Econ Chap 4

Demand Schedule

A table that shows the relationship between the price of a good and the quantity demanded, holding constant everything else that influences how much of the good consumers want to buy. - The demand schedule is a table that shows the quantity demanded at each price.

Goods with Close Substitutes tend to have more ____________ Demands because

Elastic Demands because it is easy to switch from that good to others (butter v margarine)

When both the demand and supply curves shift, the curve that shifts by the larger magnitude determines the effect on the undetermined equilibrium object.

False

When both the demand and supply curves shift, the curve that shifts by the smaller magnitude determines the effect on the undetermined equilibrium object.

False

When both the demand and supply curves shift, you can always determine the effect on price and quantity without knowing the magnitude of the shifts.

False

Demand curve shifting example:

Finding out ice cream is healthy, people would be buying ore no matter the price

How to calculate equilibrium Price

Qd = Qs

Equilibrium =

Qs = Qd

A Demand Curve Shifts:

When there is a change in a relevant variable that is not measured on either axis.

Suppose a frost destroys much of the Florida orange crop. At the same time, suppose consumer tastes shift toward orange juice. What would we expect to happen to the equilibrium price and quantity in the market for orange juice? a. Price will increase; quantity will increase. b. Price will increase; quantity is ambiguous. c. Price will increase; quantity will decrease. d. The impact on both price and quantity is ambiguous. e. Price will decrease; quantity is ambiguous.

b. Price will increase; quantity is ambiguous

clicker photo 1

c normal goods

Recognize midpoint formula

give a demand curve and say estimate elasticity and ..

With a Surplus, Price will

Fall

Substitutes

- When a fall in the price of one good reduces the demand for another good - Related Goods If an increase in the price leads to an increase in the demand for another good then 1 & 2 are substitutes.

Perfectly Competitive Market

1.) The goods offered for sale are all exactly the same. 2.) The buyers and sellers are so numerous that no single buyer or seller has any influence over the market price.

Midpoint Method =

= |{(Q2-Q1)/[(Q2+Q1)/2]} / {(P2-P1)/[(P2+P1)/2|

Notice that we sum the individual demand curves horizontally to obtain the market demand curve.

?? huh That is, to find the total quantity demanded at any price, we add the individual quantities demanded, which are found on the horizontal axis of the individual demand curves.

Elasticity Is .... A) A measure of the responsiveness of one variable to changes in another variable B) The % change in one variable that arises due to a given % change in another variable

A & B

Competitive Market

A Market in which there are so many buyers and so many sellers that each has a negligible (insignificant) impact on the market price.

Price of Good itself Represents a :

A Movement along the Demand Curve

A movement along the Demand Curve:

A change in price, because price is not on the vertical axis

Cross Price Elasticity of Demand

A measure of how much QD of one good responds to change in the price of another good

Price Elasticity of Demand

A measure of how much Quantity Demand (consumers) responds to a change in the price a good.

Income Elasticity of Demand

A measure of how much the Quantity Demanded of a good responds to a change in the consumer's Income.

Supply Schedule:

A table that shows the relationship between the price of a good and the quantity supplied, holding constant everything else that influences how much of the good producers want to sell.

All of the following shift the supply of watches to the right except: a. an increase in the price of watches. b. an advance in the technology used to manufacture watches. c. a decrease in the wage of workers employed to manufacture watches. d. manufacturers' expectations of lower watch prices in the future. e. All of the above cause an increase in the supply of watches.

A) an increase in the price of watches.

An increase (rightward shift) in the demand for a good will tend to cause. a. an increase in the equilibrium price and quantity. b. a decrease in the equilibrium price and quantity. c. an increase in the equilibrium price and a decrease in the equilibrium quantity. d. a decrease in the equilibrium price and an increase in the equilibrium quantity. e. none of the above

A.) An increase in the equilibrium price and quantity.

Which of the following are determinate of Price Elasticity of Demand? A.) Availability of close substitutes B.) Whether the good is a necessity or a luxury C.) The length of the time horizon D.) All of the Above

All of the Above

Increase in Supply:

Any change that raises quantity supplied at every price, such as a fall in the price of sugar, shifts the supply curve to the right

Decrease in Supply

Any change that reduces the quantity supplied at every price shifts the supply curve to the left

Obtainable Choices

Any point on or inside the PPF is obtainable without trade Points outside the PPF aren't obtainable without trade.

Q2 In a Perfectly Competitive Market A) Every seller tries to distinguish itself by offering a better product than its rivals. B) Every seller takes the price of its product as set by market conditions. C) Every seller tries to undercut the prices charged by its rivals. D) One seller has successfully outcompeted its rivals so no other sellers remain.

B - Every seller takes the price of its product as set by market conditions.

Suppose there is an increase in both the supply and demand for personal computers. Furthermore, suppose the supply of personal computers increases more than demand for personal computers. In the market for personal computers, we would expect the: a. equilibrium quantity to rise and the equilibrium price to rise. b. equilibrium quantity to rise and the equilibrium price to fall. c. change in the equilibrium quantity to be ambiguous and the equilibrium price to fall. d. equilibrium quantity to rise and the equilibrium price to remain constant. e. equilibrium quantity to rise and the change in the equilibrium price to be ambiguous

B) equilibrium quantity to rise and the equilibrium price to fall.

Suppose consumer tastes shift toward the consumption of apples. Which of the following statements is an accurate description of the impact of this event on the market for apples? a. There is an increase in the demand for apples and a decrease in the supply of apples. b. There is an increase in the demand for apples and an increase in the quantity supplied of apples. c. There is a decrease in the quantity demanded of apples and an increase in the supply for apples. d. There is an increase in the quantity demanded of apples and in the supply for apples. e. There is an increase in the demand and supply of apples.

B.) There is an increase in the demand for apples and an increase in the quantity supplied of apples.

Supply Curve Slopes Upward

Because a Higher Price Increases the Quantity Supplied

Price Takers

Buyers and sellers in a perfectly competitive market that must accept the price that the market determines.

Suppose both buyers and sellers of wheat expect the price of wheat to rise in the near future. What would we expect to happen to the equilibrium price and quantity in the market for wheat today? a. Price will increase; quantity will decrease. b. Price will increase; quantity will increase. c. Price will increase; quantity is ambiguous. d. Price will decrease; quantity is ambiguous. e. The impact on both price and quantity is ambiguous.

C ) Price will increase; quantity is ambiguous.

The best definition of a market is A) A store that offers a variety of goods and services. B) A place where buyers meet and an auctioneer calls out prices. C) A group of buyers and sellers of a good or service. D) A venue where the sole supplier of a good offers its product.

C) A group of buyers and sellers of a good or service.

If the price of a good is below the equilibrium price, a. there is a surplus and the price will rise. b. there is a shortage and the price will fall. c. there is a shortage and the price will rise. d. there is a surplus and the price will fall.

C. there is a shortage and the price will rise.

Which of the following shifts the demand for watches to the right? a.) decrease in the price of watches b.) a decrease in consumer incomes if watches are a normal good c.) a decrease in the price of watch batteries if watch batteries and watches are complements d.) an increase in the price of watches e.) none of the above

C.) A decrease in the price of watch batteries if watch batteries and watches are complements

A decrease (leftward shift) in the supply for a good will tend to cause: a. an increase in the equilibrium price and quantity. b. a decrease in the equilibrium price and quantity. c. an increase in the equilibrium price and a decrease in the equilibrium quantity. d. a decrease in the equilibrium price and an increase in the equilibrium quantity.

C.) An increase in the equilibrium price and a decrease in the equilibrium quantity.

An inferior good is one for which an increase in income causes a(n) a. decrease in supply. b. increase in supply. c. decrease in demand. d. increase in demand.

C.) Decrease in demand.

Suppose there is an increase in both the supply and demand for personal computers. In the market for personal computers, we would expect the: a. equilibrium quantity to rise and the equilibrium price to rise. b. change in the equilibrium quantity to be ambiguous and the equilibrium price to rise. c. equilibrium quantity to rise and the change in the equilibrium price to be ambiguous. d. equilibrium quantity to rise and the equilibrium price to fall. e. equilibrium quantity to rise and the equilibrium price to remain constant.

C.) Equilibrium quantity to rise and the change in the equilibrium price to be ambiguous.

Elasticity = 1

Elastic

Elasticity > Greater than > 1

Elastic

Decrease in Demand curve causes __________ in price:

Decrease

Increase in Price causes ________ in Demand:

Decrease

If the Demand Curve shifts to the Left, there is an:

Decrease in Demand

If the price of a good is above the equilibrium price, a. there is a surplus and the price will rise. b. there is a shortage and the price will fall. c. the quantity demanded is equal to the quantity supplied and the price remains unchanged. d. there is a shortage and the price will rise. e. there is a surplus and the price will fall.

E.) There is a surplus and the price will fall.

Elasticity

Elasticity - a measure of the responsiveness of one variable to changes in another variable; the % change in one variable that arises due to a given % change in another variable

Pe represents

Equilibrium Price

If there's a Decrease in Demand, Equilibrium Price:

Equilibrium price decreases

If there's an Increase in Demand, the Equilibrium:

Equilibrium price increases

If Demand and Supply Decreased..... Equilibrium: Price: Quantity:

Equilibrium: Decreased Price: Quantity: If a decrease in demand decreases equilibrium quantity and a decrease in supply decreases equilibrium quantity, then a decrease in both MUST decrease equilibrium quantity. ... The demand shift results in a lower price, and the supply shift leads to a higher price

Examples of Compliment Goods

Gasoline & Automobiles, Computers & Software, Peanut Butter & Jelly.

Quantity of good Demanded on a Demand Schedule:

Horizontal Axis

Examples of Substitute Goods

Hot dogs & Hamburgers, Sweaters & Sweatshirts, Movie Tickets & Film Streaming Services

Expectation as a Factor of Demand

If you expect to earn a higher income next month, you may choose to save less now and spend more of your current income on ice cream. If you expect the price of ice cream to fall tomorrow, you may be less willing to buy an ice-cream cone at today's price.

Factors of a Shift in Demand Curve

Income Prices of Related Goods Tastes Expectations Number of Buyers

Increase in Demand curve causes __________ in price:

Increase in

If the Demand Curve shifts to the right, there is an:

Increase in Demand

Inferior Good

Increase in Income, Decrease in Demand Decrease in Income, Increase in Demand

Normal Good

Increase in Income, Increase in Demand Decrease in income, Decrease in Demand

A Decrease in Supply _________ price.

Increases

A lower price _________ the quantity demanded

Increases

If the Equilibrium raises, the Supply:

Increases

If there's an increase in supply, the Equilibrium:

Increases in Equilibrium

The law of supply states that an increase in the price of a good....

Increases the quantity supplied of that good

If elasticity < Less Than < 1

Inelastic

If elasticity is Zero...

It is Perfectly Inelastic.

The more substitutes that area available to a consumer, the _______ ________ they will be to a change in price.

Less Sensitive

Luxuries tend to have more ____________ demands.

Luxuries tend to have more Elastic demands.

Price Elasticity of Supply

Measure of how much QS responds to change in the price of a good

How to calculate elasticity between 2 points on a linear demand curve:

Midpoint Method

Necessities tend to have more ____________ demands.

Necessities tend to have more Inelastic demands.

Inferior goods income Elasticity

Negative Because if income goes Up, buy less of them.

If you buy more of a good when income goes up, it is a ______ good.

Normal

Tastes

Obvious determinant of your demand for any good or service

The Demand Curve slopes downward because,

Other things being equal, a lower price means a greater quantity demanded. - A lower price means a greater quantity demanded

Law of Demand

Other things being equal, when the price of a good rises, the quantity demanded of the good falls, and when the price falls, the quantity demanded rises. If it's more expensive people will want it less.

Law of Supply

Other things being equal, when the price of a good rises, the quantity supplied of the good also rises, and when the price falls, the quantity supplied falls as well. - Relationship between price and quantity supplied - Price and Quantity Supplied are directly related

How to compute Income Elasticity of Demand

Percentage change in Quantity Demanded divided by the percentage change in income. ( % Δ Qd ) / ( % Δ Income)

How to calculate Equilibrium Quantity

Plug Equilibrium Price into Qd or Qs formulas and substitute Variable with Equilibrium Price

Normal goods income Elasticity

Positive Because if Income goes up, buy more of them.

If the Demand Curve is Vertical ....

Regardless of the price, quantity demanded stays the same. It is perfectly Inelastic.

With a Shortage, Price will

Rise

How does a change in the prices of related goods, tastes, expectations, and the number of Buyers effect a demand Curve?

Shifts the Demand Curve because these variables are not measured on either axis.

Qd > More than > Qs Price Below Equilibrium

Shortage

Price is lower than equilibrium price

Shortage Qs<Qd

Demand curve down

Slope is negative

Price is higher than equilibrium price

Surplus

Qs > more than > Qd Price Above Equilibrium

Surplus

If the price of a good is equal to the equilibrium price, the _______________ is equal to the _____________ and the price ____________.

The Quantity Demanded is equal to the Quantity Supplied and the price remains unchanged.

Demand curve shifts if

The Quantity demanded regardless of the price is altered (at any given price)

Market Supply:

The Sum of the supplies of all sellers

Quantity Demand

The amount of the good that buyers are willing and able to purchase.

Quantity Supplied

The amount that sellers are willing and able to sell.

The Law of supply and Demand

The claimr that the price of any goos adjusts to bring the quantity supplied and the Quantity demanded for that good into balance

Supply Curve:

The curve relating price and quantity supplied

If the Quantity Demanded Increases:

The demand curve slopes downward.

The Demand Curve which graphs a demand schedule:

The line relating price and quantity demanded. - Illustrates how the quantity demanded of the good changes as its price varies.

Explanatory Example of compliment goods

The price of hot fudge falls. According to the law of demand, you will buy more hot fudge. Yet in this case, you will likely buy more ice cream as well because ice cream and hot fudge are often consumed together.

PPF is bowed when

The rate of tradeoff depends on the amount produced.

Market Demand

The sum of all the individual demands for a particular good or service.

If the demand for notebooks is perfectly inelastic, an increase in the supply of notebooks only lowers the price of notebooks and does not affect the quantity produced and sold.

True

Price on a Demand Schedule:

Vertical Axis

Compliment Goods

When a fall in the price of one good raises the demand for another good - Often pairs of goods that are used together

Monopoly

When a market has only one seller, and this seller sets the price.

Which of the following statements is true about the impact of an increase in the price of lettuce? a. The demand for lettuce will decrease. b. The supply of lettuce will decrease. c. The equilibrium price and quantity of salad dressing will rise. d. The equilibrium price and quantity of salad dressing will fall. e. Both a and d are true.

d) The equilibrium price and quantity of salad dressing will fall.

Question WorkspaceCheck My Work If pasta is an inferior good, then the demand curve shifts to the ________ when ________ rises. a. left, the price of pasta b. right, consumers' income c. right, the price of pasta d. left, consumers' income

d. left, consumers' income

Demand Curve shifting right /left

increase/decrease

Shifts in Supply Curve

input prices technology expectations number of sellers

The supply curve slopes upward because:

other things being equal, a higher price means a greater quantity supplied.

When there are a lot of substitutes,

people are sensitive ti price bc they will choose another option

Cross price

tells us weather goods are substitutes or compliments cp negative - one got more expensive you buy less of another , pb gets more expensive u buy more jelly negative sign in cp with compliment goods

PPF is straight when

the rate of tradeoff between the 2 choices is constant

Cross Price Elasticity of Demand can tell us ....

weather twos goods are substitutes or compliments.

Price Elasticity of Demand =

|(% Δ Qd ÷ % Δ price)| Equals the absolute value of the percentage change quantity demanded divided by percentage change in price.