ECON 110 Pre-Lecture 3

The table above indicates the demand schedules for four types of consumers: A, B, C, and D and the number of consumers in each group (top row). The quantity demanded by each type of consumer (QA, QB, QC, and QD) is shown for market prices ranging from $10 down to $4. What is the combined quantity demanded at a market price of $4?

10,400

Which of the following will cause an outward (rightward) shift in supply?

A technological improvement.

Which of the following is consistent with the law of supply?

An increase in the market price of MP3 players causes an increase in the production of MP3 players.

Assume the cost of aluminum used by soft-drink companies increases. Which of the following correctly describes the resulting effects in the market for canned soft drinks? I. The demand for soft drinks decreases. II. The quantity of soft drinks demanded decreases. III. The supply of soft drinks decreases. IV. The quantity of soft drinks supplied decreases.

II and III

Consider the previous figure and assume that it is the market for health-care services. When the "baby boomer" generation retires, the number of people who require health care increases by 30%, and, as a result, the number of health-care providers also increases, but by only 25%. What is the effect on the price of health-care services over time?

It increases because demand increased by more than supply.

The market for corn is initially in equilibrium. Suppose that the production of biofuels, which use corn as an input, increase, and at the same time, increases in the price of oil cause farm production costs to rise. Which of the following explains the effect on equilibrium price and quantity in the corn market?

The price of corn will rise, but the effect on equilibrium quantity cannot be determined without more information.

Washington state had a bumper apple crop this year, significantly increasing the supply of apples in the U.S. Given this information, choose the statement that correctly describes the effect on the U.S. apple market.

The quantity of apples demanded will increase as the price of apples falls.

The graph above shows the market for laptop computers. Suppose the price of memory chips used in laptop computers decreases. How will this event impact on the equilibrium quantity and the market price?

The supply increases, causing the equilibrium quantity to rise and the market price to fall.

Which of the following represents an inferior good?

When consumer income increases, the demand for bologna decreases.

Other things remaining equal, the law of demand says that higher prices will lead to:

a smaller quantity demanded and lower prices to a larger quantity demanded.

Economists assume that when there is a change in demand and/or supply, that prices reach a new equilibrium:

after an adjustment period that varies.

On the diagram shown above, a movement from A to C represents __________.

an increase in demand

Market price is determined by _________.

both supply and demand

On the diagram shown above, a movement from A to B represents a:

change in quantity supplied.

At the market equilibrium price:

quantity demanded equals quantity supplied.

In a price system:

relative prices change constantly to reflect changes in supply and demand.

In the previous diagram, when supply decreases, a __________ develops at the original price. Equilibrium price will __________ and equilibrium quantity will __________ as a new equilibrium is established.

shortage; rise; fall

Given linear demand curves, if demand and supply both increase but demand increases by a greater amount than supply, then:

the equilibrium price and quantity both increase.

Given linear demand curves, if demand and supply increase by identical amounts, then:

the equilibrium price stays the same and the equilibrium quantity rises.

Given linear demand curves, if demand increases and supply decreases, then __________.

the equilibrium price will increase but the effect on the equilibrium quantity will be ambiguous

All of the following scenarios depict the characteristics of complements except:

the price of coffee increases and the demand for cream increases.