Exam 4: Supply and Demand: An Initial Look

Normally an increase in the supply of a good will cause

Suppose that in a free market 2,000 patients purchase an operation to receive an artificial heart at a price of $500,000 per operation.Without the heart,each patient will die.The government decides this price is too high and imposes a maximum price of $200,000.Everything else equal,

If demand increases,the equilibrium price and equilibrium quantity will both fall,everything else being equal.

Define equilibrium as it relates to markets.Describe the process by which a market reaches a new equilibrium.Include an appropriate diagram.

The major drawback of a price ceiling is

Shortages normally accompany an effective price floor.

Producers were accused of price gouging as the price of bottled water soared after Hurricane Andrew.Consumers clamored for price controls to keep bottled water at pre-Andrew levels.Use supply and demand analysis to graphically show the effect of setting a price ceiling on bottled water after Hurricane Andrew at the pre-hurricane equilibrium price.Use your graph to assist in explaining the likely unintended effects of such a price control.Be sure that your graph is completely and correctly labeled.

If price rises,what happens to quantity demanded for a product?

Why do airlines tend to lower ticket prices in the winter?

What factors are held constant along a given demand curve for a good?

A change in the price of a good has no effect on the supply schedule.

Why are sellers willing to sell more at a higher price?

Draw a graph of a market in equilibrium.Describe what might cause a change in demand or supply and how this would affect the diagram.Indicate how the equilibrium price and quantity will change.

Firms often seek to borrow money to expand their capital stock,and the price they pay for that money is the interest rate.What happens to quantity of money demanded if the interest rate increases?

Define the following terms and explain their importance to the study of economics. a.demand b.surplus c.equilibrium d.law of supply and demand e.quantity demanded

The government of Economica announces that it will purchase its farmers' surplus of milk.From this announcement,you can infer that Economica has a

The U.S.government restricts the production of peanuts by limiting production licenses.By also prohibiting imports,the government maintains prices well above levels peanut farmers would obtain if supply were not restricted.Economists call this type of program a(n)

Figure 4-21 -At price P₃ in Figure 4-21,what will tend to happen?

An important assumption that is made when constructing a supply schedule is

Table 4-1 Use this table for the following questions. -Refer to Table 4-1.At $4,what is the shortage?