Chapter 3 Flashcards
(14 cards)
Which of the following scenarios does not illustrate the characteristics of substitute goods?
a) The price of tennis racquets decreases and the demand for golf clubs decreases
b) The price of coffee increases and the demand for tea increases
c) The price of automobiles decreases and the demand for public transit decreases
d) The price of bacon increases and the demand for eggs decreases
d) The price of bacon increases and the demand for eggs decreases - this is a situation of complementary goods. therefore, doesn’t illustrate the characteristics of subs
Which of the following is consistent with a movement along the supply curve?
a) Fewer passengers chose to travel by airplane after the terrorist strikes of 9/11
b) The province of Ontario has less grape regulation than the province of Quebec, and grape production is lower in the province of Quebec
c) A reduction of the price of salt led to a 5 percent increase in the quantity of salt consumed
d) An increase in the market price of iPhones causes an increase in the production of iPhones
d) An increase in the market price of iPhones causes an increase in the production of iPhones - this is due to the law of supply
The law of supply states: if prices rise, then supply rises, why is this true?
a) this is false
b) the law of demand says that prices rising, leads to price falls
c) because producer behaviors are driven by profit
c) because producer behaviors are driven by profit. - HIGHER PRICES = HIGHER PROFIT. higher prices often equate to higher revenue per unit sold. Producers are motivated to increase production due to potential marginal profits. Although demand would drop by consumers, the law of supply isn’t based on consumer behavior, but rather producer behavior.
Which of the following represents an inferior good?
a) When consumer income decreases and the demand for steak decreases
b) when consumer income increases and the demand for tea increases
c)) When consumer income increases and the demand for bologna decreases
d) when consumer income decreases and the demand for aspirin is unchanged
c) when consumer income increases and the demand for bologna decreases
- inferior good as income increases, demand for a specific good decreases.
- ex. macaroni and cheese, low grade cup ramen
If consumer income and demand for a good change in the same direction, what is that good called?
a) inferior good
b) normal good
c) income-neutral good
b) normal good
- ex. if your income rises, you may opt to consume more big macs or tea
Given linear demand curves, if demand and supply increase by identical amounts, then ________.
a) The equilibrium price and quantity both increase
b) The equilibrium price increases and the equilibrium quantity stays the same
c) The equilibrium price and quantity both decrease
d) The equilibrium price stays the same and the equilibrium quantity increases
d) The equilibrium price stays the same and the equilibrium quantity increases
-Since both curves shift outward proportionately, the equilibrium price remains constant and the equilibrium quantity rises. ( can also just draw the graph)
Given linear demand curves, if demand and supply both increase but demand increases by a greater amount than supply, then ___________.
a) The equilibrium price and quantity both increase
b) The equilibrium price and quantity both decrease
c) The equilibrium price decreases and the equilibrium quantity increases
d) The equilibrium price increases and the equilibrium quantity decreases
a) The equilibrium price and quantity both increase
- if the shift in demand is larger than the shift in supply, the result will be similar to a simple increase in demand.
All of the following will decrease the supply of airline flights except ________.
a) A technological change that makes airplanes safer and more fuel-efficient
b) An increase in the salaries of pilots
c) A reduction in the number of airline companies offering service
d) A rise in the price of jet fuel
a)
Suppose that the demand and supply curves of a market can be described by the following equations:
QD = 25 - 5p
QS = 5.5 + 1.5p
In this market, the quantity of equilibrium is ________.
a) 10 units
b) 3 units
c) 5 units
d) 6 units
a) 10 units
- 1. set QD=QS to find the single price
- 2. plug in (p) to either of the two equations, as they = one another.
In a price system, ________.
a) Relative prices do not signal information about changes in market conditions
b) Relative prices are set by central planners based on projected supply and demand
c) Relative prices change constantly to reflect changes in supply and demand
d) Relative prices change infrequently due to transactions costs
c) relative prices change constantly to reflect changes in supply and demand
whats the difference between a change in demand, and a change in quantity demanded?
a) they are interchangeable
b) quantity demanded shifts the entire curve, while demand shifts/moves along the curve
c) demand will shift the entire curve, while quantity demanded results in a shift/ movement along the curve
c) demand will shift the entire curve, while quantity demanded results in a shift/movement along the curve
- (these two terms are a huge difference)
- think of demand as a huge impact, and quantity demanded as a smaller move
- same theory applies for quantity supplied because
Given linear demand curves, if demand increases and supply decreases then __________.
a) The equilibrium price will increase but the effect on the equilibrium quantity will be ambiguous
b) The effect on the equilibrium price will be ambiguous but equilibrium quantity will decrease
c) The equilibrium price will decrease but the effect on the equilibrium quantity will be ambiguous
d) The effect on the equilibrium price will be ambiguous but equilibrium quantity will increase
a) The equilibrium price will increase but the effect on the equilibrium quantity will be ambiguous
The Niagara Escarpment had a bumper apple crop this year, significantly increasing the supply of apples in Ontario. Given this information, choose the statement that correctly describes the effect on the apple market in Ontario.
The market for corn is initially in equilibrium. Suppose that the production of biofuels—which use corn as an input—increases, and at the same time, increases in the price of oil cause farm production costs to rise.
Which of the following explains the effect on equilibrium price and quantity in the corn market?
a) The quantity of corn will fall, but the effect on equilibrium price cannot be determined without more information
b) The price of corn will rise, but the effect on equilibrium quantity cannot be determined without more information
c) The quantity of corn will rise, but the effect on equilibrium price cannot be determined without more information
d) The price of corn will fall, but the effect on equilibrium quantity cannot be determined without more information
b) The price of corn will rise, but the effect on equilibrium quantity cannot be determined without more information
- supply of corn decreases, as higher prouction costs of corn surfaces
- demand increased due to increase biofuel production
- therefore increasing corn price
