Unit 3: Supply and Demand - Unit 4: Module 3: Demand and Supply & Module 4: Elasticity

The following represents the market for artichokes: What is the equilibrium price and quantity in this market?

$2; 3,250 - The equilibrium price and quantity is where the Supply curve meets the Demand curve. This can be seen where the quantity supplied is equal to the quantity demanded at a single price. In this case, at $2, the quantity supplied and quantity demanded are both 3,250. That point is therefore the equilibrium point.

The following represents the market for propane each week: What is the equilibrium price and quantity in the market for propane?

$5.50; 15,000 - Equilibrium price and quantity are found where the Supply curve crosses the Demand curve. On this graph, that point is at a price of $5.50 and a quantity of 15,000.

What exists if the quantity of a good or service demanded exceeds the quantity supplied at the current price?

shortage - There is not a shortage where two curves cross as the quantity demanded equals the quantity supplied.

The following represents the market supply of soybeans in a week: What quantity do sellers collectively wish to sell at $12 per pound?

1,500 thousands of pounds per week - The sellers wish to sell 1,500 thousands of pounds of soybeans at the price of 12 dollars per pound.

Which demand characteristic can be classified as perfectly elastic?

Above the current price, nothing will be purchased - Above the price where the demand curve intersects the Y axis, nothing will be purchased. There is only one price at which the product will be sold.

A seller can predict that revenues will drop when prices are raised by 15% because quantity sold will drop by 20%. What is the price elasticity of demand?

1.33 - The elasticity of demand must be greater than one because when price increased, total revenue fell. The price elasticity of demand is 20%/15% or 1.33.

How much will quantity demanded decrease if demand is unit elastic and there is a 12% increase in price?

12% - When the price elasticity of demand is unit elastic, the percent change in price will cause an equivalent percent change in QD.

Which of the following will cause a shift in supply?

A new technology being developed to produce a good. - An improvement in technology can cause an increase in productivity and reduce the cost of production which would cause a shift in supply.

What is true of a normal good?

An increase in income means an increase in demand. - For a normal good, an increase in a person's income means they want to buy a higher quantity of it. This is the opposite of an inferior good, for which a person will buy less as their income rises.

Which of the variables is not considered a supply shifter?

Buyer expectations - Buyer expectations is a determinant of demand, not supply. Supply shifters include (1) prices of factors of production, (2) returns from alternative activities, (3) technology, (4) seller expectations, (5) natural events, and (6) the number of sellers.

Which of the following will cause a shift in demand?

Consumer tastes changing because of advertising. - Some important determinants of demand include consumer preferences, prices of related goods and services, income, demographic characteristics such as population size, and buyer expectations. This would be an example of consumer preferences, which is a determinant of demand.

Supply is price inelastic if it is less than 1.

Correct! Supply is price inelastic if the price elasticity of supply is less than 1.

Supply is -unit price elastic if it is equal to 1.

Correct! Supply is unit price elastic if the price elasticity of supply is equal to 1.

What would we expect to happen if consumer income increased?

Demand increases - An increase of income, whether for an individual or in aggregate, will shift demand.

A seller expects that when the price is raised by 17%, the quantity sold will drop by 15%. What is the price elasticity of demand, and what will happen to the total revenues?

Elasticity is 0.88, and revenues will rise Correct! Price elasticity of demand is 0.88 which is inelastic. Therefore, an increase in price will increase total revenue.

What is determined by the intersection of the demand and supply curves?

Equilibrium price - The equilibrium price is the price at which the quantity demanded equals the quantity supplied. It is determined by the intersection of the demand and supply curves.

True or False: A change in the price of a good leads to a change in demand.

False - A change in the price of a good will lead to a movement along the demand curve, not a change (shift) in demand.

True or False: An increase in supply is shown as a shift to the left of a supply curve.

False - An increase in supply would shift the supply curve to the right.

If the percentage change in price is 10%, and the demand is elastic, then what is the percentage change in the quantity demanded?

Greater than 10% Correct! An elastic demand means that the percentage change in the quantity demanded is larger than the percentage change in price.

An increase in the price of carrots has led to greater demand for asparagus. What type of elasticity is this an example of?

Positive cross price elasticity Correct! Positive cross price elasticity means that as the price of one good goes up, the demand for a different good rises. These two goods are substitutes.

Which demand characteristic can be classified as unit elastic?

Price elasticity of demand equals 1 all along the demand curve - Demand is unit elastic when price elasticity of demand equals 1.

Supply is -price elastic if it is greater than 1.

Supply is price elastic if the price elasticity of supply is greater than 1.

The following represents three possible market supply curves for chickpeas: What will occur when firms leave the chickpea industry?

Supply will shift from S0 to S1. - When firms leave the chickpea industry, supply of chickpeas will fall. The supply curve moves to the left. A move from S0 to S1 is possible.

What occurs when the quantity of a good or service supplied exceeds the quantity demanded at the current price?

Surplus - A surplus is a situation in which the quantity supplied of a good or service exceeds the quantity demanded at the current price.

The market for garlic is in equilibrium, then both the supply and the demand for garlic increase. What affect will this change have on the equilibrium price and quantity for garlic?

The change in equilibrium price is ambiguous and the quantity increases. - The effect on the equilibrium price is ambiguous. Whether the equilibrium price is higher, lower, or unchanged depends on the extent to which each curve shifts. If simultaneous shifts in demand and supply cause equilibrium price or quantity to move in the same direction, then equilibrium price or quantity clearly moves in that direction.

In general, what affect does an increase in the number of buyers have on the total quantity of a good or service?

The greater the number of buyers, the greater the demand. - A larger number of buyers will have a larger demand for goods and services. While each individual person's demand curve may not change as the number of buyers rises, the number of buyers as a whole will continue to demand more.

Which kind of line represents a perfectly inelastic supply curve?

Vertical - A vertical supply curve is perfectly inelastic.