Macroeconomics/Microeconomics
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Module: Supply and Demand
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2 Analyze how buyers and sellers interact in a free and competitive market to determine prices and quantities of goods Short Title: Supply and Demand 2.1 Define a free market and a competitive market Short Title: The Free Market Which of the following statements describe(s) a competitive market? 1. There are a large number of buyers and sellers.* 2. Government does not intervene in any way. 3. The number of sellers is limited to a select few. // Content Page – Reading: Defining a Free Market Which of the following statements describe(s) a free market? 1. Government does not intervene in any way.* 2. There are price controls. 3. The number of sellers is limited to a select few. // Content Page – Reading: Defining a Free Market Which of the following statements describe(s) a free market? 1. The government does not intervene in any way.* 2. Inputs are free to sellers. 3. The price of outputs is controlled by the government. // Content Page – Reading: Defining a Free Market 2.2 Explain the determinants of demand Short Title: Demand Economists refer to the relationship that a higher price leads to a lower quantity demanded as the: 1. market equilibrium. 2. law of demand. * 3. price and demand model. // Content Page – Reading: What Is Demand In economics, the “ceteris paribus” assumption means: October 30, 2015 1. all other things that may influence a market outcome are variable. 2. all variables except those specified are kept constant.* 3. no one knows which variables will change and which will remain constant. // Content Page – Reading: Factors Affecting Demand // Updated 10/18/2015 Question and answer choices edited Which of the following events can shift the level of demand (Demand is the relationship between price and quantity demanded)? 1. Price of the good changes. 2. Population grows in a particular market area.* 3. Supply increases or decreases. // Content Page – Reading: Factors Affecting Demand // Updated 10/18/2015 question and answer choices edited According to the law of demand, assuming other factors are held constant: 1. As the price of bread increases, the quantity of bread demanded will increase. 2. As the price of bread increases, the quantity of bread demanded will decrease.* 3. As the demand for bread increases, the price of bread will also increase. // Content Page – Reading: Factors Affecting Demand // Updated 10/18/2015 question edited Complete the following sentence: If people think that the price of electronics will increase in the near future, that belief may cause a(n): 1. increase in the supply of electronics today. 2. increase in the demand for electronics today.* 3. decrease in the price of electronics today. // Content Page – Reading: Factors Affecting Demand // Updated 10/18/2015 question edited If a drop in the price of MP3 players shifts the demand for CD players down, this means that: 1. MP3 players and CD players are inferior goods. 2. MP3 players and CD players are substitutes.* 3. MP3 players and CD players are normal goods. // Content Page – Reading: Factors Affecting Demand // Updated 10/18/2015 question edited 2.2.a Graphically illustrate a demand curve Short Title: Graphing the Demand Curve A demand curve shows the graphical relationship between price and _______. 1. quantity demanded* 2. quantity produced 3. costs // Content Page – Reading: What Is Demand The law of demand states that as the price of a good increases: 1. more of it is produced 2. suppliers wish to sell less of it 3. buyers desire to purchase less of it* // Content Page – Reading: What Is Demand October 30, 2015 The downward slope of a demand curve illustrates the pattern that as _________ rises, ________ decreases. 1. quantity demanded : price 2. quantity supplied : quantity demanded 3. price : quantity demanded* // Content Page – Reading: What Is Demand 2.2.b Describe the differences between changes in demand and changes in the quantity demanded Short Title: Demand vs. Quantity Demanded When quantity demanded decreases in response to a change in price: 1. the demand curve shifts to the right. 2. the demand curve shifts to the left. 3. there is a movement from one point to another along the demand curve. * // Content Page – Reading: Factors That Change Demand // Updated 10/18/2015 answer choices edited After widespread press reports about the dangers of contracting “mad cow disease” by consuming beef from Canada, the likely economic effect on the demand curve for beef from Canada is: 1. a shift to the left. * 2. a movement down along the demand curve to the right. 3. a shift to the right. // Content Page – Reading: Factors That Change Demand // Updated 10/18/2015 question edited The difference between a change in demand and a change in the quantity demanded is the following: 1. A change in demand is shown by a shift in the demand curve. 2. A change in quantity demanded is shown by a movement along a given demand curve. * 3. A change in quantity demanded is shown by a shift in the supply curve. * // Content Page – Reading: Factors That Change Demand // Removed 10/18/2015 There are two common ways to discourage tobacco use: taxes on tobacco and information campaigns on the hazards of tobacco use. Which cause(s) a decrease in demand for smoking? 1. Information campaign on hazards of tobacco* 2. Tax on tobacco products that drives up its price 3. Both information campaign on hazards of tobacco and tax on tobacco products that drives up its price. // Content Page – Reading: Factors That Change Demand // New 10/18/2015 There are two common ways to discourage tobacco use: taxes on tobacco and information campaigns on the hazards of tobacco use. Which cause(s) a movement from one point to another along an existing demand curve? 1. Information campaign on hazards of tobacco 2. Tax on tobacco products that drives up its price* 3. Both information campaign on hazards of tobacco and tax on tobacco products that drives up its price. // Content Page – Reading: Factors That Change Demand // New 10/18/2015 There are two common ways to discourage tobacco use: taxes on tobacco and information campaigns on the hazards of tobacco use. Which cause(s) a decrease in the quantity demanded? 1. Information campaign on hazards of tobacco 2. Tax on tobacco products that drives up its price 3. Both information campaign on hazards of tobacco and tax on tobacco products that drives up its price.* October 30, 2015 // Content Page – Reading: What Is Demand; Reading: Factors That Change Demand // New 10/18/2015 2.3 Explain the determinants of supply Short Title: Supply All of the following will shift the supply curve to the left except: 1. a change in consumer tastes and preferences* 2. an increase in the price of inputs to production 3. government regulation of production // Content Page – Reading: Factors Affecting Supply // Updated 10/18/2015 Question and answer choices edited A change in technology that reduces the costs of production will: 1. increase consumer demand. 2. decrease consumer demand. 3. shift the supply curve to the right.* // Content Page – Reading: Factors Affecting Supply An increase in the number of producers will: 1. reduce competition 2. shift the supply curve to the right* 3. cause an increase in the quantity consumed // Content Pages – Readings: Factors Affecting Supply; Reading: Factors Changing Supply // Removed 10/18/2015 Increased competition due to a greater number of producers will cause: 1. lower prices due to an increase in the quantity supplied at every price.* 2. lower prices due to increased supply.* 3. higher demand in that market. // Content Pages – Readings: Factors Affecting Supply; Reading: Factors Changing Supply // New 10/18/2015 All of the following will cause the supply curve to shift to the right EXCEPT: 1. higher product taxes.* 2. improved technology. 3. a fall in input prices. // Content Page – Reading: Factors Changing Supply 2.3.a Graphically illustrate a supply curve Short Title: Graphing the Supply Curve A supply curve is a graphical illustration of the relationship between price (shown on the vertical axis) and ____________ (shown on the horizontal axis). 1. demand 2. quantity supplied * 3. quantity demanded // Content Page – Reading: Factors Affecting Supply // Updated 10/18/2015 question edited October 30, 2015 When economists talk about supply, they are referring to a relationship between the price in a market and the _________________. 1. equilibrium quantity 2. amount that producers collectively make available for sale * 3. amount that buyers wish to purchase // Content Page – Reading: Factors Affecting Supply // Updated 10/18/2015 question and answer choices edited Nearly all supply curves share a basic similarity: they slope _______________. 1. down from left to right 2. up from left to right* 3. up from right to left // Content Page – Reading: Factors Affecting Supply 2.3.b Describe the differences between changes in supply and changes in quantity supplied Short Title: Supply vs. Quantity Supplied A change in quantity supplied results from a change in ________, and leads to ________. 1. price; a movement along the supply curve* 1. a supply shifter; a shift of the supply curve to the right or left 1. quantity demanded; a shift of the supply curve to the right or left // Content Page – Reading: Factors Affecting Supply // Removed 10/18/2015 An increase in the quantity supplied can result from: 1. an increase in price.* 2. an increase in supply.* 3. lower demand. // Content Page – Reading: Factors Affecting Supply // New 10/18/2015 When __________________, business firms will collectively supply a higher quantity of output at any given price, and the supply curve will shift to the right. 1. prices rise 2. costs of production fall * 3. there is a population increase // Content Page – Reading: Factors Affecting Supply // Updated 10/18/2015 question edited Which of the following would cause the supply curve to shift to the right? 1. An increase in the price of the product. 2. An improvement in technology. * 3. A decrease in production costs. * // Content Page – Reading: Factors Affecting Supply A severe freeze has once again damaged the Florida orange crop. The impact on the market for orange juice will be a leftward shift of: 1. the supply curve. * 2. the demand curve. 3. both the supply and demand curves. // Content Page – Reading: Factors Affecting Supply October 30, 2015 A drought decreases the supply of agricultural products, which means that at any given price a lower quantity will be supplied; conversely, especially good weather would shift the _________________. 1. demand curve to the right 2. supply curve to the left 3. supply curve to the right * // Content Page – Reading: Factors Affecting Supply 2.4 Define and graphically illustrate equilibrium price and quantity Short Title: Equilibrium When the actual price in some market is above the equilibrium price, the resulting market condition is known as ________. 1. excess demand 2. excess supply* 3. a price ceiling // Content Page – Reading: Equilibrium // Updated 10/18/2015 question edited and 10/30/2015 scoring corrected The ____________ is where quantity demanded and quantity supplied are equal at a certain price. § quantity demanded § equilibrium * § supply schedule // Content Page – Reading: Equilibrium Refer to the figure below. The equilibrium quantity and price are: 1. Qe = 31, Pe =$14* 2. Qe = 2, Pe = $16 3. Qe = 14, Pe = $31 // Content Page – Reading: Equilibrium // Updated 10/30/2015 answer choice corrected The conditions of demand and supply are given in the table below. What is the equilibrium price? Price Qd Qs $1.60 9,000 5,000 October 30, 2015 $2.00 8,500 5,500 $2.40 8,000 6,400 $2.80 7,500 7,500 $3.20 7,000 9,000 $3.60 6,500 11,000 $4.00 6,000 15,000 1. $2.80* 2. $2.40 3. $3.20 // Content Page – Reading: Equilibrium // Updated 10/18/2015 question edited 2.4.a Explain how markets eliminate shortages and surpluses Short Title: Surpluses and Shortages When there is an excess supply of a goods: 1. suppliers lower prices, which encourages demanders to demand more.* 2. demanders demand more, causing the price to increase. 3. the market increases its costs of production. // Content Pages: Equilibrium; Surpluses and Shortages // Content Page – Reading: Equilibrium When there is an excess demand for a good: 1. demanders demand less, causing the price to increase. 2. suppliers increase prices, causing demanders to demand less.* 3. the market decreases its costs of production. // Content Pages: Equilibrium; Surpluses and Shortages In a market with an upward sloping supply curve and a downward sloping demand curve, when there is an excess supply,: 1. the actual price must be higher than the equilibrium price.* 2. the quantity demanded is lower than the equilibrium quantity.* 3. the actual price must be lower than the equilibrium price. // Content Page: Surpluses and Shortages // Updated 10/18/2015 question and answer choices edited In a market with an upward sloping supply curve and a downward sloping demand curve, when there is an excess demand in the market, the: 1. price is lower than the equilibrium price.* 2. quantity supplied is lower than the equilibrium quantity.* 3. equilibrium is the same as the price. // Content Page: Surpluses and Shortages // Updated 10/18/2015 question and answer choices edited October 30, 2015 2.5 Apply the theories of supply & demand to explain how disturbances to markets affect equilibrium prices and quantities. Short Title: Changes in Equilibrium Suppose that a new advertising campaign extolling the virtues of apple juice is successful and a major freeze destroys half of the country’s apple crop. What happens to the price and quantity of apple juice? 1. The equilibrium price of apple juice might rise or fall and the equilibrium quantity of apple juice falls. 2. The equilibrium price of apple juice rises and the equilibrium quantity of apple juice might rise or fall.* 3. The equilibrium price of apple juice might rise or fall and the equilibrium quantity of apple juice rises. // Content Pages: Changes in Equilibrium; a Worked Example: Supply and Demand // Removed 10/18/2015 Imagine that new research is released indicating that potato chips contribute to halitosis. At the same moment, an insect infestation destroys ¼ of the nation’s potato crop. What happens in the market for potatoes? 1. The equilibrium price increases and the equilibrium quantity falls 2. The equilibrium price falls and the equilibrium quantity might rise or fall. 3. The equilibrium price might rise or fall, and the equilibrium quantity falls.* // Content Pages: Changes in Equilibrium; a Worked Example: Supply and Demand // Removed 10/18/2015 Potato chips and corn chips are substitute goods. Imagine that an insect infestation destroys ¼ of the nation’s potato crop. What happens? 1. The price of potato chips falls and the price of corn chips increases. 2. The price of potato chips rises and the quantity of corn chips bought and sold increases.* 3. The price of potato chips stays the same, and the price of corn chips falls. // Content Page: Changes in Equilibrium // Removed 10/18/2015 To reduce carbon emissions, electricity producers are converting to natural gas (instead of coal) and fleets of vehicles are being converted to burn natural gas (instead of gasoline). At the same time, hydraulic fracturing of bedrock to obtain trapped natural gas deposits (“fracking”) has become a breakthrough in the natural gas industry, allowing a cheaper way of obtaining greater access to natural reserves. Assess the market impact of these two trends in terms of shifts in demand and/or supply and the resulting change in equilibrium price and equilibrium quantity. 1. The equilibrium quantity may not change, but the equilibrium price will rise. 2. The equilibrium price may not change at all, but the equilibrium quantity will rise.* 3. The equilibrium price and quantity will both surely rise. // Content Page: Changes in Equilibrium // New 10/18/2015 Due to the advantage of providing lightweight, easily re-­‐chargeable power, lithium batteries are becoming more popular. Suppose that, at the same time, many nations impose restrictions on the export of lithium to world markets. Assess the market impact of these two trends in terms of shifts in demand and/or supply and the resulting change in equilibrium price and equilibrium quantity. 1. The equilibrium quantity may not change, but the equilibrium price will rise.* 2. The equilibrium price may not change at all, but the equilibrium quantity will rise. 3. The market may see no change because these impacts could offset each other. // Content Page: Changes in Equilibrium // New 10/18/2015 Virgin Gallactic has opened up a market for commercial space travel. From a spaceport in New Mexico, passengers will first fly, then rocket, up to low earth orbit. Test flights establish the safety of the system, and this evidence is October 30, 2015 promoted. At the same time, a company opens in Arizona that offers balloon rides to nearly the same altitude. Assess the impact in the market for Virgin Gallactic’s rocket travel as the result of these two trends. Think in terms of shifts in demand and/or supply and the resulting change in equilibrium price and equilibrium quantity. 1. The equilibrium quantity may not change, but the equilibrium price will rise. 2. The equilibrium price may not change at all, but the equilibrium quantity will rise. 3. The market may see no change because these impacts could offset each other.* // Content Page: Changes in Equilibrium // New 10/18/2015 2.5.a Apply the theories of supply & demand to explain how a change in one of the determinants of demand: tastes & preferences, the number of buyers, consumer expectations on future prices, income, the price of substitutes or the price of complements affects equilibrium price and equilibrium quantity Short Title: Impact of Changes in Demand When the price of a particular good increases: 1. demand for complementary goods falls.* 2. demand for substitute goods rises.* 3. demand for normal goods rises. // Content Page: Changes in Equilibrium // New 10/18/2015 If Pepsi goes on sale, what will happen to the demand for Coca-­‐Cola? 1. Demand for Coca-­‐Cola will decrease.* 2. Demand for Coca-­‐Cola will increase. 3. Demand for Coca-­‐Cola will stay the same. // Content Page: Changes in Equilibrium Suppose that a new study is released stating that consumption of orange juice (a substitute for apple juice) reduces the risk of cancer, and a major freeze destroys half of the country’s apple crop. What happens to the price and quantity of apple juice once the market has completely adjusted to its new equilibrium? 1. The price of apple juice might rise or fall and the quantity of apple juice falls.* 2. The price of apple juice might rise or fall and the quantity of apple juice rises. 3. The quantity of apple juice might rise or fall, and the price of apple juice rises. // Content Pages: Changes in Equilibrium; a Worked Example: Supply and Demand // Updated 10/18/2015 question edited Government subsidies for corn production have just been eliminated. This can be expected to: 1. increase the demand for products made from corn oil. 2. decrease the demand for corn oil substitutes. 3. increase the demand for corn oil substitutes.* // Content Pages: Changes in Equilibrium; a Worked Example: Supply and Demand If demand increases and supply remains constant, what happens to the market equilibrium? 1. Quantity and price both rise.* 2. Quantity rises and price falls. 3. Quantity and price both fall. // Content Page – Reading: Changes in Equilibrium 2.5.b Apply the theories of supply & demand to explain how a change in one of the determinants of supply: cost of production, or a change in technology affects equilibrium price and equilibrium quantity, taxes and subsidies, and producer expectations on future prices October 30, 2015 Short Title: Impact of Changes in Supply A severe freeze has once again damaged the Florida orange crop. The impact on the market for orange juice will be a leftward shift of: 1. the supply curve, as fewer oranges are available to produce orange juice.* 2. the demand curve, as consumers try to economize because of the shortage. 3. both the supply and demand curves, resulting in a higher equilibrium price. // Content Pages: Changes in Equilibrium; a Worked Example: Supply and Demand If supply falls and demand remains constant, once the market has adjusted to its new equilibrium there will be: 1. fewer transactions, and they will take place at a higher price.* 2. more transactions, and they will take place at a lower price. 3. fewer transactions, and they will take place at a lower price. // Content Pages: Changes in Equilibrium; a Worked Example: Supply and Demand // Updated 10/18/2015 question and answer choices edited The city of Portland aims to increase tourism. A recent study showing the high popularity of doughnuts causes the city to subsidize its doughnut shops. What happens in the market for doughnuts in Portland? 1. The quantity supplied and the quantity demanded both rise.* 2. Doughnut prices fall.* 3. The equilibrium quantity falls. // Content Pages: Changes in Equilibrium; a Worked Example: Supply and Demand // Updated 10/18/2015 answer choices edited Almost all public mass transit systems in the world are subsidized. Compared to what would happen in an unsubsidized situation: 1. ridership will fall and fares will rise. 2. ridership will rise and fares will fall.* 3. neither of the above. // Content Page: Changes in Equilibrium // New 10/18/2015 October 30, 2015