ECO 112 Module 3 Questions

If a perfume store currently sells perfume for $30 a bottle and averages $2000 sales per month, what sales might they anticipate if they raise the price to $40 a bottle?

$1500

The market for hot dogs has been recently affected by a decrease in input prices. Following this change, how does the new equilibrium compare to the old?

Equilibrium price decreases and quantity increases

A change in technology that reduces the costs of production will

Shift the supply curve to the right

Economists refer to the relationship that a higher price leads to a lower quantity demanded as the

Law of demand

Back in 2008 the app Lightsaber Unleashed was very popular for iPhone users. As the years have gone on however, few updates were made and users lost interest in the app. What effect does the change in user interest have on the demand of the Lightsaber Unleashed app market?

Lost of interest will decrease demand.

If a decrease in the price of MP3 players decreases the demand for CD players, this means that

MP3 players and CD players are substitutes.

When economists talk about supply, they are referring to a relationship between the price in a market and the

Amount that producers collectively make available for sale.

Bob sells farm equipment in Iowa and has for twenty years. The last two months he has seen the quantity demanded for high-end tractors decrease by 35% compared to the same time last year. What is a possible explanation for events that have shifted the demand curve?

Customers' incomes have decreased.

A ruthless dictator has recently taken over the small island of Tokoli's government and is making changes to how the government and economy used to be. One of his first actions is to enforce a command economy so as to control all aspects of the country. As you watch this new dictator's changes, which of these actions would be in line with this new command economy he is creating?

He creates a new government body called the Ministry of Planning which will set wages, prices and production targets to reach each month.

What is the final step of the four-step process for analyzing changes in equilibrium?

Identify the new equilibrium, and compare it to the old

A demand curve shows the graphical relationship between price and

Quantity demanded

A supply curve is a graphical illustration of the relationship between price and

Quantity supplied

When there is an excess demand for a good

Suppliers increase prices, causing consumers to purchase less.

A drought decreases the supply of agricultural products. This means that at any given price, a lower quantity will be supplied. Conversely, especially good weather would shift the

Supply curve to the right.

In December there is a large demand for evergreen trees. They are sold on city corners and parking lots for Christmas. According to the law of supply, what scenario would you expect to see with the Christmas trees?

The supply and prices of the trees have increased since October.

Which of the following statements describe a competitive market?

There is a large number of buyers and sellers.

When quantity demanded increases in response to a change in price

There is a movement from one point to another along the demand curve.

In a planned economy, government determines what can be produced and

What prices will be charged.

An increase in the quantity supplied can result from

An increase in price.

According to the law of supply, assuming other factors are held constant

As the price of bread increases, the quantity of bread supplied will increase

Hannah has a small business making clothing alterations. Which of the following products would dramatically affect her profit margins if the price were to decrease for that product?

Dresses

When the actual price in some market is above the equilibrium price, the resulting market condition is known as

Excess supply

Stormie Zanzibar owns a bakery in the fictitious country of Olombia. Each month the government's market ministry mails her a large list of the regulated price of goods which include products like bread, muffins and flat bread. The list also dictates the types of goods she can sell at the bakery and what she is to charge. Because of the regulations placed on these goods, Stormie has increased her production of sweets, pies, cakes, croissants and buns and decreased her supply of breads, muffins and flat bread. She has taken these steps because the sweet goods' prices are not government controlled. Stormie Zanzibar lives under what type of economy?

Mixed

In 2000, the demand for audio CDs was increasing as more people purchased them to listen to during commute time. Later in the year the price of aluminium (a material used in CDs) decreased. In 2001 the iPod was launched. The new technology began shifting the market and downloading digital audio became a viable substitute for CDs. As digital technology has improved since 2001, downloading audio files continued to increase with the demand for CDs dropping. If you were drawing a supply and demand graph to illustrate the changes to the CD market between 2001 and 2011, what would you say has happened to the market and the equilibrium price and quantity of the CD market since 2001?

The demand curve shifted to the left, and the supply curve shifted to the right, the equilibrium price for CDs decreased from 2001 and it is impossible to determine the effect on the quantity.

In 2016, after a hundred years of unsuccessful attempts, the Chicago Cubs finally won the baseball World Series. There was a surge in demand for Cubs baseball caps and T-shirts as more people became fans that year. At about the same time there was blight in the cotton fields that reduced the quantity of cotton to make the caps and T-shirts. Describe what the new equilibrium price and quantity is like compared with the prior year's Cubs caps and T-shirt before the win and the reduced supply of cotton?

The demand curve shifted to the right, the supply curve shifted to the left, the equilibrium price for Cubs caps and T-shirts increased from 2015 and it is impossible to determine the effect on the quantity.

Information campaigns about tobacco hazards and taxes on tobacco are two ways to discourage its use. Which one causes a movement along the demand curve? (1) The tax on tobacco products that drives up its price (2) The information campaign on hazards of tobacco (3) Both cause a decrease in demand

The tax on tobacco products that drives up its price.

Coffee from Colombia last year was supplied at $9 per 10 pounds. This year the demand has decreased and that same supply of Colombia coffee is priced at $6 per 10 pounds. What will happen to supply of Colombian coffee this year?

There will be a decrease in quantity supplied