Exam 3: Where Prices Come From: the Interaction of Demand and Supply

Even when the demand for one good is high,the price of the good is also affected by supply. The textbook illustrates this by comparing the price of two items that were auctioned on the same day. Which of the following describes the results of the auction?

Hurricane Katrina damaged a large portion of oil refining and pipeline capacity in the Gulf coast states.In the market for gasoline,

Would a change in the price of in-line skates cause a change in the supply of in-line skates? Why or why not?

If the demand for a product increases and the supply of the same product decreases,the equilibrium price will increase.

Cole was discussing the market for cocoa beans with his friend John Schmidt.Cole said,"Ever since Venezuela announced that its cocoa harvest was its lowest ever in fifteen years,the price of cocoa beans has been rising and rising and people are buying more and more.I think the demand for cocoa beans must be upward sloping." Is Cole right? Briefly explain why or why not.

Explain the Law of Demand.

A decrease in the price of inputs will cause the supply curve for a product to shift to the right.

The ________ effect of a price change refers to the impact of a change in the price of a good on a consumer's purchasing power.

According to the Australian Wool Innovation,severe drought conditions in Australia contributed to the lowest level of wool production in 50 years. This record low production has driven up prices sharply in Australian wool markets. Meanwhile,the price of raw cotton increased significantly for the first time in many years. a.Illustrate this observation with one demand and supply graph for the market for Australian wool and another demand and supply graph for raw cotton. b.Make sure that your graphs clearly show (1)the initial equilibrium before the decrease in the supply of Australian wool and (2)the final equilibrium. c.Use arrows to indicate any shifts in the demand and supply curves for each market. d.Label your graphs fully and write an explanation of your work.

Assume that both the demand curve and the supply curve for DVD players shift to the left but the demand curve shifts more than the supply curve. As a result

A surplus is defined as the situation that exists when the quantity of a good supplied is greater than the quantity demanded.

In response to a shortage the market price of a good will rise; as the price rises,the demand will decrease and supply will increase until equilibrium is reached.

During the 1990s positive technological change in the production of chicken caused the price of chicken to fall. Holding everything else constant,how would this affect the market for pork (a substitute for chicken)?

If a firm expects that the price of its product will be lower in the future than it is today

Discuss the correct and incorrect economic analysis in the following statements. "If a disease kills a large number of turkeys,the supply of turkeys will decrease.This will result in a price increase,which will then cause the supply of turkeys to increase."

If consumers view tablet computers as good replacements for ________ demand will most likely be greater than if consumers view tablet computers as good replacements for ________.

Which of the following would cause an increase in the equilibrium price and decrease in the equilibrium quantity of watermelon?

The substitution effect of a price change refers to

If pilots and flight attendants agree to wage and benefit reductions in the wake of the financial difficulties in the airline industry,what impact would this have on the supply and demand in the market for airline service,assuming no other changes take place in this market?

An ________ is represented by a rightward shift of the demand curve while an ________ is represented by a movement along a given demand curve.