ECON 2001.01 Lecture Notes - Lecture 4: Demand Curve, Economic Equilibrium, Invisible Hand
ECON 2001.01 Full Course Notes
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Considering the demand side of a market for a good, it is reasonable to expect that:
i. demand curves for a given good are identical between consumers
ii. demand curves for a given good differ between consumers
iii. an individual has identical demand curves for different goods
iv. an individual has different demand curves for different goods
| i |
| ii |
| iii |
| iv |
| i and iii |
| ii and iv |
Suppose the market demand curve for a good is represented by the linear equation Q = 60 - 0.75P. If the market price were to increase from P = $20 to P = $40, then holding all other factors constant:
| the quantity demanded would decrease by 10 units and total expenditures on the good would decrease by $400 |
| the quantity demanded would decrease by 15 units and total expenditures on the good would increase by $300 |
| the quantity demanded would decrease by 30 units and total expenditures on the good would increase by $1200 |
| the quantity demanded would increase by 20 units and total expenditures on the good would decrease by $800 |
| the quantity demanded would increase by 10 units and total expenditures on the good would increase by $100 |
| the quantity demanded would increase by 25 units and total expenditures on the good would increase by $1000 |
A perfectly competitive firms supply curve for a good identifies the:
i. minimum quantity supplied at each price, holding all other factors constant
ii. firms minimum willingness to accept for each incremental unit of the good (e.g., the first unit, second unit, etc.), holding all other factors constant
iii. maximum quantity supplied at each price, holding all other factors constant
iv. firms maximum willingness to accept for each incremental unit of the good (e.g., the first unit, second unit, etc.), holding all other factors constant
| i and ii |
| i and iv |
| ii and iii |
| iii and iv |
Considering the supply side of a market for a good, if a firms supply curve were vertical, then:
| the law of supply holds, and quantity supplied is completely insensitive to changes in price |
| the law of supply holds, and quantity supplied is highly sensitive to changes in price |
| the law of supply fails to hold, and quantity supplied is completely insensitive to changes in price |
| the law of supply fails to hold, and quantity supplied is highly sensitive to changes in price |
| none of the above |
The determinants of supply are:
i. factors other than price that will affect the quantity of a good or service a firm is willing and able to purchase
ii. factors that affect a producers maximum willingness-to-accept to produce various quantities of a good
iii. factors that affect a producers minimum willingness-to-accept to produce various quantities of a good
| i |
| ii |
| iii |
| i and ii |
| i and iii |
The market supply curve for a good is derived by:
i. horizontally summing the supply curves of the individual firms in the market
ii. vertically summing the supply curves of the individual firms in the market
iii. summing the quantity supplied by each firm at a given price and then repeating this over the range of prices
| i |
| ii |
| iii |
| i and ii |
| i and iii |
If the level of technology used in the production of a good improves, and assuming the quality of the good does not change, then:
i. more output may be obtained with a given amount of inputs compared to before the technological improvement
ii. a given amount of output may be obtained with fewer inputs compared to before the technological improvement
iii. the firm will increase its use of other inputs, such as the number of workers it employs
iv. market demand for the good will increase
| i |
| ii |
| iii |
| iv |
| i and ii |
| i, ii, and iii |
| i, ii, and iv |
| i, ii, iii, and iv |
Considering the market for gasoline, which of the following would result in an increase in market supply?
i. a decrease in the price of gasoline
ii. an improvement in oil extraction and refining technologies
iii. an increase in the wage rates paid to gasoline refinery workers
iv. a decrease in the price of crude oil, a key input used to produce gasoline
v. the imposition of a federal gasoline tax aimed a decreasing the emission of greenhouse gases
| i |
| ii |
| iii |
| iv |
| v |
| ii and iv |
| i, ii, and iv |
| i, ii, iii, and iv |
| i, ii, iii, iv and v |
Suppose a market has two identical sellers. If each sellers supply function is given by P = 20 + Q, then the market supply function is:
| P = 20 + 0.5Q |
| P = 20 + 2Q |
| P = 40 + Q |
| P = 40 + 2Q |
From the market framework discussed in class and the readings, it may be concluded that in order for a good to be exchanged between a seller and a buyer, it must be that:
| buyer maximum willingness-to-pay is greater than seller minimum willingness-to-accept |
| buyer maximum willingness-to-pay is greater than or equal to seller minimum willingness-to-accept |
| buyer minimum willingness-to-pay is greater than or equal to seller maximum willingness-to-accept |
| buyer minimum willingness-to-pay is greater than seller maximum willingness-to-accept |
If the market demand function is given by P = 80 - 0.3Q and the market supply is given by P = 20 + 0.1Q, then the equilibrium price and quantity are:
| P = $35 and Q = 150 |
| P = $65 and Q = 150 |
| P = $26 and Q = 60 |
| P = $28 and Q = 80 |
Of concern are the affects of sustained summer droughts on the domestic supply of wheat. Noting that wheat is a primary ingredient in the production of bread and that potatoes are a substitute for bread, if the supply of wheat declines then it is reasonable to expect:
| the price of wheat to fall, the supply of bread to increase, and the demand for potatoes to increase |
| the price of wheat to fall, the supply of bread to increase, and the demand for potatoes to decrease |
| the price of wheat to rise, the supply of bread to decrease, and the demand for potatoes to decrease |
| the price of wheat to rise, the supply of bread to decrease, and the demand for potatoes to increase |
| the price of wheat to rise, the supply of bread to increase, and the demand for potatoes to increase |
| the price of wheat to rise, the supply of bread to increase, and the demand for potatoes to decrease |
Suppose a perfectly competitive market is initially in equilibrium. If market demand and supply decrease simultaneously, then equilibrium:
| price will rise, but the equilibrium quantity may either rise, fall, or remain unchanged |
| quantity will rise, but the equilibrium price may either rise, fall, or remain unchanged |
| price will fall, but the equilibrium quantity may either rise, fall, or remain unchanged |
| quantity will fall, but the equilibrium price may either rise, fall, or remain unchanged |
Considering the demand side of a market for a good, the consumer surplus derived by an individual:
i. is the difference between the maximum amount the consumer is willing to pay on each unit and the minimum prices that producers are willing to accept
ii. is the difference between the minimum amount the consumer is willing to pay on each unit and the price he/she
actually pays
iii. is the difference between the maximum amount the consumer is willing to pay on each unit and the price he/she actually pays
iv. will decrease if price increases
| i |
| ii |
| iii |
| i and iv |
| ii and iv |
| iii and iv |
Suppose the market demand for a good is described by the equation P = 120 - 2Q. If a change in market supply results in price decreasing from P0 = $80 to P1 = $70, then the resulting change in consumer surplus is:
| $225 |
| $400 |
| $575 |
| $625 |
| $750 |
1 an imperfect market, individual firms
| A.are always able to set the price of their product. |
| B.are able to influence the price of their product. |
| C.have no influence over the price of their product. |
| D.take the market price as given. 1 Which of the following is NOT characteristic of a market economy?
2 In a competitive market, the price of the product is
3 Which of the following firms participates in a competitive market?
4 In an imperfect market, individual firms
5 Which of the following firms operates as a monopoly?
6 According to the law of demand, what is the relationship between price and quantity demanded?
7 Refer to the following graph. The demand curve slopes downward because
8 A change in which of the following will cause a change in the quantity demanded of coffee?
9 Suppose that burgers and fries are complements in consumption. If the price of fries increases
10 Suppose that Coca Cola and Pepsi are substitutes in consumption. If the price of Coca Cola decreases, then
11 According to the law of supply, what is the relationship between price and quantity supplied?
12 Refer to the graph below. The supply curve is _______________ driven by the law of supply.
13 A change in which of the following will cause a change in the quantity supplied of coffee?
14 Which of the following will cause a rightward shift in the supply curve for tobacco?
15 Flour is a factor of production of cupcakes. How will an increase in the price of flour affect the market for cupcakes?
16 Refer to the following image. When a market is in equilibrium, which of the following is true?
17 Refer to the following figure. At a price of $15, this market is experiencing a(n)
18 Refer to the following figure. At a price of $5, this market is experiencing
19 Suppose pasta salad is a normal good. If the price of pasta (a major ingredient in pasta salad) increases and income also increases, the
20. What must happen to the market price in order for a shortage to be eliminated?
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