Macroeconomics Ch3

The figure shows supply and demand in a market. What is the equilibrium price?

$34

Suppose that golf clubs and golf balls are complements. If the price of golf clubs increases, what happens in the market for golf balls?

Demand will decrease

Which of the following would increase the supply of smart phones?

Improved technology for assembling smart phones

The demand curve for a normal good will shift to the right if there is a(n) __________ in income.

increase

Suppose that the table represents demand and supply for lobsters in a competitive market. There will be a shortage of 500 lobsters if the price is $_______.

10

Suppose that the graph represents the demand and supply of bicycles in a small town. There is a shortage of 6 bicycles if the price is $_______.

100

Suppose that the table represents demand and supply for lobsters in a competitive market. The equilibrium price is $_______.

15

Suppose that the graph represents the demand and supply of bicycles in a small town. There is a shortage of 2 bicycles if the price is $_______.

200

Suppose that the table represents demand and supply for lobsters in a competitive market. There will be a surplus of 1,000 lobsters if the price is $_______.

25

The figure shows supply and demand in a market. What is the quantity demanded at the price of $40?

34

The figure shows supply and demand in a market. What is the quantity demanded at the price of $26?

62

Suppose that steak and chicken are substitutes. A decrease in the price of steak will cause

?

Assuming that hardcover books are a normal good, which of the following could cause a decrease in demand for hardcover books?

A decrease in incomes

Assuming that yarn and knitting needles are complements, which of the following would cause an increase in the demand for yarn?

A lower price of knitting needles

Assuming that pretzels are a substitute for popcorn, which of the following would cause a decrease in the demand for pretzels?

A lower price of popcorn

The figure shows supply and demand in a marketplace. How much of a shortage would arise at a price of $26?

A shortage of 32 units

The figure shows supply and demand in a market. How much of a surplus would arise at a price of $40?

A surplus of 24 units

Assuming that paperback books are an inferior good, which of the following could cause a decrease in demand for paperback books?

An increase in incomes

Assuming that ice cream is a normal good, which of the following could cause an increase in the demand for ice cream?

An increase in the price of substitutes for ice cream, such as frozen yogurt

Which of the following would cause a decrease in the supply of wool sweaters?

Higher prices of wool

You are doing some research on the personal computer industry and you discover that the price of computers has steadily fallen every year and yet more computers are being produced every year. Part 1: Use one of the line drawing tools to show what likely happened in the market for PCs (shown below) causing the reduction in the price. Label the new curve(s) D2 and/or S2 Part 2: Use the double drop line tool to show the new equilibrium price and quantity in the market for PCs after the change you identified in the previous part. Label this new point E2.

PCs supply/demand

Suppose that, as incomes in your community increase, the demand for taxi service increases and the demand for bus service decreases. From this, we can conclude that

Taxi service is a normal good; bus service is an inferior good.

Suppose that students at Big University buy season football tickets at the beginning of the fall semester. Everyone expects that the team will have a great season. Students sell individual tickets throughout the season in a competitive market. They can sell tickets to later games (more exciting match-ups) immediately or wait for the game day to approach. If they think the team will have a great season, what will happen in the market for Big University football tickets?

The current supply will decrease.

Markets that are characterized by many buyers and many sellers are referred to as:

competitive.

If gasoline and heating oil are substitutes in production for an oil refiner, what happens in the market for heating oil when the price of gasoline increases?

The supply of heating oil decreases.

If gasoline and heating oil are substitutes in production for an oil refiner, what happens in the market for heating oil when the price of gasoline decreases?

The supply of heating oil increases.

If beef and leather are complements in production, when the price of beef decreases, what happens in the market for leather?

The supply of leather decreases.

If beef and leather are complements in production, when the price of beef increases, what happens in the market for leather?

The supply of leather increases.

Part 1: Use the line drawing tool to draw the demand curve for Top Ramen. Label this line D. Part 2: Assume that Top Ramen is an inferior good. Suppose incomes rise in the economy due to an expansion and all else is held constant. Use the copy tool to show what happens to the demand curve for Top Ramen as a result of the increase in income. Label this new demand curve D2.

Top Ramen To draw the demand curve you would start with one point somewhere close to (or even ON) the vertical axis and then choose a second point that is lower and to the right of the first point. You are asked to draw a second demand curve that reflects what happens to the demand for ramen noodles when income increases. The important here is that ramen noodles are considered an inferior good. That means that when people have more income they switch to another product they believe is better. Therefore the second demand curve should be drawn to the left of the first one, indicating that the demand for ramen noodles has decreased (shifted to the left) as a result of the change in income. Re-read Chapter 3; Section: The Demand Curve.

In much of the country, homeowners choose to heat their houses with either natural gas or home heating oil. Which of the following would cause a change in the demand for natural gas?

a change in the price of home heating oil

Which of the following would not cause the supply curve to shift?

a change in the price of the good

A movement along the supply curve is caused by

a change in the price of the good or service.

In the market for wheat, what would happen if the price of ethanol (which is made from corn) increases dramatically?

a decrease in supply of wheat

In the market for tacos, each of the following shifts the supply curve to the left except:

a decrease in the price of tacos.

A competitive market is

a market in which there are many buyers and sellers of the same good or service.

A demand schedule is

a table showing how much of a good consumers will buy at different prices.

In recent years, stainless steel kitchen appliances have become more popular. This change has caused

an increase in demand for stainless steel appliances.

Which of the following always results in an increase in price and quantity?

an increase in demand with no change in supply

A new wonder diet that results in a dramatic weight loss sweeps through America. The key to the diet is to eat unlimited amounts of red meat (beef) but no poultry or carbohydrate-rich foods. As millions of Americans switch to the new diet, we can expect:

an increase in the demand for beef, leading to a shift to the right in the demand curve for beef and higher beef prices.

When the demand for a product increases

both equilibrium price and quantity will increase.

When the demand for a product decreases,

both the equilibrium price and quantity will decrease

Part 1: Use the line drawing tool to draw a supply curve for cappuccinos. Label this curve S. Part 2: Use the copy tool to illustrate a decrease in the supply of cappuccinos. Label the new supply curve S2. Part 3: Use the drop line to mark a point on S2. Label this point A. Part 4: Assume that there is an increase in the quantity supplied (starting at point A). Illustrate this by plotting a new point. Label this point B.

cappuccinos supply

A rancher finds that when he produces more beef, he has more leather that he can sell to a company that manufactures boots. For the farmer, beef and leather are:

complements in production.

The graph below shows the supply and demand for food. More and more corn is now being used to produce ethanol fuel. Part 1: Use a line drawing tool (try the copy tool) to show the effect of this increase in the production of corn-based ethanol on the supply of and/or the demand for food (shown below). Label the curve(s) accordingly. Part 2: Use the double drop line tool to illustrate the new equilibrium price and quantity in the market for food and label it E2.

corn based ethanol supply/demand

A technological improvement in the production of a good causes a(n) __________ in price.

decrease

Along a given demand curve, an increase in price of the product will

decrease the quantity demanded.

Consider the supply curve for cotton shirts. An increase in the price of cotton will:

decrease the supply of cotton shirts.

Higher wages paid to construction workers would

decrease the supply of newly constructed homes.

The table shows the demand schedule for two consumers of lemonade, Eli and Molly. Assume that these are the only two consumers in the market. Use the multi-point line tool to plot the market demand curve for lemonade.

demand lemonade

French fries and hamburgers are complements. Suppose the cost of the ingredients used to make hamburgers rises, so that the price of a hamburger rises. Then the equilibrium relative price of french fries ________ and the equilibrium quantity ________.

falls; decreases

Part 1: Use the line drawing tool to draw the demand curve for gasoline. Label this line as D. Then use the drop-line tool to identify a point anywhere on the curve. Label that point A. Part 2: Suppose the price of gasoline increases. Use the appropriate tool to show the impact of this price change. Tip: To show a movement along the demand curve, simply add another drop line point and label it B. To show a shift of the demand curve use the copy tool to create a new demand curve and label it D2. Hint: As always, assume all else is held constant.

gasoline The key to correctly answering this question is to remember that changes in the price of a product itself result in movements up or down along the same demand curve, and not shifts. Therefore, you should select the double drop line tool to choose a point on the same demand curve. Point B should be above or to the left of point A (higher up on the demand curve) since the price of gasoline has increased. Review Chapter 3; Section: The Demand Curve.

Part 1: Use the line drawing tool to draw the market supply (S) and demand (D) curves for gasoline. Part 2: Use a double drop line to mark the equilibrium point. Label this E. Part 3: Suppose war breaks out in Iran. As a result, gasoline producers expect the price of gasoline to rise. Illustrate what happens in the market for gasoline because of this change in expectations. Label the curve(s) you shift either D2 and/or S2. Part 4: Use a double drop line to show the new equilibrium after the change in expectations and label it E2

gasoline Iran

When we say that the demand curve slopes downward, we mean that

higher prices are associated with lower quantities demanded.

A leftward shift in the supply of carrot cake could arise from

higher prices for carrots.

If two products are complements in production, a decrease in the price of one of the products will result in a(n) _________ in the price of the other product.

increase

A technological improvement in the production of a good causes a(n)

increase in supply

As the population of your city grows, this will cause a(n) _____ in the demand for pizza, and the demand for pizza will shift to the _____ .

increase; right

An improvement in production technology for a good

increases supply and shifts the supply curve to the right.

The following diagram illustrates the supply and demand for coffee from your local coffee shop. Part 1: Assume that there is a terrible hurricane in central and South America that destroys many of the coffee plantations. Use the copy tool to show what happens to supply or demand due to this change in the market. Label this new curve D2 or S2. Part 2: Now suppose that a reputable scientific study concludes that caffeine is detrimental to your health. Use the copy tool to show what happens to supply or demand due to this change in the market. Label this new curve D3 or S3.

local coffee shop supply/demand

Part 1: Use the line drawing tool to draw a supply curve for natural gas. Label this curve S. Part 2: Natural gas producers expect the price of natural gas to fall in the future. Use the copy tool to draw what happens to the supply of natural gas now because of this expectation. Label this new curve S2.

natural gas supply

The following table contains the demand and supply information for notebook computers. Price of a computer Quantity supplied Quantity demanded $500 90,000 110,000 $700 100,000 100,000 $900 110,000 90,000 $1100 120,000 80,000 $1300 130,000 70,000 Part 1: Use the multi-point line tool to graph the demand (D) and supply (S) curves. Part 2: Use a double drop line to identify the equilibrium price and quantity in the market for computers (E1). Part 3: Suppose this year your college required all students to have notebook computers. In response to this new policy, the quantity demanded of computers increases by 20,000 for all price combinations. Given this change, use multi-point line tool to draw a new demand curve (D2) and use a double drop line to identify a new equilibrium point (E2). Part 4: Now suppose, at the same time as the new policy at your college is enacted, a revolutionary production process is designed that dramatically decreases the cost of manufacturing notebook computers. As a result of this increase in technology, the quantity supplied of computers increases by 40,000 for all price combinations. Given this technology change, use the multi-point line tool to draw a new supply curve (S2) and use a double drop line to identify a new equilibrium point (E3).

notebook computers supply/demand

The following diagram illustrates the market for nurses. Part 1: Americans are living longer and, as a result, need more medical care throughout their lives. Use a line drawing tool to show the effect of this demographic change on either the supply of or demand for nurses. Label the new curve D2 or S2. Part 2: Suppose that at the same time as this demographic change occurs, more college students decide to major in nursing. Use a line drawing tool to show the effect of this change on either the supply of or demand for nurses. Label the new curve D2 or S2. Part 3: Use the double drop line tool to show the new equilibrium price and quantity in the market after both of these changes. Label this new point E2.

nurse supply/demand

The typical supply curve illustrates that:

other things equal, the quantity supplied for a good is positively related to the price of a good.

Which of the following influences does not shift the supply curve?

people deciding that they want to buy more of the product

Recently a large pizza chain announced an increase in the price of pizza. The CEO of the company cited the higher price of milk as the reason for this change. Assume that this decision by the large pizza chain represents the decision by the typical firm in the competitive pizza industry. Part 1: Use a line drawing tool to show the effect of this increase in the price of milk on either the supply of or demand for pizza (shown below). Label the new curve(s) D2 and/or S2. Part 2: Use the double drop line tool to indicate the new equilibrium price and quantity in the market for pizza. Label this new equilibrium E2.

pizza supply

Bishop, California is a small town located in the High Sierras between Death Valley and Mount Whitney. In Bishop there is only one pizza parlor, the Pizza Factory. Suppose the following table contains the market information about the market for pizza on a Friday night in Bishop. Part 1: Use the multi-point line tool to construct Bishop's supply and demand curves for pizza. Part 2: Use the drop line tool to identify the equilibrium quantity and price on your graph.

pizza supply/demand

According to the law of demand, as

price decreases, the quantity demanded increases

A surplus arises when

quantity supplied exceeds quantity demanded.

Part 1: Use the line drawing tool to draw a demand curve for red wine. Label this line D. Part 2: Suppose researchers discover that there are antioxidants and other life enhancing substances in red wine. As a result, the general public (being very health conscious) increases their preferences for consuming red wine. Use the copy tool to show what happens to the demand curve for red wine after the announcement of the benefits of red wine. Label this new demand D2. Hint: Assume all else is held constant.

red wine

Wii consoles and Wii video games are complements. If the price of Wii consoles goes up, the demand curve for Wii video games will

shift to the left.

Wii consoles and Wii video games are complements. If the price of Wii consoles decreases, the demand curve for Wii video games will

shift to the right.

Suppose that the table represents demand and supply for lobsters in a competitive market. If the price is $10, there will be a Please choose the correct answer from the following choices, and then select the submit answer button.

shortage of 500 lobsters

Part 1: Use the line drawing tool to draw the market supply (S) and demand (D) curves for skateboards in the U.S. Part 2: Use the double drop line tool to mark the equilibrium point. Label this E. Part 3: Suppose X-Games champion, Bucky Lasek, inspires a new younger generation of skateboarders -- essentially raising preferences for skateboarding in the U.S. Illustrate what happens in the market for skateboards because of this change in preferences. Label the curve(s) you shift either D2 and/or S2. Part 4: Use the double drop line tool to show the new equilibrium (after the change in preferences). Label it E2.

skateboards supply/demand

The table below refers to the daily supply and demand schedule for pizza in a small college town. Part 1: Use the multi-point line tool to plot the demand curve and the supply curve for pizza. Part 2: Use a double drop line to identify the equilibrium price and quantity of pizza (E). Price of pizza Quantity of pizza supplied (per day) Quantity of pizza demanded (per day) $25 100 20 $20 80 40 $15 60 60 $10 40 80 $5 20 100

small college town supply/demand

A rightward shift of the demand curve shows that

something has happened to cause a higher quantity demanded at every given price.

A leftward shift of the demand curve shows that

something has happened to cause a lower quantity demanded at every given price.

Equilibrium quantity will always increase if:

supply and demand both increase.

The market price of airline flights increased recently. Some economists suggest that the price increased because several airlines went out of business. They believe that in the market for flights:

supply decreased.

The supply schedule shows

the amount of a good or service firms will supply at different prices.

If there is a widely held expectation that prices of cotton will be higher next year, then

the demand for cotton will increase today

If the price of e-books, a substitute for printed textbooks, increases

the demand for printed textbooks will increase.

When demand increases at the same time that supply decreases,

the equilibrium price rises but the change in equilibrium quantity is ambiguous.

When the supply of a product increases

the equilibrium price will decrease and equilibrium quantity will increase.

When the supply of a product decreases,

the equilibrium price will increase and equilibrium quantity will decrease.

When demand and supply decrease simultaneously

the equilibrium quantity falls but the change in equilibrium price is ambiguous.

When demand and supply increase simultaneously,

the equilibrium quantity rises but the change in equilibrium price is ambiguous.

The equilibrium price is also known as

the market-clearing price.

If there is a shortage of parking spaces in the downtown business district, this would suggest that

the price of parking downtown is below its equilibrium price.

If there is a surplus of wheat on the market,

the price of wheat will fall.

A competitive market occurs when there are many buyers and sellers of the same good.

true

Wildfires in California were raging in the month of June 2008. As a result, the governor of California asked all Californians to voluntarily stop buying fireworks this year. Part 1: Use the line drawing tools to show the effect of this event on the demand for fireworks, the supply of fireworks, or both. Label the new curve(s) you draw accordingly. Part 2: Use the double drop line tool to show the new equilibrium price and quantity in the market for fireworks and label it E2.

wildfires