question
What happens if the government imposes a price ceiling below the equilibrium price of a good?
answer
There will be a shortage in the market
question
What will decrease a demand for beef?
answer
An increase in the price of potatoes, if potatoes and beef are complementary.
question
Consumer surplus is defined as
answer
the difference between the value that consumers place on a good and the price.
question
What would cause the equilibrium price of a good X to increase?
answer
Good X is an inferior good, and the government decreases income taxes.
question
If the demand for good Y increases as the price of good X decreases, it can be concluded that
answer
X and Y are complementary goods
question
If bologna is an inferior good
answer
an increase in consumer income will decrease the demand for bologna.
question
The demand curve for hamburgers will shift to the right
answer
when there's an increase in the price of pizza, a substitute for hamburger.
question
The supply curve for automobiles will shift to the left in response to
answer
an increase in wages in the automobile industry.
question
A thirsty athlete pays $.85 for a drink when she would have gladly paid $1.50 for the drink is an example of
answer
consumer surplus
question
An increase in demand likely to for air travel is most
answer
shift the demand curve for aircraft mechanics to the right
question
In a perfectly competitive market, which of the following shifts in the supply and demand curves will definitely case both the equilibrium price and quantity to decrease?
answer
Supply curve, no shift; Demand curve, shift to the left
question
The market is currently in equilibrium. Where is the area of consumer plus?
(graph will be shown)
(graph will be shown)
answer
WYZ
question
If the price for a product produced in a competitive market increases, what is most likely to occur in the labor market for workers who produce that product?
answer
the demand for labor and the number of workers both increase
question
What happens if the price of the product decreased?
answer
the quantity of the product sold has increased
question
The graph above shows the supply and demand curves for gasoline. What will happen if the government establishes a price ceiling of $1.20?
(graph will be shown)
(graph will be shown)
answer
neither a surplus nor a shortage
question
Suppose that a large number of unskilled workers enter a nation's labor market. If the labor market is competitive, the number of unskilled workers will increase and the wage rate will most likely __________.
answer
decrease
question
Assume that consumers consider potatoes to be an inferior good, but consider rice to be a normal good. An increase in consumers' incomes will most likely affect the equilibrium price and and quantity of potatoes and rice in what ways?
answer
Potatoes: price decrease, quantity decrease
Rice: price increase, quantity increase
Rice: price increase, quantity increase
question
Assume that a consumer spends all her income on the purchase of two goods. What will happen if the consumer's income doubles and the prices of the two goods also double?
answer
the quantity of the two goods purchased will not change
question
What tends to increase the gap in earnings between skilled and unskilled workers over time?
answer
a decrease in the demand for unskilled workers relative to skilled workers
question
The graph above shows the supply and demand curves for artichokes. If the surgeon general announces eating an artichoke a day dramatically reduces canser and the artichoke crop is severely damged by infestation, what will happen to the price of artichokes?
(graph will be shown)
(graph will be shown)
answer
the price of artichokes will increase
question
The surgeon general determined that smoking causes cancer for both smokers and passive smokers. What will happen if cigarette prices are determined in a free market?
answer
the price of cigarettes will be too low and the quantity sold will be too high
question
The graph above illustrates the labor market for teenage workers. The current minimum wage is W1. If Congress introduces a subminimum wage W2 that applies only to teenagers, what will happen?
(graph will be shown)
(graph will be shown)
answer
teenage employment will increase because firms will want to hire more teenagers at W2 than at W1
question
The allocation of resources in a market economy is described by
answer
buyers and sellers exchange goods and services on a voluntary basis and prices and costs help producers decide whether they are producing too little or too much
question
What is the intention of the government in creating a price floor?
answer
assist producers of the good
question
The graph above illustrates the market for tomatoes. If the demand increases while the supply decreases, what will happen to the price of tomatoes?
(graph will be shown)
(graph will be shown)
answer
the price of tomatoes will definitely increase
question
What is a factor that causes a firm's cost curves to shift upward?
answer
increase in wages
question
If the demand for potatoes increase whenever a person's income increases, then ______________.
answer
potatoes are an example of a normal good
question
The American Heart Association has just issued a report warning consumers about the negative health effects of eating beef. The changes in the beef market will shift the demand cuve to the ____________.
answer
left, decreasing the price of beef
question
Describe complementary goods
answer
the increase in the price of one good decreases the demand for another
question
Which of the following will not cause a shift in the demand curve for a factor of production?
a. demand for the goods produced by the factor
b. prices of the goods produced by the factor
c. prices of the substitutes factors
d. supply of the factor
e. supply of the substitutes factors
a. demand for the goods produced by the factor
b. prices of the goods produced by the factor
c. prices of the substitutes factors
d. supply of the factor
e. supply of the substitutes factors
answer
supply of the factor (c)
question
If a one of a kind vase is offered for sale at an auction, which of the following correctly shows the supply curve for the vase.
answer
x axis- quantity
y axis- price
supply is a vertical line
y axis- price
supply is a vertical line
question
What will cause a fall in the price of a product
answer
a decrease in the price of the substitute product and an improvement in production technology
question
The market equilibrium price of home heating oil is $1.50 per gallon. If a price ceiling of $1.00 per gallon is imposed, what will occur in the market for home heating oil?
answer
quantity demanded will increase and quantity supplied will decrease
question
What will inevitably cause a shift in the market for workers with a certain skill?
answer
An increase in the demand for goods produced by these workers.
question
An effective price floor introduced in the market for rice will result in what?
answer
an increase in the price of rice and an excess supply of rice
question
What leads to an increase in the supply of a good?
answer
an improvement in production technology for a certain good.
question
If an increase in the price of good X causes a drop in demand for good Y, ________________.
answer
good Y is a complement to good X
question
Assume that the products X and Y are substitutes. If the cost of producing X decreases and the price of Y increases, what happens.
answer
the equilibrium price can increase or decrease and the quantity of X increases
question
Why is the demand curve for cars downward sloping?
answer
an increase in the price of cars leads to the increased use of other modes of transportation
question
Leather and beef are jointly produced such that an increase in the production of one results in an equal increase in the production of the other. What will most likely cause a decrease in the price of the beef?
answer
an increase in the demand for leather
question
Law of Demand
answer
the claim that, all things equal, the quantity demanded of a good falls when the price of the good rises. (inverse relationship between price and quantity demanded)
question
Law of Supply
answer
the claim that, all things equal, the quantity supplied of a good rises when the price also rises (direct relationship between quantity supplied and price)
question
What will only occur due to a change in price?
answer
movement along a curve
question
Shifters of Demand
answer
(merit)
- market size
- expected prices
- related prices
- income
- tastes
- market size
- expected prices
- related prices
- income
- tastes
question
Shifters of Supply
answer
(price)
- technology
- related prices
- input prices
- competition
- expected prices
- technology
- related prices
- input prices
- competition
- expected prices
question
(factors that shift demand) Consumers preferances and tastes
answer
people are willing to buy some products at a higher price because some people are more into particular goods
question
(factors that shift demand) Consumer's income
answer
an increase in income can cause an increase or decrease of goods demanded
question
(factors that shift demand) Numer of consumers in the market
answer
an increase in the number of consumers in the market is most likely to result in an increase in the demand for the good or service
question
(factors that shift demand) Consumer's expectations
answer
if people expect the price of the good will increase, they will buy it before the price increases. On the other hand, if they expect the price of a good to decrease, they will wait before the price drops.
question
(factors that shift demand) Prices of related goods
answer
related goods are either sustitutes or complements. Increase price in substitutes or complements can cause increase or decrease in quantity demanded
question
(factors that shift supply) Technology
answer
improvements in technology will encourage the firm to produce more at the same price
question
(factors that shift supply) The price of goods used as an input in production
answer
more expensive inputs increases the cost of production of goods and services, and may force the firm to sell less at a given price
question
(factors that shift supply) Number of firms in the market
answer
if more firms in the market increase, supply increases, as more goods or services will be available for sale at each price
question
(factors that shift supply) Seller's expectation of future prices
answer
if a firm expects the price of a good to increase in the future, they will sell less today and more in the future
question
(factors that shift supply) Government taxes, subsidies, and regulations
answer
Government's policies or rules can affect the supply
question
(factors that shift supply) Number of sellers in the market
answer
more sellers in the market means more supply
question
Equilibrium
answer
a situation in which the market price has reached the level at which quantity supplied equals quantity demanded
question
Surpluses
answer
- amount by which the quantity supplied of a product exceeds the quantity demanded at a specific (above equilibrium) price
- cause price to decrease
- cause price to decrease
question
Shortages
answer
- amount by which the quantity demanded of a product exceeds quantity supplied at a particular (below equilibrium) price
- cause price to rise
- cause price to rise
question
Supply curve
answer
upward (/)
question
Demand curve
answer
downward (\)
question
Consumer surplus
answer
amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it
question
Producer surplus
answer
amount a seller is paid for a good minus the seller's cost of providing it
question
Deadweight loss
answer
the fall in total surplus that results from a market distortion, such as tax
question
Price ceiling
answer
- a legally established MAXIMUM price for a good or service
- below equlibrium price
- leads to a shortage
- (ex) rent, usury laws
- below equlibrium price
- leads to a shortage
- (ex) rent, usury laws
question
Price floor
answer
- minimum price that government allows sellers to recieve for a good or service; legally established or maintained MINIMUM price
- above equlibrium price
- leads to a surplus
- above equlibrium price
- leads to a surplus
question
Normal good
answer
a good for which, all things equal, an increase in income leads to an increase in demand (iPhones, frappuccinos, Mercedes-Benz)
question
Inferior good
answer
a good for which, all things equal, an increase in income leads to a decrease in demand (public bus rides, off-brand foods, Taco Bell)
question
Substitutes
answer
two goods for which an increase in the price of one leads to an increase in the demand of another (McDonalds and Wendy's)
question
Complements
answer
two goods for which an increase in the price of one leads to a decrease in the demand of another (peanut butter and jelly)
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