Supply and Demand
Suppose that a customer's willingness to pay for a product is $79, and the seller's willingness to sell is $64. If the negotiated price is $68, how much is consumer surplus? -$15 -$4 -$11 -$21
$11
Suppose that a customer's willingness to pay for a product is $79, and the seller's willingness to sell is $64. If the negotiated price is $68, how much is producer surplus? -$21 -$11 -$15 -$4
$4
Jonathan purchased coffee for $5 at Jennifer's coffee shop; however, he was willing to pay $9. Jennifer was willing to accept $3 for the coffee. The results of this transaction are a consumer surplus of: -$10 and a producer surplus of $12 -$2 and a producer surplus of $4 -$4 and a producer surplus of $2 -$12 and a producer surplus of $10
$4 and a producer surplus of $2
How to find the area of a triangle?
1/2 (base x height)
An increase in government subsidies for an industry, which reduces production cost, causes the market equilibrium price to_____ and the market equilibrium quantity to____. A. decrease; increase B. increase; decrease C. increase; increase D. decrease; decrease
A. decrease; increase
When the market for a good is in equilibrium, there is (are): A. No shortages or surpluses B. an increase in the quantity demanded of the good C. forces that induce a decrease in price D. excess Demand
A. no shortages or surpluses
What might be done with the surplus caused by a government agricultural price support program? A. some of the surplus might be used for school lunches and in other government institutions; other parts of the surplus might be destroyed B. the farmers producing the surplus might be destroyed C. the surplus could be used as a seed for the next year's crop D. the surplus might be sold to other countries above the world market price
A. some of the surplus might be used for school lunches and in other government institutions; other parts of the surplus might be destroyed
An effective (or binding) price ceiling is a situation in which: A. the government sets the maximum price for a good above its free market equilibrium price B. government sets the maximum price for a good below its free market equilibrium price C. competing firms collude to set the price of a good above its free market equilibrium price D. consumer unions bargain to set the price of a good below its free market equilibrium price
B. government sets the maximum price for a good below its free market equilibrium price
Assume that hamburgers and ketchup are complements. If the price of hamburgers falls, demand for ketchup: A. decreases B. increases C. remains the same D. moves to the left
B. increases
If an effective price ceiling is raised: A. shortage increases B. shortage decreases C. surplus increases D. surplus decreases
B. shortage decreases
Price controls are sometimes used when the natural operation of free markets leads to: A. positive externalities B. undesirable outcomes C. an efficient distribution of goods D. a trade deficit
B. undesirable outcomes
The Supply and demand Model assists in analyzing the: A. relationship between education and employment B. growth in overall level of economic activity C. determinants of market price and quantity D. connection between trade and U.S. employment levels
C. determinants of market price and quality
Assume a farmer's land is equally productive in growing corn or potatoes and is currently producing both. If the price of corn increases but the price of potatoes does not change, the farm's supply curve for potatoes will: A. shift to the right, and more potatoes will be produces at each price level B. not change, because the production of potatoes is not affected by price changes for corn C. shift to the left, and fewer potatoes will be produced at each price level D. shift to the right, and fewer potatoes will be produced at each price level
C. shift to the left, and fewer potatoes will be produced at each level price
One of the costs associated with a minimum wage is that it creates a: A. shortage of workers B. shortage of employers C. surplus of workers D. surplus of employers
C. surplus of workers
Improvements in technology that reduce production costs cause the___ curve to shift to the___, indicating a(n)_____ in the amount_____ at each price point. A. demand; right; increase; demanded B. supply; left; decrease; supplied C. demand; left; decrease; demanded D. supply; right; increase; supplied
D. Supply; right; increase; supplied
When price ceiling for a good is set below the free market equilibrium the result is a(n): A. supply B. equilibrium C. surplus D. Shortage
D. shortage
Determinant of Demand (5)
Number of buyers
Determinant of demand (6)
Price expectations
Determinant of Demand (4)
Price of complements
Determinant of supply (3)
Price of related commodities
Determinant of Supply (1)
Production technology
Determinants of Demand (1)
Taste and Preference
In general terms, which item is an example of an inferior good? -a T-bone steak -clothing -a city bus -gasoline
a city bus
Inferior good
a good for which an increase in income results in declining demand
normal good
a good for which an increase in income results in rising demand
normal goods
a good for which an increase in income results in rising demand
inferior goods
a goof for which an increase in income results in declining demand
supply curve
a graphical illustration of the law of supply, which shows the relationship between the price of a good and the quantity supplied
Laissex-faire
a market that is allowed to function without any government intervention
laissez- faire
a market that is allowed to function without any government intervention
price ceiling
a maximum price established by government for a product or service -when the price ceiling is set below equilibrium, a shortage results
price floor
a minimum price established by government for a product or service -when the price floor is set above equilibrium, a surplus results
when a scarce good or resource is consumed by the person who does not value it most, economists refer to the situation as: -a misallocation of resources -the allocation of resources -equity -efficiency
a misallocation of resources
price system
a name given to the market economy because prices provide considerable information to both buyers and sellers
Horizontal summation
add the number of units of a product all consumers will purchase at each price
Price of related goods
affect consumer decisions
taxes and subsidies
affect costs
Example of price floor
agriculture
willingness to pay
an individuals valuation of a good or service -equal to the most an individual is willing and able to pay
willingness to pay
an individuals valuation of a good or service equal to the most an individual is willing and able to pay
Income
as income rises, demand for most goods will likewise increase
when demand alone changes what can be determined?
both equilibrium price and output
demand curve is____ based
consumer
The demand for gasoline is rising. Which statement describes a possible cause? -commuters are switching from driving to public transportation -drivers are purchasing more fuel-efficient cars -consumers expect prices to rise in the near future -incomes are falling
consumers expect prices to rise in the near future
Determinant of supply (2)
cost of resources
When the price of a good or service increases the quantity demand will?
decrease
producer surplus
difference between the market price and the price at which firms are willing to supply the product -equal to the area below market price and above the supply curve
Producer surplus
difference between the price a seller receives and its willingness to sell
The demand curve slopes____to the___
down; left
suppose a price floor is set on cane sugar that is approximately three times the equilibrium price. one of the effects is a(n): -drop in the quantity of sugar consumed -shortage of sugar -shift by food manufactures from the use of corn syrup to cane sugar -increase in the efficiency of the market
drop in the quantity of sugar consumed
Price ceilings are below_____
equilibrium price
Price floor is above?
equilibrium price
Number of sellers
everything else is being held constant
Pirce___ the quantity demanded___
falls; increases
True or false: if a price floor is effective, all suppliers benefit from equilibrium prices below the free market prices
false
true or false: An increase in consumer preference for a good shifts the demand curve to the left
false
true or false: if the price of a resource required to produce a good increases, the supply curve will shift to the right, indicating that producers are inclined to produce more of the good at each price point
false
true or false: price controls provide only benefits but no costs to society
fasle
Consumer surplus is defined as the: -gap between the supply curve and the market price -gap between the demand curve and the market price -difference between a price floor and the market price -difference between a price ceiling and the market price
gap between the demand curve and the market price
Producer surplus is defined as the: - gap between the supply curve and the market price -difference between a price ceiling and the market price -gap between the demand curve and the market price -difference between a price floor and the market price
gap between the supply curve and the market price
substitute goods
goods consumers will substitute for one another -when the price of one good rises, the demand for the other good increases (and vice versa)
complementary goods
goods that are typically consumed together. -when the price of a complementary good rises the demand for the other good declines ( and vice versa)
Public goods
goods that one person can consume without diminishing what is left for others
Price ceilings are set by?
government
Price floor is set by?
government
Which of these circumstances would NOT affect the supply of new automobiles? -a subsidy for struggling automobile manufacturers -a labor strike in the steel industry -higher interest rates for new car financing -an improvement in automobile manufacturing technology
higher interest rates for new car financing
law of demand
holding all other relevant factors constant, as price increases quantity demanded falls and as price decreases quantity demanded rises
law of supply
holding all other relevant factors constant, as price increases, quantity supplied rises and as price declines, quantity supplied fails
What does technology determine?
how much output can be produced from given quantities or resources
Determinant of demand (2)
income
When the prices of goods or services decrease quantity demand will?
increase
Price ____ the, quantity demanded___
increases; falls
demand declines as income rises and the demand curve shifts to the left
inferior goods
markets
institutions that bring buyers and sellers together -so they can interact and transact with each other
equilibrium
market forces are in balance when the quantities demanded by consumers just equal the quantities supplied by producers
When quantity demanded in a market equals quantity supplied: then the: -equilibrium price is less than expected by buyers -market is in temporary disequilibrium -market will not clear without further price adjustments -market is in equilibrium
market is in equilibrium
Price ceilings are a_____ price for a good
maximim
Price floor is a_____ price for a good
minimum
a good example of a government- imposed price floor is: -rent controls -supply and demand -equilibrium -minimum wage
minimum wage
existence of public goods
most goods we buy are private goods (meals/ concert tickets),
examples of complementary goods
movies and popcorn, car and oil
substitute goods examples
movies, concerts, plays and sporting events
Demand curve has a____ relationship
negative
determinants of supply
non-price factors that affect supply
determinant of demand
nonprice factors that affect demand - tastes and preferences, income - prices or related goods -numbers of buyers -expectations
determinants of supply
nonprice factors that affect supply -production technology -costs of resources -prices of related commodities -expectations -number of sellers -taxes and subsidies
demand is positively linked to income
normal goods
Income shifts the demand curve?
normal goods- shift right inferior goods- shift left
Number of buyers
number of potential buyers in the market
Determinant of supply (5)
number of sellers
market failure
occurs when a free market does not lead to a socially desirable outcome
misallocation of resources
occurs when a good or service is not consumed by the person who values it most and typically results when a price ceiling creates an artificial shortage in the market
Change in demand
occurs when one or more of the determinants of demand changes
change in supply
occurs when one or more of the determinants of supply change
asymmetric information
occurs when one party to a transaction has significantly better information than another party
surplus
occurs when the price is above market equilibrium, and quantity supplied exceeds quantity demanded
shortage
occurs when the price is below market equilibrium and quantity demanded exceeds quantity supplied
change in quantity demanded
occurs when the price of the product changes
change in quantity supplied
occurs when the price of the product changes
changes in quantity supplied
occurs when the price of the product changes, shown as movement along an existing supply curve
It takes how many of the determinants of demand to change the entire demand curve right?
one
Which type of payment would NOT be a market transaction? -payment for a soft drink at a vending machine -payment for a used book purchased on eBay -payment for purchase of shares at a stock exchange -payment made to a disaster victim
payment made to a disaster victim
A market exists when: -the cost of production is equated to the price by a government agency -a physical location is created to facilitate the exchange of personal information about consumer choices -an absolute advantage is achieved by one country -people exchange money for goods and services
people exchange money for goods and services
Supply curve is a___relationship
positive
tastes and preferences
preference for certain products over others
When demand falls what falls?
price and output
When demand grows what rises?
price and output
supply curves positive relationship is between?
price and quantity
"price gouging" laws are types of____ and often result in____. -price ceilings; a sufficient supply of a scarce good -price ceilings; shortages of a scarce goos -price floors; a sufficient supply of a scarce good -price floors; surpluses of a scarce good
price ceilings; shortages of a scarce good
determinant of supply (4)
price expectations
What are used to analyze minimum wage policy?
price floors
A change in the quantity demanded of a good results from a change in the:
price of a good
Determinant of Demand (3)
price of substitutes
Another word for Market economy is:
price system
law of demand
principle when all other factors are held constant
Supply curve is____ based
producer
Other factors held constant, as the price of an ipad rises, the: -demand for ipads falls -demand for ipads rises -quantity demanded for ipads falls -quantity demanded for ipads rises
quantity demanded for ipads falls
demand
refers to the goods and services people are willing and able to buy during a certain period of time at various prices, holding all other relevant factors constant
A good example of a government imposed- price ceiling is: -rent controls -equilibrium -supply and demand -minimum wage
rent controls
Example of price ceiling
rent prices
What costs affect production costs and supply?
resource costs
Taste and preferences causes the Demand curve to shift to the?
right
demand curve shifts___ during hurricane season and its moving toward the coast the demand for plywood, nails, bottled water and batteries quickly rises
right
When demand and supply increase output will____, new equilibrium price is___
rise: uncertain
If demand grows relatively more than supply, price will___; but if supply grows relatively more than demand price will___
rise; fall
Price of complements shifts the demand curve?
shift to the left
Cost or resources shifts the supply curve?
shifts left
Price of related commodities causes the supply curve to shift?
shifts left
price expectations causes a shift in the supply demand?
shifts left
taxes lead to a shift in the supply curve?
shifts left
Number of buyers shifts the demand curve?
shifts right
Number of sellers leads to a supply shift?
shifts right
Price expectations shift the demand curve?
shifts right
Production technology moves the supply curve?
shifts right
Subsides cause the supply curve to shift?
shifts right
Price of substitutes shifts the demand curve?
shifts to the right
Price ceilings cause a?
shortage
Determinant of demand (7)
subsidies
law of____ states that higher prices will lead producers to offer more of their products for sale during a given period
supply
Price floor causes a?
surplus
demand schedule
table indicating the quantities consumers are willing to purchase at each price
Determinant of supply (6)
taxes
equilibrium
the amount of the product that consumers are willing and able to purchase is matched exactly by the amount that producers are willing and able to sell
Consumer surplus
the difference between a person's willingness to pay and the price paid
consumer surplus
the difference between what consumers would be willing to pay and the market price -equal to the area above market price and below the demand curve
What are expectations?
the effects of future expectations
Deadweight loss
the loss of consumer surplus and producer surplus caused the the inefficiency of a market not operating at equilibrium
demand
the maximum amount of a product that buyers are willing and able to purchase over some time period at various prices -holding all other relevant factors constant (ceteris Paribus)
supply is defined as: -the minimum amount of a product that sellers are willing and able to provide for salve over a particular time period at various prices, holding all other relevant factors constant -the maximum amount of a product that sellers are willing and able to provide for sale over a particular time period at various prices, holding all other relevant factors constant -the minimum amount of a product that buyers are willing and able to purchase over a particular time period at various prices, holding all other relevant factors constant -the maximum amount of a product that buyers are willing and able to purchase over a particular time period at various prices, holding all other relevant factors constant
the maximum amount of a product that sellers are willing and able to provide for sale over a particular time period at various prices, holding all other relevant factors constant
supply
the maximum amount of a product that sellers are willing and able to provide for sale over some time period at various prices, holding all other relevant constant (ceteris paribus)
equilibrium quantity
the output that results when quantity demanded is just equal to quantity supplied
equilibrium price
the price at which the quantity demanded is just equal to quantity supplied
At any price below the equilibrium price: -the quantity demanded exceeds the quantity supplied in the market -the quantity demanded equals the quantity supplied in the market -demand exceeds supply in the market -the quantity demanded is less than the quantity supplied in the market
the quantity demanded exceeds the quantity supplied in the market
deadweight loss
the reduction in total surplus that results from the inefficiency of a market not in equilibrium; occurs when prices deviate from equilibrium
total surplus
the sum of consumer surplus and producer surplus, and a measure of the overall net benefit gained from a market transaction
What do governments use price ceilings and price floors for?
to keep prices below or above market equilibrium
flu vaccination shots provide external benefits thus: -the private market collapses -too many flu vaccination shots are given -too few flu vaccination shots are given -the private market provides the socially desirable output of shots
too few flu vaccination shots are given
The measure of society's benefits due to a market transaction is called: -producer surplus -total surplus -deadweight loss -consumer surplus
total surplus
True or false: a price ceiling is a government- mandated maximum price at which a good can be sold
true
true or false: as income increases, the demand curve for an inferior good shifts to the left
true
true or false: markets tend to provide too little of products with external benefits
true
invisible hand
unobservable market force that helps the demand and supply of goods in a free market to reach equilibrium automatically
The supply curve slopes___ to the____
up; right
Whenever you purchase a product you are?
voting with your money
Predicting the new equilibrium when both curves shoft
we can predict price and in some cases output but not both
when does asymmetric information occur?
when either a buyer or a seller knows more about a product than the other
predicting the new equilibrium when one curve shifts
when only supply or only demand changes, the change in equilibrium price and equilibrium output can be predicted
Market equilibrium
where supply and demand intersect each other and are equal