ECO-4 Lecture Notes - Lecture 4: Demand Curve, Reservation Price, Economic Equilibrium

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7 Aug 2020

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Definition: representation of the relationship between the amount of a good or service that sellers want to supply in a given time period and price. Seller"s reservation price: smallest dollar amount for which a seller would be willing to sell an additional unit, generally equal to marginal cost. Horizontal interpretation of the supply curve and vertical interpretation of the supply curve are the same as with the demand curve. Definition: any situation in which a system is at rest i. e. when neither the price nor the quantity has a tendency to change. Equilibrium price and equilibrium quantity: value of price and quantity for which quantity demanded = quantity supplied. At equilibrium, no buyer or seller has any reason to alter their behaviour. Market equilibrium does not necessarily produce an ideal outcome for everyone: buyers with extremely low incomes often have difficulties purchasing basic goods and services government regulation. Price ceiling: maximum allowable price specified by law e. g. rent control.

Related Questions

The point at which the supply curve and the demand curve intersect is called:

A. Equilibrium, because quantity demanded equals quantity supplied so there is no tendency for price to change.

B. Equilibrium, because quantity demanded exceeds quantity supplied so there is a shortage

C. Equilibrium, because quantity supplied exceeds quantity demanded so there is a surplus

D. Irrelevant, because real-world prices never reach this point

cyanhound711

1. A change in quantity supplied:

A. refers to a shift in the supply curve.

B. results from a change in a determinant of supply.

C. refers to a movement along a given supply curve.

D. is caused by a change in the number of sellers in the industry.

2. Which one of the following would most likely cause the supply curve for microwaves to shift to the right:

A. a decrease in the price of microwaves.

B. an increase in the wage rate earned by workers who produce microwaves.

C. a decrease in consumer preferences for microwaves.

D. an increase in the number of firms that produce microwaves

3. If the actual price sellers are pricing their goods at is currently above the equilibrium price. There is a ____________. Therefore, we would expect sellers to ____________ the price until the market reaches equilibrium.

surplus; raise

surplus; lower

shortage; raise

D. shortage; lower

4. Suppose the demand and the supply of wine both increase. The net effect of these changes in demand and supply will be

A	an increase in equilibrium quantity, but a decrease in equilibrium price.
B	an increase in equilibrium price and quantity.
C.	an increase in equilibrium price, but the change in equilibrium quantity is indeterminate.
D.	an increase in equilibrium quantity, but the change in equilibrium price is indeterminate.

rosecat128

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?

Significant government intervention

Little or no government intervention

Buyers and sellers motivated by self-interest

Prices determined by demand and supply

2 In a competitive market, the price of the product is

independently set by each competing seller.

set by the market leader and then copied by other sellers.

jointly set after a meeting of all sellers in the market.

set by market supply and demand.

3 Which of the following firms participates in a competitive market?

A new car manufacturer, such as Ford, Honda, Toyota, or GMC

A software producer, such as Microsoft

A corn farmer

A local electric utility company

4 In an imperfect market, individual firms

are always able to set the price of their product.

are able to influence the price of their product.

have no influence over the price of their product.

take the market price as given.

5 Which of the following firms operates as a monopoly?

A car manufacturer

A local water utility

A corn farmer

A fish vendor at a neighborhood market

6 According to the law of demand, what is the relationship between price and quantity demanded?

Direct

No relationship

Inverse

7 Refer to the following graph. The demand curve slopes downward because
Click to view graphic. (Links to an external site.)

prices and quantity demanded move in opposite directions.

prices and quantity demanded move in the same direction.

prices and quantity demanded have no relationship.

prices and quantity demanded remain unchanged.

8 A change in which of the following will cause a change in the quantity demanded of coffee?

Consumer income

The price of green tea, a substitute for coffee

The number of coffee consumers

The price of coffee

9 Suppose that burgers and fries are complements in consumption. If the price of fries increases

overall demand for burgers will increase.

overall demand for burgers will decrease.

quantity demanded for burgers will increase.

quantity demanded for burgers will decrease.

10 Suppose that Coca Cola and Pepsi are substitutes in consumption. If the price of Coca Cola decreases, then

both the equilibrium price and the quantity of Pepsi demanded will decrease.

both the equilibrium price and the quantity of Pepsi demanded will increase.

the equilibrium price of Pepsi will increase and the quantity demanded of Pepsi will decrease.

the equilibrium price of Pepsi will decrease and the quantity demanded of Pepsi will increase.

11 According to the law of supply, what is the relationship between price and quantity supplied?

Direct

No relationship

Inverse

It depends on the change in price

12 Refer to the graph below. The supply curve is _______________ driven by the law of supply.
Click to view graphic. (Links to an external site.)

13 A change in which of the following will cause a change in the quantity supplied of coffee?

The technology or the production process of making coffee

Anticipation of a change in the price of coffee

The wages of coffee bean pickers

The price of coffee

14 Which of the following will cause a rightward shift in the supply curve for tobacco?

A fall in the number of tobacco farmers in the market

An increase in taxes on tobacco

Removal of government subsidies to tobacco farmers

An improvement in the technology used in the production of tobacco

15 Flour is a factor of production of cupcakes. How will an increase in the price of flour affect the market for cupcakes?

Overall supply will increase

Overall supply will decrease

Quantity supplied will increase

Quantity supplied will decrease

16 Refer to the following image. When a market is in equilibrium, which of the following is true?
Click to view graphic. (Links to an external site.)

Quantity supplied exceeds quantity demanded

Quantity supplied is less than quantity demanded

Quantity supplied is equal to quantity demanded

There is no relationship between quantity supplied and quantity demanded

17 Refer to the following figure. At a price of $15, this market is experiencing a(n)
Click to view graphic. (Links to an external site.)

equilibrium.

shortage.

surplus.

none of the above are true.

18 Refer to the following figure. At a price of $5, this market is experiencing
Click to view graphic. (Links to an external site.)

equilibrium.

a shortage.

a surplus.

None of the above are true.

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

equilibrium quantity and equilibrium price of pasta salad will increase.

equilibrium quantity of pasta salad will decrease and the equilibrium price of pasta salad may either increase or decrease.

equilibrium quantity of pasta salad may either increase or decrease and the equilibrium price of pasta salad will increase.

equilibrium quantity and equilibrium price of pasta salad will both decrease.

20. What must happen to the market price in order for a shortage to be eliminated?

Price must fall.

Price must rise.

Price must stay the same.

Price may rise or fall depending on the size of the shortage.

ECO-4 Lecture Notes - Lecture 4: Demand Curve, Reservation Price, Economic Equilibrium

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