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

If, in the market for oranges, the supply has increased then

In 2004, hurricanes damaged a large portion of Florida's orange crop. As a result of this, many orange growers were not able to supply fruit to the market. At the pre-hurricane equilibrium price (i.e., at the initial equilibrium price), we would expect to see

By drawing a demand curve with price on the vertical axis and quantity on the horizontal axis, economists assume that the most important determinant of the demand for a good is

If a demand curve shifts to the right, then

Figure 3-4 -Refer to Figure 3-4. If the price is $10,

If the price of a product is expected to increase in the future, the supply today will increase.

As the number of firms in a market decreases, the supply curve will shift to the left and the equilibrium price will fall.

Figure 3-6 -Auctions in recent years have resulted in higher prices paid for letters written by John Wilkes Booth than those written by Abraham Lincoln. Which of the following events would cause the price differences in these letters to get smaller?

Explain the difference between substitutes and complements.

A firm has an incentive to decrease supply now and increase supply in the future if it expects that

For each of the following pairs of products state which are complements, which are substitutes, and which are unrelated. a. Swim fins and scuba tanks b. Coca Cola and Volkswagens c. Printers and ink cartridges d. Ice and ice chests e. Heineken and Corona

What is a surplus? What is a shortage?

Figure 3-1 -Refer to Figure 3-1. A decrease population would be represented by a movement from

As the number of firms in a market increases, the supply curve will shift to the left and the equilibrium price will rise.

As the number of firms in a market increases, the supply curve will shift to the right and the equilibrium quantity will rise.

If the number of firms producing mouthwash increases and consumer preference for mouthwash increases, the equilibrium price of mouthwash will definitely increase.

When Toyota introduced its 2010 Prius, it announced that the average retail price of the 2010 model would be lower than the average retail price was for the equivalent 2009 model. Which of the following would explain the price differential?

A change in quantity supplied is represented by a movement along the supply curve.

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.

Figure 3-1 -Refer to Figure 3-1. A decrease in the expected future price of the product would be represented by a movement from