ECON 103 LC3
Suppose that ham and turkey are substitute goods. If the price of ham were to decrease, then the _____ for turkey would decrease.
demand If the price of a substitute good decreases, the demand of the other good falls.
Paul was recently promoted and received an increase in pay. As a result, he spends less money on public transportation. In this example, public transportation is a(n) _____ good.
inferior An inferior good is a good where an increase in income results in declining demand.
Samantha was recently laid off and has had to take a lower-paying job. As a result, she spends more money on movie tickets and chooses to go to fewer concerts. In this example, movies are a(n) _____ good.
inferior This is because Samantha increases her demand for movies when her income declines.
If all suppliers in a market decide to supply less of a good at any given price, it can be represented as a:
leftward shift of the supply curve. If all suppliers in a market decide to supply less of a good at any given price, it can be represented as a leftward shift of the supply curve.
Starting from point E, which point is the most likely outcome of an increase in the price of soda pop, holding all else constant?
A An increase in the price of soda pop will cause an increase in quantity supplied, shown as a movement upward along the original supply curve.
_____ is when the price of the product changes, shown as a movement along an existing supply curve.
A change in quantity supplied A change in quantity supplied is represented by movement along the existing supply curve.
Which of the following illustrates an inferior good?
Cassie eats less macaroni and cheese because she received a large year-end bonus at work. A good is termed an inferior good when an increase in income results in declining demand.
The demand for skateboards decreases, but supply stays the same. What would happen to the equilibrium price in this situation?
Equilibrium price would decrease. Equilibrium price would decrease because a decrease in demand and an unchanged supply lead to a decrease in equilibrium price.
The supply of skateboards increases, and demand stays the same. What would happen to the equilibrium price in this situation?
Equilibrium price would decrease. Equilibrium price would decrease because an increase in supply combined with an unchanged demand leads to a decrease in equilibrium price.
The quantity demanded of mattresses increased due to a decrease in price. Because of this the demand for bed frames increased. In this example, mattresses and bed frames are _____ goods.
complementary Complementary goods are goods that are typically consumed together.
The cost of producing a barrel of oil from shale can range from $25 to $95. As demand for oil has increased and pushed up prices, more oil shale projects have become profitable and come online. This is an example of the:
demand curve shifting to the right. This is an example of the demand curve shifting to the right. The new oil projects coming online due to higher demand are an example of moving up the supply curve to a higher quantity supplied.
A supply curve is a:
graphical illustration of the law of supply. Supply curves show what the quantity supplied will be at each price.
When the number of sellers of a product falls, there is a decrease in the _____ that product.
supply of As the number of producers increase, more goods and services will be produced.
The output that results when the quantity demanded is equal to the quantity supplied is known as:
the equilibrium quantity. This is the output that results when market forces are in balance.
Starting from point E, which point is the most likely outcome of a decrease in the price of soda pop, holding all else constant?
B A decrease in the price of soda pop will cause a reduction in quantity supplied, shown as a movement downward along the original supply curve.
Suppose the current quantity supplied of celery is at point E in the figure below, and that the resources used to produce celery are identical to those used to produce radishes. Which point represents the most likely outcome for celery if the price of radishes decreases, holding all else constant?
C A decrease in the price of a production substitute (radishes) will cause some vegetable farmers to produce fewer radishes in favor of producing celery, shown as a shift of the supply curve for celery from S0 to S1.
Starting from point E, which point is the most likely outcome of a decrease in taxes levied on the sale of soda pop, holding all else constant?
C A decrease in the taxes levied on the sale of a good will cause an increase in supply, shown as a shift of supply curve S0 to supply curve S1.
Starting from point E, which point is the most likely outcome of a decrease in the price of a production substitute for a good, holding all else constant?
C A decrease in the price of a production substitute for a good will cause an increase in the supply of that good, shown as a shift of supply curve S0 to supply curve S1.
Starting from point E, which point is the most likely outcome of a decrease in the wages of workers manufacturing soda pop, holding all else constant?
C A decrease in the price of a resource used in the production of a good, such as labor wages, will cause an increase in supply, shown as a shift of supply curve S0 to supply curve S1.
Starting from point E, which point is the most likely outcome of an increase in subsidies given to celery producers by the government for the production of celery, holding all else constant?
C An increase in subsidies given by the government for the production of a good will cause an increase in supply, shown as a shift of supply curve S0 to supply curve S1.
Suppose the current quantity supplied of celery is at point E in the figure below and that the resources used to produce celery are identical to those used to produce radishes. Which represents the most likely outcome for celery if the price of radishes increases, holding all else constant?
D An increase in the price of a production substitute (radishes) will cause some vegetable farmers to produce less celery in favor of producing radishes, shown as a shift of the supply curve for celery from S0 to S2.
Starting from point E, which point is the most likely outcome of a decrease in subsidies given to celery producers by the government for the production of celery, holding all else constant?
D A decrease in subsidies given by the government for the production of a good will cause a decrease in supply, shown as a shift of supply curve S0 to supply curve S2.
Starting from point E, which point is the most likely outcome of an increase in the price of a production substitute for a good, holding all else constant?
D An increase in the price of a production substitute for a good will cause a decrease in the supply of that good, shown as a shift of supply curve S0 to supply curve S2.
Starting from point E, which point is the most likely outcome of an increase in the wages of workers manufacturing soda pop, holding all else constant?
D An increase in the price of a resource used in the production of a good will cause a decrease in supply, shown as a shift of supply curve S0 to supply curve S2.
Starting from point E, which point is the most likely outcome of an increase in taxes levied on the sale of soda pop, holding all else constant?
D An increase in the taxes levied on the sale of a good will cause a decrease in supply, shown as a shift of supply curve S0 to supply curve S2.
The supply of skateboards decreases, but demand stays the same. What would happen to the equilibrium price in this situation?
Equilibrium price would increase. Equilibrium price would increase because a decrease in supply combined with an unchanged demand leads to an increase in equilibrium price.
The demand for skateboards increases, but supply stays the same. What would happen to the equilibrium price in this situation?
Equilibrium price would increase. Equilibrium price would increase because an increase in demand and an unchanged supply lead to an increase in equilibrium price.
In 2010, experts said that the demand for rare earth metals (which are critical in the manufacturing of hybrid cars, cell phones, large wind turbines, missiles, and computer monitors) would increase exponentially, while little increase in supply would occur outside of China (which already was producing about 95% of the global supply). Based on this information, which of the following is likely to occur?
Equilibrium price would increase. Equilibrium price would likely increase because a large increase in demand and a smaller change in supply lead to an increase in equilibrium price.
Suppose that the supply of oil and the demand for oil both decrease next year and that the decrease in supply is less than the decrease in demand. What will happen to the equilibrium price?
It will fall. Because the decrease in supply is less than the decrease in demand, the equilibrium price will fall.
Suppose that the supply of oil and the demand for oil both decrease next year and that the decrease in supply is greater than the decrease in demand. What will happen to the equilibrium price?
It will rise. Because the decrease in supply is greater, the equilibrium price will rise.
Suppose that the supply of oil and the demand for oil both decrease next year and that the decrease in supply is equal to the decrease in demand. What will happen to the equilibrium price?
It will stay the same. Equilibrium price will remain the same if the size of the shifts were equal.
Roger McMillan is an Olympic runner who is sponsored by Nike. If Roger wins the gold medal, then demand for Nike shoes will increase. If Roger wins the gold medal and Nike does not increase its supply of shoes, then what will happen to the price of Nike shoes according to the model of supply and demand?
Prices will increase. Prices will increase because demand will increase and supply will stay the same.
Strawberry breakfast bars sell at about seven times the usual rate when a hurricane is predicted to hit Florida. Which of the following best explains this?
The demand increases due to a change in expectations. The expectation of a storm resulted in an increase in demand for those particular bars.
Industry experts predicted that the price of gasoline would rise above $4 a gallon in the summer of 2011, even if the Organization of Petroleum Exporting Countries (OPEC) increased its output. What must have been true in this case?
The increase in demand must have been greater than the increase in supply. For there to be an increase in price in the face of an increase in supply, there must have been an even larger increase in demand (largely from China).
Suppose that the local grocery store raises the price of Coca-Cola. Which of the following would be likely to occur as a result in that neighborhood?
The quantity demanded of Coca-Cola will decrease, and the demand for Pepsi will shift to the right. An increase in price results in a decrease in the quantity demanded. The demand for a substitute good will increase.
Suppose that the local grocery store lowers the price of chicken. Which of the following would be likely to occur as a result?
The quantity demanded of chicken will increase, and the demand for turkey will shift to the left. A decrease in price results in an increase in the quantity demanded. The demand for a substitute good will decrease.
Suppose that the local food store lowers the price of hot dogs. Which of the following would likely occur as a result?
The quantity demanded of hot dogs will increase, and the demand for hot dog buns will shift to the right. A decrease in price results in an increase in the quantity demanded, causing the demand for a complementary good to increase.
Suppose that the local grocery store raises the price of peanut butter. Which of the following would be likely to occur as a result?
The quantity demanded of peanut butter will decrease, and the demand for jelly will shift to the left. An increase in price of peanut butter results in a decrease in the quantity demanded and a decrease in demand for its complement, jelly.
In 1973, the Organization of Arab Petroleum Exporting Countries (OAPEC) cut off oil supplied to the West in response to the United States resupplying the Israeli military. The oil embargo caused oil prices to rise. According to the law of demand, what will happen in the oil market based on this price change?
The quantity demanded will decrease. The law of demand states that, while holding all other relevant factors constant, as price increases, quantity demanded falls.
In 2010, frost badly damaged the tomato crop in Florida. The crop loss caused tomato prices to increase. According to the law of demand, what will happen to the quantity demanded for tomatoes based on this price change?
The quantity demanded will decrease. The law of demand states that, while holding all other relevant factors constant, as price increases, quantity demanded falls.
Over the past few decades, the cost of producing computers has decreased. This has caused computer prices to fall as well. According to the law of demand, what will happen in the market for computers based on this price change?
The quantity demanded will increase. The law of demand states that, while holding all other relevant factors constant, as price decreases, quantity demanded increases.
Because of increased competition, the price of cell phones dropped dramatically. According to the law of demand, what will happen to the quantity demanded for cell phones based on this price change?
The quantity demanded will increase. The law of demand states that, while holding all other relevant factors constant, as price decreases, quantity demanded rises.
Suppose the increased demand for corn for ethanol production has resulted in record high corn prices. Which of the following is likely to happen to the supply of wheat assuming that corn and wheat are substitutes in production?
The supply curve will shift left. A decrease in the supply of wheat would occur as more farmers used more land to grow the higher-priced corn. This is represented by the creation of a new supply curve to the left of the original supply curve.
Suppose that the supply of oil and the demand for oil both decrease next year. What will happen to the equilibrium price?
There is not enough information to determine what will happen to the equilibrium price of oil. Without knowing the relative magnitudes of the shifts in demand and supply, it is impossible to say what will happen to the equilibrium price.
Suppose that the supply of oil and the demand for oil both increase next year. What will happen to the equilibrium price?
There is not enough information to determine what will happen to the equilibrium price of oil. Without knowing the relative magnitudes of the shifts in demand and supply, it is impossible to say what will happen to the equilibrium price.
There was a decrease in the quantity of gasoline exchanged in the market, but the price remained the same. What had to have happened to supply and demand?
There was a decrease in demand and a decrease in supply. For there to be a decrease in quantity and no change in price, there must have been a decrease in demand and a decrease in supply.
There is a change in both demand and supply in the ice cream market. As a result, the new equilibrium price decreases, while quantity demanded and quantity supplied stay the same. What had to have happened to supply and demand?
There was a decrease in demand and an increase in supply. A decrease in price that does not affect quantity demanded or quantity supplied is caused by a decrease in supply and an increase in demand.
There is an increase in price for ice cream cones, but quantity demanded and quantity supplied stayed the same. What had to have happened to supply and demand?
There was an increase in demand and a decrease in supply. An increase in price that does not affect quantity demanded or quantity supplied is caused by an increase in demand and a decrease in supply.
There is an increase in the price of gasoline, but the quantity supplied and demanded in the market remains the same. What must have happened to supply and demand?
There was an increase in demand and a decrease in supply. For there to be an increase in price and no change in market quantity, there must have been an increase in demand and a decrease in supply.
There is an increase in the quantity of gasoline exchanged in the market, but the price remains the same. What must have happened to supply and demand?
There was an increase in demand and an increase in supply. For there to be an increase in quantity and no change in price, there must have been an increase in demand and an increase in supply.
In the weeks before the release of a new version of a product (a new iPad, for example), what will typically happen to the demand curve for the previous version of the product?
a leftward shift in the demand curve With a new iPad being released soon, people will typically either wait to purchase the new iPad or wait for the price of the old one to drop. The effect of people's expectations about future prices and product availability pushes the demand curve for the older iPad to the left.
The quantity demanded for bread has decreased due to an increase in price. How would this change in quantity demanded be represented on the demand curve?
a movement from one point on the demand curve to a higher point on the demand curve A decrease in quantity demanded brought on by an increase in price is represented by a movement from one point on the demand curve to a higher point on the demand curve.
The price of gasoline has increased from $2.00 per gallon to $3.00 per gallon. How would this price change be represented on the demand curve?
a movement from one point on the line to a higher point on the line An increase in price is represented by a movement from one point on the line to a higher point on the line.
The quantity of gaming apps that producers will offer for sale increases as the price of gaming apps increases. How would this change in quantity supplied be represented on the supply curve?
a movement from one point on the line to a higher point on the line An increase in quantity supplied brought on by a change in price is represented by a movement from one point on the line to a higher point on the line.
The quantity supplied for sugar has increased due to a change in price. How would this change in quantity supplied be represented on the supply curve?
a movement from one point on the line to a higher point on the line An increase in quantity supplied brought on by an increase in price is represented by a movement from one point on the line to a higher point on the line.
The quantity supplied for sugar has decreased due to a change in price. How would this change in quantity supplied be represented on the supply curve?
a movement from one point on the line to a lower point on the line A decrease in quantity supplied brought on by a decrease in price is represented by a movement from one point on the line to a lower point on the line.
The increased demand for corn for ethanol production has resulted in record-high corn prices. As a result, more farmers have planted acreage in corn. The effect on the supply of corn would be shown as:
a new curve to the right of the original supply curve. As more farmers use more land to grow the higher-priced corn, the supply will increase. The number of sellers has increased. This is represented by the creation of a new supply curve to the right of the original supply curve.
An increase in the price of oil can make it more costly to produce a good or service that is dependent on oil. How would this be illustrated on a supply and demand graph of a product dependent on oil?
a new supply curve to the left of the original curve A decrease in supply due to higher costs is represented by a leftward shift of the entire supply curve.
A recession can cause some firms in a particular market to go out of business. How would this be illustrated on a supply graph?
a new supply curve to the left of the original curve This refers to a decrease in supply as the number of firms decreases.
An increase in the price of corn can cause farmers to stop growing cotton in favor of corn. How would this be illustrated on a graph of the cotton market?
a new supply curve to the left of the original curve The rise in the price of corn caused some cotton farmers to switch to corn, causing a decrease in the supply of cotton.
Advances in technology can make it less costly to produce a good or service. How would this be illustrated on a supply and demand graph?
a new supply curve to the right of the original curve An increase in supply due to lower costs is represented by a rightward shift of the entire supply curve.
A decrease in labor costs due to increased immigration could be represented by:
a new supply curve to the right of the original supply curve. The decrease in labor cost would reduce the cost of production. An increase in supply due to lower production costs is represented by the creation of a new supply curve to the right of the original supply curve.
A determinant of supply is:
a nonprice factor that affects supply, like production technology or costs of resources. The key determinants of supply are production technology, the costs of resources, prices of related commodities, expectations about future prices, the number of sellers or producers in the market, and taxes and subsidies.
A change in tastes that increases people's desire for a good will cause:
a rightward shift in the demand curve.
According to the following figure, a price of $20 would lead to:
a shortage of 6. At a price of $20, the quantity demanded is approximately 10, and the quantity supplied is approximately 4, leading to a shortage of 6.
During the Major League Baseball World Series, the quantity demanded for baseball tickets is greater than the quantity supplied of baseball tickets. This situation is referred to as:
a shortage. A shortage exists when the price is below market equilibrium and quantity demanded exceeds quantity supplied.
To find the market supply of a good or service, economists:
add together the quantities each producer would produce at each price. Market supply is the sum of individual supply curves. To calculate market supply, economists simply add together how many units of a product all producers will produce at each price. This process is known as horizontal summation.
If an increase in the price of gaming consoles causes demand for video games to decrease, what type of goods are video games and gaming consoles?
complementary goods Complementary goods are goods that are typically consumed together.
The quantity demanded of lemons decreases due to an increase in price. Because of this, the demand for tea decreases. In this example, lemons and tea have what type of relationship?
complementary goods This is because people consume tea and lemons together. When the price of lemons increases, people lower their demand for tea.
The demand for ski rentals falls when the price of lift tickets increases. This is an example of:
complementary goods. Complementary goods are goods that are typically consumed together.
Ethanol subsidies in the United States increased the demand for corn (corn is the primary resource used for ethanol production in the United States). The net result has been more corn sold at higher prices. This is an example of the:
demand curve shifting to the right. This is an example of the demand curve shifting to the right. The farmers switching to corn due to higher demand are an example of moving up the supply curve to a higher quantity supplied.
The typical demand curve is:
downward-sloping. According to the law of demand, a demand curve for coffee would be represented by a downward-sloping line.
If the supply of a good increases and the demand stays the same, price will:
fall. Rightward shifts in supply and leftward shifts in demand cause price to fall.
A rightward shift of a supply curve could be the result of:
more sellers of the product. An increase in the number of sellers results in an increase in supply.
A change in price that increases the quantity demanded of a good will cause a:
movement downward along the demand curve. The change in price causes more people to buy the good, moving the equilibrium quantity to a lower point along the same demand curve.
Shannon just received a significant pay raise at work. Because of this pay increase, she has started to eat more sushi. In this example, sushi is what type of good?
normal good A good is termed a normal good when an increase in income results in increased demand for that good.
Farmers are flexible in choosing the types of crops they want to grow. An increase in the price of sugar cane will cause farmers to increase the _____ of sugar cane. This would cause a(n) _____ in the supply of other crops that these farmers could have planted.
quantity supplied; decrease An increase in the price of corn would cause the quantity supplied to increase. Since the farmers have a limited amount of land, they would reduce the production of other crops.
If the demand and supply of a good both grow but demand grows relatively more than supply, the new equilibrium price will:
rise. The effect on price and quantity is determined by the curve that shifts more.
When quantity supplied is less than quantity demanded, the market price is likely to:
rise. When quantity supplied is less than quantity demanded, there is a shortage, and the market price will rise until equilibrium is reached.
On his Justified tour, Justin Timberlake wore a fedora. A new trend was born. The demand for fedoras:
shifted to the right. Fashions and other trends represent a change in consumer preferences. In this case, we'd expect the demand to increase, shown as a rightward shift of the demand curve.
A(n) _____ is represented by the horizontal distance between the supply and demand curves when price is below the equilibrium.
shortage
When consumers expect a _____ of a particular product, they may rush out to buy the product, _____ the present demand.
shortage; increasing A shortage creates a sense of urgency for consumers to buy the product, and this influx of consumers causes present demand to rise.
There are _____ determinants of supply.
six The key determinants of supply are production technology, the costs of resources, prices of related commodities, expectations about future prices, the number of sellers or producers in the market, and taxes and subsidies.
When the price of concerts falls, the demand for movies decreases. This is an example of _____ goods.
substitute Substitutes will be switched out for each other by consumers based on the goods' relative prices.
Over time, flat-screen TV production costs have come down. Also, more people around the globe have enough money to buy flat-screen TVs because of increased income from economic growth. The net result of these two forces has been more flat-screen TVs sold for lower prices. This is an example of the:
supply and demand curves shifting to the right, with supply shifting farther than demand. Supply shifts to the right due to lower production costs. Demand shifts to the right due to higher consumer income. We know that supply must have shifted more than demand because our new equilibrium is at a higher quantity and lower price.
When sellers expect prices of a good to rise in the future, the supply curve of that good in the current period will shift:
to the left. This refers top a decrease in supply in the current period because sellers would restrict their supply for now and sell their goods later to get higher prices.
More sellers of a product would cause the supply curve for that product to shift:
to the right. As the number of producers increases, more goods and services will be produced.