Chapter 3 Microeconomics

If the price is below the equilibrium level, then the quantity demanded will exceed the quantity supplied. This is known as __.

excess demand

Many cooks view butter and margarine to be substitutes. If the price of butter rises, then in the market for margarine:

both the equilibrium price and quantity will rise.

Refer to Table 3-1. Suppose that D1 and S2 are the demand and supply schedules for Product A. If the government imposes a price ceiling of $4, then:

Price D1 D2 S1 S2

$12 5 9 19 14

$10 8 12 17 12

$8 11 15 15 10

$6 13 18 13 8

$4 16 21 11 6

$2 18 24 9 4

a 10 unit shortage will result.

A more efficient means of processing algae to produce an anticancer drug is discovered. As a result, the supply curve for the drug will:

shift to the right, decreasing the price of the drug

In economics, the demand for a good refers to the amount of the good that people:

will buy at various prices.

If a firm faces _, while the prices for the output the firm produces remain unchanged, a firm's profits will increase.

lower costs of production

When quantity demanded decreases in response to a change in price:

there is a movement up along the demand curve.

_ are enacted when discontented sellers, feeling that prices are too low, appeal to legislators to keep prices from falling.

Price floors

The demand schedule for a good:

indicates the quantities that will be purchased at alternative market prices.

A supply curve is a graphical illustration of the relationship between price, shown on the vertical axis, and ___, shown on the horizontal axis.

quantity

Refer to Table 3-1. If D1 and S1 represent the demand and supply schedules in a particular market, then the equilibrium price and quantity are _ and , respectively.

Price D1 D2 S1 S2

$12 5 9 19 14

$10 8 12 17 12

$8 11 15 15 10

$6 13 18 13 8

$4 16 21 11 6

$2 18 24 9 4

$6; 13

The supply curve of textbooks (which are produced using paper made from trees) will shift to the left in response to:

a sharp increase in the demand for and construction of wood-frame homes.

How do apple growers react to the news of medical research findings that suggest that eating apples leads to greater health benefits than were previously known?

They increase the quantity of apples supplied.

Refer to Figure 3-1. Using the graph above and beginning on D1, a shift to D2 would indicate a(n):

D2 is above D1

increase in demand.

Refer to Figure 3-1. The movement from to __ is consistent with a successful advertising campaign that claims wool keeps you warm.

Line D1 is above D0. Point A is at the middle of D0. Point F is at the middle of D1

Point A; Point F

Refer to Table 3-1. Suppose that D1 and S1 are the prevailing demand and supply curves for a product. If the demand schedule changes from D1 to D2, then:

Price D1 D2 S1 S2

$12 5 9 19 14

$10 8 12 17 12

$8 11 15 15 10

$6 13 18 13 8

$4 16 21 11 6

$2 18 24 9 4

equilibrium price increases from $6 to $8

Refer to Table 3-1. If D2 and S1 represent the demand and supply schedules in a particular market, then the equilibrium price and quantity are _ and _, respectively.

Price D1 D2 S1 S2

$12 5 9 19 14

$10 8 12 17 12

$8 11 15 15 10

$6 13 18 13 8

$4 16 21 11 6

$2 18 24 9 4

$8; 15

Refer to Figure 3-1. The movement from to __ is consistent with a decrease in the price of cotton (a substitute).

Line D0 is above line D2. Point A is at the middle of Line D0. Point H is at the middle of line D2.

Point A; Point H

Refer to Figure 3-3. A change from Point A to Point D represents a(n):

Point A is on Line S0. Point D is on line Line S1. Line S1 is to the right of Line S0.

increase in supply.

When economists talk about supply, they are referring to a relationship between price received for each unit sold and the __.

quantity supplied

A drought decreases the supply of agricultural products, which means that at any given price a lower quantity will be supplied; conversely, especially good weather would shift the _

supply curve to the right

Andy views beer and pizza as complements to one another. If the price of pizza decreases, economists would expect:

Andy's demand for beer to increase.

The nature of demand indicates that as the price of a good increases:

buyers desire to purchase less of it.

The _ is the only price where quantity demanded is equal to quantity supplied.

equilibrium price

A severe freeze has once again damaged the Florida orange crop. The impact on the market for orange juice will be a leftward shift of:

the supply curve.

A change in price of a good or service typically causes __ for that specific good or service.

a change along the supply curve

According to the law of supply:

there is a direct relationship between price and the quantity supplied.

But nearly all supply curves share a basic similarity: they slope __.

up from left to right

When ____, a firm will supply a higher quantity at any given price for its output, and the supply curve will shift to the right.

costs of production fall

Which of the following would reduce the supply of microcomputers?

a technological improvement that lowers the cost of producing the computers

higher wage rates for the workers that assemble the computers

a reduction in the price of computer chips used to produce the computers

a reduction in the price of computers.

higher wage rates for the workers that assemble the computers

Interpret the following statement: "An increase in the price of wheat will encourage farmers to increase the quantity of wheat supplied to the market."

The Statement is correct

The statement would be correct if "quantity of wheat demanded" were substituted for "quantity of wheat supplied."

The statement is incorrect because it confuses a change in quantity supplied with a change in supply.

The statement would be correct if it read that a "decrease in the price of wheat will encourage farmers to increase the quantity of wheat supplied to the market."

The statement is correct.

Are markets always in equilibrium?

No, but if there is no outside interference, they tend to move toward equilibrium.

The demand curve for a typical good has a(n):

negative slope because some consumers switch to other goods as the price rises.

Refer to Table 3-1. Suppose that D2 and S1 are the prevailing demand and supply curves for a product. If the demand schedule changes from D2 to D1, then:

Price D1 D2 S1 S2

$12 5 9 19 14

$10 8 12 17 12

$8 11 15 15 10

$6 13 18 13 8

$4 16 21 11 6

$2 18 24 9 4

equilibrium quantity decreases from 15 to 13.

Whenever there is a shortage at a particular price, the quantity sold at that price will equal:

the quantity supplied at that price.

Any given demand or supply curve is based on the ceteris paribus assumption that

all else is held equal

If an increase in the price of Good X causes a decrease in the demand for Good Y, we can conclude that:

Goods X and Y are complement goods.

In economics, the demand for a good refers to the amount of the good that people:

will buy at various prices.

The downward slope of the demand curve again illustrates the pattern that as _ rises, __ decreases.

price, quantity demanded

The _ is the quantity where quantity demanded and quantity supplied are equal at a certain price.

equilibrium quantity

If new manufacturers enter the computer industry, then (ceteris paribus):

the supply curve shifts to the right.

In your own words, explain what a price ceiling is. What makes a price ceiling binding?

A price ceiling is the maximum one can charge for a good/service. Price ceilings are implanted so that more people can afford a good/service. This is why price ceiling are normally implemented below the equilibrium price to have any effect. Having the price ceiling below the equilibrium is what makes a price ceiling binding and effective.

Suppose the government enacts a binding price ceiling on strawberries. Explain the impact of this price ceiling on the consumers and producers of strawberries.

The price ceiling would make strawberries cheaper for the consumers but the producers would be losing out on profit so they stop producing as much as before. This will eventually lead to a shortage of strawberries where the demand for strawberries is greater than the quantity supplied.

Do you support or oppose imposing a binding price ceiling on strawberries? Why?

I would have to oppose to a price ceiling on strawberries because it is harmful to overregulate the market and price controls are only effective in the short-term so they should only be used in emergencies. To my knowledge strawberries price are normal and not ultra expensive. I do not believe it is necessary to have a price ceiling on strawberries, otherwise we could end up having a shortage of strawberries, creating another problem.