economics chapter 4

Monopoly

A market with only one seller.

what are the variables that should affect the amount of a good that consumers wish to buys, other than its price?

Income, prices of related goods, tastes, expectations, and number of buyers in the market.

Suppose that Jarrod receives a pay increase. We would expect

Jarrod's demand for pizza, a normal good, to shift to the right.

Cookies are normal goods. What will happen to the equilibrium price and quantity of cookies if the price of sugar falls, the price of milk falls, more firms start producing cookies, and cookie lovers experience an increase in income?

Quantity will rise, and the effect on price is ambiguous.

what are the two main characteristics of a perfectly competitive market?

The goods offered for sale are all the same, the buyers and sellers are so numerous that no one buyer or seller can influence the price.

What are the variables that should affect the amount of a good that producers wish to sell, other than its price?

The variables are input prices, technology, expectations, and number of sellers in the market.

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?

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

Suppose there is an increase in consumers' incomes. In the market for automobiles (a normal good), does this event cause an increase in demand or an increase in quantity demanded? Does this cause an increase in supply or an increase in quantity supplied? Explain.

There would be an increase in the demand for automobiles, which means that the entire demand curve shifts to the right. This implies a movement along the fixed supply curve as the price rises. The increase in price causes an increase in the quantity supplied of automobiles, but there is no increase in the supply of automobiles.

Suppose there is an advance in the technology employed to produce automobiles. In the market for automobiles, does this event cause an increase in supply or an increase in the quantity supplied? Does this cause an increase in demand or an increase in the quantity demanded? Explain.

There would be an increase in the supply of automobiles, which means that the entire supply curve shifts to the right. This implies a movement along the fixed demand curve as the price falls. The decrease in price causes an increase in the quantity demanded of automobiles, but there is no increase in the demand for automobiles.

what is the difference between a normal good and an inferior good?

When income rises, demand for a normal good increases or shifts right. When income rises, demand for an inferior good decreases or shifts left.

Which of the following shifts the demand for watches to the right?

a decrease in the price of watch batteries if batteries and watches are complements

demand curve

a graph of the relationship between the price of a good and the quantity demanded

supply curve

a graph of the relationship between the price of a good and the quantity supplied

market

a group of buyers and sellers of a particular good or service

competitive market

a market in which there are many buyers and many sellers so that each has a negligible impact on the market price

Equilibrium

a situation in which the price has reached the level where quantity supplied equals quantity demanded

demand schedule

a table that shows the relationship between the price of a good and the quantity demanded.

supply schedule

a table that shows the relationship between the price of a good and the quantity supplied

Which of the following events must cause equilibrium price to fall in the market for gas-powered snow blowers? a) the weather forecasters predict a drier than normal winter and producers of gas-powered snow blowers find a faster method of production b) the price of snow plow services increases and there are fewer producers of gas-powered snow blowers c) the price of gas decreases and the price of plastic, an important input into snow blowers, decreases d) shoveling snow is shown to be more environmentally friendly than using a snow blower and producers of gas-powered snow blowers expect prices of gas-powered snow blowers to increase in the near future

a) the weather forecasters predict a drier than normal winter and producers of gas-powered snow blowers find a faster method of production

inferior good

an increase in income leads to a decrease in demand

normal good

an increase in income leads to an increase in demand.

A decrease (leftward shift) in the supply for a good will tend to cause

an increase in the equilibrium price and a decrease in the equilibrium quantity.

an increase (rightward shift) in the demand for a good will tend to cause

an increase in the equilibrium price and quantity

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

an increase in the price of watches

If an increase in consumer incomes leads to a decrease in the demand for camping equipment, then camping equipment is

an inferior good

Which of the following is not an example of a competitive market? a) One buyer is not able to negotiate a lower purchase price for t-shirts because there are many other buyers willing to pay the market price. b) In a college town, there are many buyers and sellers of pizza. c) An auto repair shop in Centerville charges the same price for an oil change as the many other auto repair shops in Centerville. d) Residents of Middleton have one cable television provider.

d) Residents of Middleton have one cable television provider.

an inferior good is one for which an increase in income causes a(n)

decrease in demand

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

decreases the quantity demanded for that good.

Suppose there is an increase in both the supply and demand for personal computers. In the market for personal computers, we would expect the

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

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

equilibrium quantity to rise and the equilibrium price to fall.

true or false A perfectly competitive market consists of products that are all slightly different from one another.

false a perfectly competitive market consists of goods offered for sale that are all exactly the same.

true or false If there is an increase in supply accompanied by a decrease in demand for coffee, then there will be a decrease in both the equilibrium price and quantity in the market for coffee.

false. there will be a decrease in the equilibrium price, but the impact on the equilibrium quantity is ambiguous.

true or false When the price of a good is below the equilibrium price, it causes a surplus.

false. it causes excess demand

true or false The law of demand states that an increase in the price of a good decreases the demand for that good.

false. the law of demand states that an increase in the price of a good decreases the quantity demanded of that good (a movement along the demand curve).

true or false If there is a shortage of a good, then the price of that good tends to fall.

false. an excess demand causes the price to rise.

true or false An increase in the price of steel will shift the supply of automobiles to the right.

false. an increase in the price of an input shifts the supply curve for the output to the left.

true or false If apples and oranges are substitutes, an increase in the price of apples will decrease the demand for oranges.

false. it will increase the demand for oranges

Furniture is a normal good if the demand

for furniture increases when income increases.

Suppose a study from a major university reports that consuming chocolate reduces the likelihood of dying from cancer. We could expect the current demand for

hot cocoa to increase

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

increases the quantity supplied of that good

A decrease in quantity demanded is different from shifting the demand curve to the left because a decrease in quantity demanded

is caused by a price increase while a shift to the left is caused by a change in a non-price determinant of demand.

a perfectly competitive market has

many buyers and sellers

A group of pizza buyers and pizza sellers forms a(n)

market

Suppose there are five barbers in the town of Crossroads. If we add the respective quantities of haircuts that each firm would be willing to sell when the price of a haircut is $12 per haircut, $15 per haircut, and $18 per haircut, and so forth, we have found the

market supply curve

a monopolistic market has

only one seller

explain the law of demand

price and quantity demanded of a good are negatively related.

explain the law of supply

price and quantity supplied of a good are positively related.

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?

price will increase; quantity is ambiguous

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?

price will increase; quantity is ambiguous

If an increase in the price of blue jeans leads to an increase in the demand for tennis shoes, then blue jeans and tennis shoes are

substitutes

ABC Photography Co. purchases new computer software that reduces the costs of editing and distributing photos. As a result, the

supply curve for ABC's photos will increase.

If sellers expect lower prices in the near future, the current

supply will increase

Quantity Demanded

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

quantity supplied

the amount of a good that sellers are willing and able to sell

law of supply and demand

the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance

A very snowy winter in Boston will cause

the demand curve for snow blowers to shift to the right.

Which of the following statements is true about the impact of an increase in the price of lettuce?

the equilibrium price and quantity of salad dressing will fall.

What does this sentence demonstrate? When camera prices rose, camera sellers increased their quantity supplied of cameras.

the law of supply

Suppose there are five suppliers of ice cream in the town of Summerville. If the price of ice cream is $2.50 per scoop, Firm A is not willing to sell any scoops, Firm B is willing to sell 25 scoops, Firm C is willing to sell 5 scoops, Firm D is willing to sell 10 scoops, and Firm E is not willing to sell any scoops. When the price of ice cream is $3 per scoop, Firm A is willing to sell 20 scoops, Firm B is willing to sell 50 scoops, Firm C is willing to sell 35 scoops, Firm D is willing to sell 100 scoops, and Firm E is willing to sell 40 scoops. From this information we can conclude that

the market supply curve between the prices of $2.50 and $3.00 is upward sloping.

An increase in the number of orange growers causes

the market supply curve for oranges to shift to the right.

If there is a surplus of a good, is the price above or below the equilibrium price for that good?

the price must be above the equilibrium price

Which of the following events would cause a movement upward and to the left along the demand curve for flannel sheets?

the price of flannel sheets increases

equilibrium price

the price that balances quantity supplied and quantity demanded.

if the price of a good is equal to the equilibrium price,

the quantity demanded is equal to the quantity supplied, and the price remains unchanged.

law of demand

the quantity demanded of a good falls when the price of the good rises.

equilibrium quantity

the quantity supplied and the quantity demanded at the equilibrium price

law of supply

the quantity supplied of a good rises when the price of the good rises

if the price of a good is below the equilibrium price,

there is a shortage and the price will rise

if the price of a good is above equilibrium price,

there is a surplus and the price will fall

true or false The law of supply states that an increase in the price of a good increases the quantity supplied of that good.

true

true or false a monopolistic market has only one seller

true

true or false If consumers expect the price of shoes to rise, there will be an increase in the demand for shoes today.

true

true or false If golf clubs and golf balls are complements, an increase in the price of golf clubs will decrease the demand for golf balls.

true

true or false An advance in the technology employed to manufacture Rollerblades™ will result in a decrease in the equilibrium price and an increase in the equilibrium quantity in the market for Rollerblades™.

true.

true or false If pencils and paper are complements, an increase in the price of pencils causes the demand for paper to decrease or shift to the left. Answer

true.

true or false The market supply curve is the horizontal summation of the individual supply curves.

true.

true or false If Coca-Cola and Pepsi are substitutes, an increase in the price of Coca-Cola will cause an increase in the equilibrium price and quantity in the market for Pepsi.

true.

complements

two good for which an increase in the price of one leads to the decrease in demand for the other

substitutes

two goods for which an increase in the price of one leads to an increase in the demand for the other.

Which of the following is the most likely to be a perfectly competitive market? a) electricity b) soft drinks c) jeans d) wheat

wheat

shortage

when quantity demanded is greater than quantity supplied

surplus

when quantity supplied is greater than quantity demanded