the price from rising below a certain level, keeping prices high.

How does a price floor set above the equilibrium level affect quantity demanded and quantity supplied?

A price floor set above the equilibrium level results in a greater quantity supplied than the quantity demanded, otherwise known as a surplus.

What is the relationship between quantity demanded and quantity supplied at equilibrium? What is the relationship when there is a shortage? What is the relationship when there is a surplus?

At equilibrium, quantity demanded and quantity supplied are equal to one another. In a shortage, quantity demanded exceeds quantity supplied. In a surplus, quantity supplied exceeds quantity demanded.

What is the difference between the demand and the quantity demanded of a product, say milk? Explain in words and show the difference on a graph with a demand curve for milk.

Demand describes consumers' willingness to buy a good at any price. Demand is shown by the position of a demand curve, in other words, how far away from the origin it is. Quantity demanded refers to how much will be purchased at a single, specific price, that is, at one point on the demand curve. (Refer to Fig 3.6 in text for graph)

When analyzing a market, how do economists deal with the problem that many factors that affect the market are changing at the same time?

Economists try to isolate one variable to study at a time, holding all other factors constant. This can be challenging in the real world, but is useful in economic models.

Will demand curves have the same exact shape in all markets? If not, how will they differ?

The shape of a demand curve will be different depending o the market and the nature of the good being demanded. An upward sloping supply curve means that sellers are willing to supply more goods at higher prices.

Will supply curves have the same shape in all markets? If not, how will they differ?

The shape of supply curves will differ based on how easy it is to vary the level of supply in response to a price change. For example, a natural resource of which there is a finite amount may have a very steep supply curve, because of the difficulty in increasing production.