Deck 27: Simple Analytics of Supply and Demand

Question 1

Whats defention of terms:
-demand

Answer 1

the quantity of the good buyers would be willing and able to purchase during a given period, at various price levels, holding all other things constant

Question 2

Whats defention of terms:
-demand curve

Answer 2

illustrates graphically the relationship between prices and the quantity demanded

Question 3

Whats defention of terms:
-demand schedule

Answer 3

relates various prices of a good with the amounts of that good people would like to buy at various prices

Question 4

Whats defention of terms:
-law of demand

Question 5

Whats defention of terms:
-law of supply

Question 6

Whats defention of terms:
-supply

Question 7

Whats defention of terms:
-supply curve

Question 8

Whats defention of terms:
-supply schedule

Question 9

Whats defention of terms:
-change in demand

Question 10

Whats defention of terms:
-change in quantity demanded

Question 11

Whats defention of terms:
-change in quantity supplied

Question 12

Whats defention of terms:
-change in supply

Question 13

Whats defention of terms:
-equilibrium

Question 14

Whats defention of terms:
-excess demand

Question 15

Whats defention of terms:
-excess supply

Question 16

Whats defention of terms:
-complementary goods

Question 17

Whats defention of terms:
-cross-price elasticity

Question 18

Whats defention of terms:
-elastic demand

Question 19

Whats defention of terms:
-identification problem

Question 20

Whats defention of terms:
-income elasticity

Question 21

Whats defention of terms:
-inelastic demand

Question 22

Whats defention of terms:
-inferior goods

Question 23

Whats defention of terms:
-luxury goods

Question 24

Whats defention of terms:
-necessity goods

Question 25

Whats defention of terms:
-normal goods

Question 26

Whats defention of terms:
-perfectly elastic

Question 27

Whats defention of terms:
-perfectly inelastic

Question 28

Whats defention of terms:
-price elasticity of demand

Question 29

Whats defention of terms:
-price elasticity of supply

Question 30

Whats defention of terms:
-substitute goods

Question 31

Whats defention of terms:
-total revenue

Question 32

Whats defention of terms:
-unitary elasticity

Question 33

Define and explain the basics of supply and demand analysis.
-Explain what is meant by referring to the market as a "process."

Question 34

Define and explain the basics of supply and demand analysis.
-State the law of demand. State the law of supply. What is meant by the phrase "…holding all other things constant?"

Question 35

Define and explain the basics of supply and demand analysis.
-What is equilibrium? Why is it significant? Does it ever change?

Question 36

Understand the context in which the supply and demand model is developed.
-Explain why the focus of supply and demand analysis is strictly limited to exchange?

Question 37

Understand the context in which the supply and demand model is developed.
-Does the demand curve in the supply and demand model capture all the people who want or desire a good? Why or why not?

Question 38

Explain the progressive critiques of supply and demand analysis.
-What happens to supply and demand analysis if the government intervenes in the market?

Question 39

Explain the progressive critiques of supply and demand analysis.
-Are there many real world examples of perfectly competitive markets? What might that mean for supply and demand analysis? Give an example.

Question 40

Define equilibrium and explain what it means.
-What is equilibrium? Why is it such an important concept?

Question 41

Understand and describe what happens when a market is not in equilibrium.
-Use supply and demand to explain excess supply. What might cause excess supply? Describe the process that eliminates excess supply.

Question 42

Understand and describe what happens when a market is not in equilibrium.
-Use supply and demand to explain excess demand. What might cause excess demand? Describe the process that eliminates excess demand.

Question 43

Understand and describe what happens when a market is not in equilibrium.
-What three factors can cause a change in demand? What factor can cause a change in the quantity demanded?

Question 44

Understand and describe what happens when a market is not in equilibrium.
-Carefully distinguish between a change in supply and a change in the quantity ?supplied.

Question 45

Understand and describe what happens when a market is not in equilibrium.
-What factors can cause a change in supply? What causes a change in the quantity ?supplied?

Question 46

Understand and describe what happens when a market is not in equilibrium.
-Draw a simple supply and demand curve diagram for coffee. Assume that incomes of consumer are rising. What happens to demand and supply? What happens to equilibrium price and quantity?

Question 47

Understand and describe what happens when a market is not in equilibrium.
-Assume that for some reason the coffee price in the previous question is above the equilibrium price. What pressures would cause this market to tend toward equilibrium?

Question 48

Understand and describe what happens when a market is not in equilibrium.
-Assume that the price of coffee is below equilibrium. What pressures would cause this market to tend toward equilibrium?

Question 49

Understand and describe what happens when a market is not in equilibrium.
-Suppose that the market for wooden Number 2 lead pencils is in equilibrium. Determine how the following shocks will affect the equilibrium price and quantity. Draw a graph to illustrate each of your answers.
a. Professors begin to require ink on all exams.
b. The price of lead increases.
c. School attendance falls.
d. Legislation restricts lumber harvests.
e. Pencil makers receive a large wage increase.
f. The price of ballpoint pens falls.

Question 50

Understand and describe what happens when a market is not in equilibrium.
-Suppose that the market for PC laptop computers is in equilibrium. Determine how the following shocks will affect the equilibrium price and quantity. Draw a fully labeled demand and supply curve diagram to illustrate each of your answers.
a. Computers become easier to use.
b. The price of memory chips falls.
c. Software prices fall.
d. All college students are required to own personal computers.
e. The price of electricity rises substantially.
f. Doctors warn of health risks from radiation from video terminals.

Question 51

Understand and describe what happens when a market is not in equilibrium.
-What does the measure of price elasticity try to capture? Why might this measure be useful information?

Question 52

Understand and describe what happens when a market is not in equilibrium.
-What are the main determinants of price elasticity of demand? What are the main determinants of price elasticity of supply?

Question 53

Understand and describe what happens when a market is not in equilibrium.
-How is price elasticity of demand calculated? Why do we use absolute values for price elasticity of demand?

Question 54

Understand and describe what happens when a market is not in equilibrium.
-Explain why all downward-sloping linear demand curves have elastic, inelastic, and unitary elastic regions.

Question 55

Understand and describe what happens when a market is not in equilibrium.
-What is the difference between elasticity and slope?

Question 56

Understand and describe what happens when a market is not in equilibrium.
-Suppose that the demand schedule is given as

a. Graph this data and find the vertical intercept. Assume the demand curve is everywhere linear.
b. Calculate an elasticity coefficient in the inelastic range of the demand curve.
c. Calculate an elasticity coefficient in the elastic range of the demand curve.
d. Find the point of unitary elasticity.
e. Find the point of maximum total revenue. What is the maximum total revenue at that point?

Question 57

Understand and describe what happens when a market is not in equilibrium.
-Suppose that a supply curve is given as:

a. Graph this data.
b. Calculate an elasticity of supply coefficient.
Show the relationship between price elasticity of demand and total revenue and how this relationship is important to firms and policymakers.

Question 58

Understand and describe what happens when a market is not in equilibrium.
-How are total revenue and price elasticity of demand related?

Question 59

Understand and describe what happens when a market is not in equilibrium.
-Would a firm planning a price increase be better off if the demand for its product was elastic or inelastic? Explain.

Question 60

Understand and describe what happens when a market is not in equilibrium.
-As manager of the Eagle Crest Ski Resort and Lodge, you announce an increase in the price of lift tickets from $35 to $50. The number of skiers falls, but your total revenue increases.
a. What does this say about the elasticity of demand for lift tickets? Should you raise ticket prices even more?
b. Your friend, an avid skier and economics major-but in no way affiliated with the ski lodge-says she is actually happy that you raised the ticket prices. How could she think such a thing?

Question 61

Understand and describe what happens when a market is not in equilibrium.
-Use price elasticity to explain the following observations:
a. The price of gasoline is higher near the freeway than at a gas station two miles off the freeway.
b. Airline tickets are less expensive if purchased a month before you plan to fly than if purchased one day before you plan to fly.
c. Prices in grocery stores in low-income areas of town might actually be higher than in a more affluent area of town.

Question 62

Calculate and explain the use of income elasticity.
-What is income elasticity? What is it used to measure?

Question 63

Calculate and explain the use of income elasticity.
-Use income elasticity to explain the differences between normal, inferior, luxury, and necessity goods.

Question 64

Calculate and explain the use of income elasticity.
-Look at each of the following pairs and discuss which component has a higher price and income elasticity. Briefly explain your answer.
a. movies/taxi cabs
b. tobacco/gasoline
c. electricity/water
d. mobile phone service/clothing
e. intercity busses/doctor's services
Both are necessity goods. Doctor's services are likely to be more inelastic in most cases.

Question 65

Define cross-price elasticity and show how it is used to define necessity and luxury goods.
-What is a complement and what is a substitute good? Give examples of goods that are complements and goods that are substitutes.

Question 66

Define cross-price elasticity and show how it is used to define necessity and luxury goods.
-What is cross-price elasticity? What is the formula for calculating cross-price elasticity?

Question 67

Define cross-price elasticity and show how it is used to define necessity and luxury goods.
-Using cross-price elasticity, how is it determined whether a good is a complement or substitute?

Question 68

Explain the limitations of elasticity (demand, supply, income, and cross-price).
-What are some problems with measuring the various types of elasticities?

Question 69

Explain the limitations of elasticity (demand, supply, income, and cross-price).
-Explain the "identification problem."

Question 70

-In Diagram 27a, the demand curve represented by line D shows

A) that there is a positive relationship between price and quantity demanded.
B) that there is an inverse relationship between price and quantity demanded.
C) that the relationship between price and quantity demanded is both positive and inverse.
D) that the relationship between price and quantity demanded is circular.

Question 71

-In Diagram 27a, the supply curve represented by line S shows

A) that there is a positive relationship between price and quantity supplied.
B) that there is an inverse relationship between price and quantity supplied.
C) that the relationship between price and quantity supplied it both positive and inverse.
D) that the relationship between price and quantity supplied is circular.

Question 72

Which of the following factors may influence the demand for coffee sold in fast food restaurants?

A) the cost of coffee beans used to make the coffee.
B) the income of consumers shopping in fast food restaurants.
C) the wages paid to workers in fast food restaurants.
D) the weather during the growing season in Brazil (where the coffee is grown).

Question 73

In the simple supply and demand diagram, equilibrium prices are determined by

A) demand
B) supply
C) both supply and demand
D) the government

Question 74

-Assume Table 27a represents demand schedules for Ford Explorers. In January consumers would have been willing to purchase 45,000 cars at a price of $25,000. In February, they would have been willing to purchase 50,000 cars at a price of $25,000. This change represents

A) an increase in demand.
B) an increase in quantity demanded.
C) an decrease in demand.
D) a decrease in quantity demanded.

Question 75

-Assume Table 27a represents demand schedules for Ford Explorers. What might account for the difference between the January demand schedule and the February demand schedule?

A) There was a shift in consumer preferences in favor of small, fuel efficient cars because of rising gasoline prices.
B) There was a decrease in consumer income in February.
C) There was a significant increase in the price of other Sport Utility Vehicles on the market.
D) Toyota and Honda announced special decreases on all their Sport Utility Vehicles in February.

Question 76

-Assume Table 27b represents supply schedules for Ford Explorers. In January Ford Motor Company would have been willing to supply 55,000 cars at a price of $35,000 and 40,000 cars at a price of $20,000. This change from $35,000 to $20,000 represents

A) an increase in supply.
B) an increase in quantity supplied.
C) an decrease in supply.
D) a decrease in quantity supplied.

Question 77

-Assume Table 27a represents supply schedules for Ford Explorers. What might account for the difference between the January supply schedule and the February supply schedule?

A) an increase in consumer income
B) a decrease in wages paid to Ford factory workers.
C) a decrease in consumer income.
D) an increase in the cost of glass used for windows in Ford Explorers.

Question 78

A movement along the same demand curve is referred to as

A) an change in demand
B) a change in quantity demanded.
C) a change in the demand schedule.
D) an income effect.

Question 79

-Assume Table 27.1a represents the supply and demand of Ford Explorers. If price is currently $30,000

A) the market is in equilibrium.
B) there is excess demand.
C) there is excess supply.
D) there is both excess demand and excess supply

Question 80

-Assume Diagram 27.1a represents the market for wheat bread. The shift in demand from D₁ to D₂ will

A) cause equilibrium price to fall and equilibrium quantity to fall
B) cause equilibrium price to rise and equillibrium quantity to rise.
C) cause equilibrium price to fall and equilibrium quantity to rise.
D) cause equilibrium price to rise and equilibrium quantity to fall.