Econ 101 ch4 ISU

Supply decreases in a market and demand increases. The price in the market will: A increase B decrease C not change D could either increase or decrease

A increase

inferior goods

A good is inferior if in response to an increase in income, individuals decrease their consumption of the good.

normal goods

A good is normal if in response to an increase in income, individuals increase their consumption of the good.

market

A means for individuals and businesses to exchange goods, services, assets, and labor.

economic model

A simplified explanation of a part of the economy. Economic models often focus on specific relationships and make assumptions about other possible influences remaining constant.

supply

A table (schedule) or graph (curve) showing the quantity of a good that producers are willing to supply at each price, assuming that all possible influencing factors other than price remain constant

A decrease in income will cause which of the following to happen to the demand for used cars? Assume used cars are inferior goods. A)The demand for used cars will increase. B)The demand for used cars will decrease. C)The quantity demanded for used cars will increase. D)The quantity demanded for used cars will decrease.

A) The demand for used cars will increase. Used cars may be inferior goods for many individuals. As their incomes increase, they will likely buy fewer used cars and more new cars. However, if their incomes decrease, they will be more likely to buy a used car instead of a new automobile. If used cars were classified as normal goods, the answer would be a decrease in demand.

Since 1950, the labor force participation rate of women with young children has increased dramatically. In accordance with this trend, one would predict that there has been _______________. A)An increase in the demand for child care services B)An increase in the quantity demanded of child care services C)A decrease in the demand for child care services D)A decrease in the quantity demanded of child care service

A)An increase in the demand for child care services We can interpret the increase in labor force participation as a rise in the opportunity cost of caring for children. In other words, many women are willing to pay more for childcare than they were prior to 1950. This is an example of the number of buyers in the market increasing over time

An increase in the price of a substitute good will cause the equilibrium price of its substitute to ______________ and the equilibrium quantity to ______________. A)Increase; increase B)Increase; decrease C)Decrease; decrease D)Decrease; increase

A)Increase; increase An increase in the price of a substitute good will cause demand for the other good to increase

Surplus

At the current market price, the quantity supplied is greater than the quantity demanded.

Suppose that income decreases and at the same time the prices of inputs used in making a good decrease. The good is an inferior good. What to happen in the market for the good? A Price may increase or decrease, but quantity will decrease. B Price may increase or decrease, but quantity will increase. C Quantities may increase or decrease, but prices will increase. D Quantities may increase or decrease, but prices will decrease.

B Price may increase or decrease, but quantity will increase.

An increase in the cost of producing GM SUVs will be most likely to cause which of the following to happen to the prices of Toyota SUVs? A The price of Toyota SUVs will not change. B The price of Toyota SUVs will increase. C The price of Toyota SUVs will decrease. D One cannot tell what will happen to the price of Toyota SUVs.

B The price of Toyota SUVs will increase.

Suppose the price of wheat decreases. Wheat is a substitute for soybeans for consumers and producers. What will happen to the price of soybeans? A increase B decrease C not change D One cannot tell.

B decrease

"Many Coca-Cola bottlers increased the price of Coke because the price of corn syrup (an important ingredient in Coke production) has increased." Other things constant, this most recent change in the market for Coca-Cola can best be explained as which of the following? A)A decrease in demand with supply relatively unchanged B)A decrease in supply with demand relatively unchanged C)An increase in supply with demand relatively unchanged D)An increase in demand with supply relatively unchanged

B) A decrease in supply with demand relatively unchanged Corn syrup is an input that, when more expensive, decreases supply.

Assume that tastes change so that tennis is no longer as desirable to play as it is now. What would happen to the market for tennis balls? A)Demand increases, the equilibrium quantity is larger, and the price is higher. B)Demand decreases, the equilibrium quantity is smaller, and the price is lower. C)Demand increases, the equilibrium quantity is smaller, and the price is lower. D)Demand decreases, the equilibrium quantity is larger, and the price is higher.

B) Demand decreases, the equilibrium quantity is smaller, and the price is lower. The change in tastes causes the demand for tennis balls to decrease. The quantity demanded is now less than quantity supplied. There is a surplus. Given the surplus, sellers will lower their prices to get rid of extra product. As prices fall, the quantity demanded will begin to increase and the quantity supplied to decrease and thus the surplus gets smaller. This downward pressure will continue until there is no longer a surplus and a new lower equilibrium price and lower equilibrium quantity are reached. [4.2, 4.8]

What will happen to current purchases if people expect lower prices in the future? What will happen with expectations of higher incomes? A)Demand increases; demand increases B)Demand decreases; demand increases C)Demand increases; demand decreases D)Demand decreases; demand decreases

B) Demand decreases; demand increases If individuals expect lower prices, they will wait to purchase items (this leads to a decrease in demand). If individuals expect a higher wage, they are more likely to buy more now (leading to an increase in demand).

An increase in the prices of inputs will cause the equilibrium price to ______________ and the equilibrium quantity to ______________. A)Increase; increase B)Increase; decrease C)Decrease; decrease D)Decrease; increase

B) Increase; decrease An increase in the prices of inputs decreases supply. This leads to a price increase and a quantity decrease in the new equilibrium

Consider the markets for ball-point pens and the market for "rollerball" pens. Suppose that, due to an increased cost of the metal that is used in "rollerball" pens, the prices of "rollerball" pens and ball-point pens increase. There are no other changes. This is true because the two products have a unique relationship. What is the likely relationship between "rollerball" pens and ball-point pens? What are they? A)Complementary goods B)Substitute goods C)Normal goods D)Inferior goods

B) Substitute goods Substitute goods are goods that can replace one another and still achieve the same purpose. Complementary goods are goods that must be used together, so when the price of one changes the demand for the other is also effected. Normal and inferior goods refer to the consumers' reactions depending on changes of income.

If (1) the cost of manufacturing computers decreases and (2) at the same time the quality improves, making computers more useful for households, which of the following is most likely to happen? A)Equilibrium price will increase, equilibrium quantity will increase B)Equilibrium price may increase or decrease; equilibrium quantity will increase C)Equilibrium price will decrease; equilibrium quantity will decrease D)Equilibrium price may increase or decrease; equilibrium quantity will decrease

B)Equilibrium price may increase or decrease; equilibrium quantity will increase The cost reduction increases supply and the quality improvement increases demand. Both curves shift to the right, thus the new equilibrium quantity increases. But direction of the price change is uncertain.

How does an decrease in input costs affect suppliers? A)Demand increases B)Demand decreases C)Supply increases D)Supply decreases

C) Supply increases The answer is very similar to the reasoning about firm behavior in response to changes in prices. A decrease in costs (whether it is due to changes in the methods used to manufacture goods or changes in prices of inputs) will increase profits and increase incentives to produce more of the good. Thus a typical business will respond by producing more at each price.

What will happen to the price and quantity of vacation-area hotel rooms in California if the cost of jet fuel rises? Most of the tourists come from Tennessee. The price will ______________; the quantity will ______________. A increase; decrease B decrease; increase C increase; increase D decrease; decrease

D decrease; decrease

An increase in the cost of an input will cause which of the following? A)An increase in supply and a shift to the right of the supply curve B)An increase in supply and a shift to the left of the supply curve C)A decrease in supply and a shift to the right of the supply curve D)A decrease in supply and a shift to the left of the supply curve

D) A decrease in supply and a shift to the left of the supply curve The correct answer is that an increase in the price of an input will cause producers to decrease their supply and that will be a shift to the left of the supply curve. Producers will be less willing to supply the same quantities at each price.

New technology lowering the costs of production will cause the equilibrium price to ______________ and the equilibrium quantity to ______________. A)Increase; increase B)Increase; decrease C)Decrease; decrease D)Decrease; increase

D) Decrease; increase An improvement in technology increases supply.

How will an increase in the price of DVDs affect the demand for DVD players? Why? A)Quantity demanded of DVD players increases B)Demand for DVD players increases C)Quantity demanded of DVD players decreases D)Demand for DVD players decreases

D) Demand for DVD players decreases DVDs and DVD players are complementary goods. If the price of one increases, an individual is less likely to want the other.

"Falling oil prices have caused a sharp decrease in the supply of oil." Speaking precisely, this quotation is _______. A)Correct; a decrease in price always causes a decrease in supply. B)Incorrect; a decrease in price causes an increase in supply, not a decrease in supply. C)Incorrect; a decrease in price causes an increase in the quantity supplied, not a decrease in supply. D)Incorrect; a decrease in price causes a decrease in the quantity supplied, not a decrease in supply.

D) Incorrect; a decrease in price causes a decrease in the quantity supplied, not a decrease in supply. Prices only affect quantity supplied or quantity demanded.

Which of the following does not cause a change in demand? A)Tastes and preferences B)Income C)Prices of related goods - substitutes and complements D)Price of the good E)The number of potential buyers

D)Price of the good

complementary goods

Goods that are used together. When the price of one good increases, purchases of the good that is used with it decrease.

substitute goods

Goods that can be substituted for one another. When the price of one of the goods increases, purchases of the other good increase.

If the price of individual songs online were to increase, how would your decision about how many songs to buy change? Do you buy more music? Do you buy less? Why?

I would probably end up buying less music because I already don't like purchasing music and I could use that money for groceries or bills or something useful

When you buy songs online, many factors influence your decision. Make a list of the characteristics that might affect how many songs you, as a consumer, purchase in a typical month. If you do not purchase music, list the characteristics that determine how many books or magazines you buy or movies you attend.

I would say it depends quite a bit on how much it costs for just the song or for the whole album. It also depends on if it is something I really enjoy or if it is something I can live without buying. It might also depend on if I have a few extra dollars to spend on a song.

law of demand

If everything else remains unchanged, a decrease in price will cause the quantity demanded to increase. An increase in price will cause the quantity demanded to decrease.

inputs

Labor, land, and capital used in producing goods and services. Inputs are often also described as factors of production.

Ceteris Paribus

Latin for "with other conditions remaining the same." In economics, we use this to underline that no other variables are changing.

law of supply and demand

Prices and quantities in a competitive market will tend toward equilibrium levels where the quantity supplied equals the quantity demanded.

equilibrium price

The market price where the quantity demanded and quantity supplied are equal

equilibrium quantity

The market quantity where the quantity demanded and quantity supplied are equal.

demand

The quantities of a good that buyers are willing and able to buy at each of a series of prices, assuming that all possible influencing factors other than price remain constant. Demand is often shown in a table called a schedule or in graphical form.

quantity demanded

The quantity of a good or service that consumers intend to purchase in a given time period at a specific price.

In your own words, explain how and why changes in prices cause the amounts supplied by producers to change.

companies can make more money on items that are in high demand because people want those items so they will be more willing to spend that extra money to get what they want. it also goes the other way, if an item isnt selling very well companies can lower the price to make it more attractive to consumers

Assume that homeowners can sell their house whenever they want and they don't have to worry about finding a new job. How will a homeowner's decision to sell their home change if they expect housing prices to increase? What will happen to the number of houses in the market?

homeowners will wait a little longer to sell their homes. the number of houses in the market will be more in the future

Can you think of a good that someone might buy less of if his or her income increases?

less fast food or cheaper foods. They are able to afford more higher quality foods and restaurants.

Equilibrium

supply = demand

Suppose a farmer has a choice between planting soybeans and planting corn. If the price of corn increases, what will happen to the eventual production of soybeans and corn? Why?

the farmer will produce less soybeans and more corn so they can get a better price on it. the opportunity cost of growing soybeans will increase in the process.