ECN 109 Lecture Notes - Lecture 1: Market Power, Demand Curve, Absolute Advantage

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17 Oct 2017

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Production possibilities frontier (ppf) shows the combinations of all goods an economy can produce. Because each factors of production is specialized in the production of one of the goods. A change (in (only) price causes movement along the curve. Demand curve shifters number of buyers, income (normal and inferior goods) , price of related goods ( substitutes and complements ) tastes and expectations. Normal and inferior goods / substitutes and compliments. Supply curve shifters number of sellers, input prices, technology, expectations. If the market price is higher (lower) than equilibrium price, there is surplus (shortage) Difference between change in supply (shift of supply curve) and change in quantity supplied(movement along the supply curve) If only supply curve shifts right (left), the equilibrium price is lower(higher) and new equilibrium quantity is higher(lower) If only demand curve shifts to right( left) , price higher(lower) and quantity higher ( lower) If both curves shifts to right(left), quantity higher(lower), price ambiguous.

Related Questions

1. The Houston Chronicle reported that in Houston, the average price of new homes has decreased, while at the same time, the number of new homes sold has increased. This situation could be explained by which one of the following: (draw curves before answering)

An Increase in demand
An Increase in supply
A Decrease in demand
A Decrease in supply

2. In another market, the average price of new homes fell, while at the same time, the number of new homes sold decreased. The situation would best be explained by (Draw the curves before answering)

An Increase in Demand
An Increase in Supply
A Decrease in demand
A Decrease in supply

3. A consumer is said to have achieved maximum total utility when:

Purchases of Good A give the same satisfaction as purchases of Good B.
Purchases of the last dollar spent on Good A give the same satisfaction as purchases of the last dollar spent on Good B.
The average purchases per dollar of Good A give the same satisfaction as the average purchases per dollar of Good B.
The total utility derived from Good A is the same as the marginal utility derived from Good B.

4. You are given the following information about a firm's present output position: MPP (Marginal Physical Product) of Land = 12; MPP of Labor = 16; Price of Land = $2; Price of Labor = $4. With no additional money to spend, this firm should:

5. A firm achieves the least cost in production by substituting factors until

their factor prices are equal
their marginal products are equal to the factor prices
their marginal products are each equal to zero
the ratios of their marginal product equal the ratio of their prices
none of the above

6.The economy is currently on its production possibilities frontier (PPF). A politician says that it is possible to get more of everything--more infrastructure, more schools, more national defense, more spending on social programs, and so on. The politician is

correct if he is assuming a rightward-shifting PPF.
incorrect if he is assuming a rightward-shifting PPF.
correct if he is assuming a PPF that does not change.
none of the above

7. Assume your swimsuit business is at its maximum profit position, and one new change occurs: consumer incomes decrease. If swimsuits are normal goods, the equilibrium price of swimsuits will __________, and the CONSUMER surplus will ________.

increase, increase
decrease, decrease
increase, decrease
decrease, increase

8. Firms that shuts-down in the short-run still must pay:

Marginal cost
Variable cost
Fixed cost
Total cost

9. The term externalities refer to:

Black-market economic activity.
The impact on markets of imported goods.
The costs and benefits of a market activity borne by a third party.
The inequitable distribution of income.

10. If full external costs are not internalized, firms will tend to allocate more of society's scarce resources to produce than is societally warranted, and if full external benefits are not internalized, firms will allocate less of society's resources to produce than is societally justified. True/False.

11. Joe was very careful about smoking in his home until he bought a fire insurance policy. After buying the policy, he became careless. His attitude is: "I'm insured. What do I care if this place burns down; I'll just collect the money". Joe's attitude is an example of ______________.

12. Megatrust Bank had historically scrutinized loans very carefully and extended them, only to persons whom they considered very creditworthy. They made relatively few loans. However, after the government provided guarantees to sub-prime loans, Megatrust relaxed its standards and increased its loan volume. (And its default rate as well.) This is an example of _______________.

13. In the short-run, if a perfectly competitive firm finds itself operating at a loss, it will

Reduce the size of its plant to lower fixed costs.
Raise the price of its product.
Shut down.
Continue to operate as long as it covers its variable cost.

14. If income today is more equally distributed than it was in 1960, a Lorenz Curve depicting today's distribution would be

More bowed and to the left of the 1960's curve.
More bowed and to the right of the 1960's curve.
Less bowed and to the left of the 1960' curve.
Less bowed and to the right of the 1960's curve.

15. Which of the following statements is true?

As output increases, the average fixed cost becomes smaller and smaller.
Average fixed cost does not change as output increases.
The marginal cost curve intersects the average fixed cost curve at its minimum point.
When marginal cost is greater than average fixed cost, average fixed cost increases.

16. A firm in any of the market structures we have studied will maximize its profit (or minimizes its loss) when its

Average costs are at a minimum
Marginal revenue and marginal cost are the same.
Marginal revenue is less than marginal cost.
Marginal revenue is zero.

17. If the demand for a good increase, when the price of other good increases, these goods are

Capital goods
Substitute goods
Complementary goods
Luxury goods

18. Which of the following pairs of products are complementary goods?

mobile phones and laptops
pens and pencils
sugar and artificial sweeteners
radios and television
toothbrushes and toothpaste

19. The amount of a good that is given up to produce another good is:

Scarcity
Specialization
Opportunity cost
Trade
Efficiency

20. The most important characteristic of the equilibrium price is that it:

Guarantees that producers earn a profit.
Increases the quantity demanded.
Clears the market.
Decreases the quantity supplied.

21. Rank the following market structures based on the number of participating firms: From the fewest number of firms to the most number of firms:

Oligopoly
Perfect Competition
Monopoly
Monopolistic Competition

22. If firms in a monopolistically competitive market are earning economic profits which of the following scenarios would best reflect the change facing incumbent firms as the market adjusts to its new equilibrium?

an increase in demand
a decrease in demand
a downward shift in their marginal cost curve
an upward shift in their marginal cost curve

23. If labor in Mexico is less productive than labor in the United States in all areas of production,

neither nation can benefit from trade
Mexico can benefit from trade but the United States cannot
Mexico will not have a comparative advantage in any good
both nations can benefit from trade

24. Which of the following statements is false?

The typical monopolistically competitive firm could reduce its average total cost if it produced more output.
Monopolistically competitive firms advertise to increase the elasticity of the demand curve they face.
Expensive advertising might help consumers if it is a signal that the product is good.
Brand names acquired at great cost might help consumers by assuring quality.

25. Suppose the state of Wyoming passes a law that increases the tax on cigarettes. As a result, smokers who live in Wyoming start purchasing their cigs in surrounding states. Which of the following principles does this best illustrate:

people respond to incentives
rational people think at the margin
a trademark can make everyone better off
markets are usually a good way to organize economic activity

bluehare378

Question 26 pts

Which of the following is not a reason why specialization and trade are beneficial to society?

	Specialization fosters learning by doing, thus lowering the unit-costs of products
	Firms and workers become less dependent on others for producing goods and services

	The total output of economic goods may be increased even without any increase in resources
	Scarce resources are utilized more efficiently by exploiting differences among them

Question 27 pts

Laissez-faire capitalism limits the government's economic functions to the following, except:

	Protecting private property rights
	Establishing a legal environment to enforce contracts among individuals

	Setting prices of individual goods and services
	Preventing individuals and firms from coercing others

Question 28 pts

A production system where various workers concentrate on different specialized tasks to contribute towards a whole product is referred to as:

	Roundabout production
	A coincidence of wants

	Freedom of enterprise
	Division of labor

Question 29 pts

The market system is said to be characterized by "consumer sovereignty." This is because:

	A sovereign government determines which consumer goods will be produced
	Firms must match their production decisions to the consumers' choices

	The prices of consumer goods are regulated by a sovereign government
	Consumer goods are considered to be more important than capital goods

Question 30 pts

Consumers express self-interest when they:

	Seek the lowest price for a product
	Reduce business losses

	Exclude others in their thinking
	Collect economic profits

Question 311 pts

Refer to the above graph with three demand curves. An "increase in quantity demanded" would be illustrated by a change from:

	Point 5 to point 1
	Point 4 to point 1

	Point 2 to point 5
	Point 4 to point 6

Question 32 pts

The table below shows the weekly demand for hamburger in a market where there are just three buyers.

Refer to the above table. At a price of $6, the weekly market quantity demanded for hamburger is:

	17
	23

	24
	18

Question 33pts

If farmers withhold some of their current corn harvest from the market because they anticipate a higher price of corn in the near future, then this would cause a(n):

	Movement up along the current supply curve of corn
	Movement down along the current supply curve of corn

	Leftward shift in the current supply of corn
	Rightward shift in the current supply of corn

Question 34 pts

Which of the following will not cause the supply curve to shift?

	A technological change in the production of the good
	A change in the prices of other goods that producers could be producing

	A change in the costs of resources needed to produce the good
	A change in the price of the good

Question 35 pts

All of the following would affect the position of the supply curve for cranberries, except the:

	Price of agricultural land for cranberries
	Cost of fertilizers for cranberry production

	Popularity of cranberry drinks
	Development of a new pest control for cranberries

Question 36 pts

When high-school and college graduates apply for jobs in the labor markets,

	Job applicants and employers are both "buyers".
	Job applicants are the "sellers" while employers are the "buyers".

	Job applicants and employers are both "sellers".
	Job applicants are the "buyers" while employers are the "sellers".

Question 37 pts

Refer to the figure above, which shows three supply curves for corn. Which of the following would cause the supply of corn to shift from S₁ to S₂?

	A decrease in consumer incomes, assuming corn is a normal good
	The development of a more effective insecticide against corn rootworm

	An increase in the price of fertilizer
	A change in consumer tastes away from cornbread

Question 38 pts

Which is of the following statements is correct?

	If demand increases, then price will decrease
	If demand decreases, then price will decrease

	If price decreases, then demand will decrease
	If price increases, then demand will decrease

Question 39 pts

Which would be a likely cause of an increase in the demand for pizza?

	A decrease in the price of hamburger sandwiches
	A health report showing eating pizza reduces stress

	A reduced desire for take-out and fast-food dining
	A decrease in the prices of cheese, pepperoni, and mushrooms

Question 40 pts

A market for a product reaches equilibrium when:

	Price falls further after there is a shortage
	The price rises further after there is a surplus

	Buyers intend to buy a quantity equal to the quantity that sellers intend to sell
	The actual quantity bought by buyers equals actual quantity sold by sellers

Question 41 pts

A higher price reduces the quantity demanded for a product because:

	Individuals can afford less of the product and will switch to substitutes
	The financial assets of individuals increase

	Individuals will buy more of the product and less of its substitutes
	The purchasing power of individuals increases

Question 42 pts

The idea of the Law of Demand, as applied to electric cars, assumes which of the following to be constant?

	Price of electric cars
	How much sellers are charging customers for electric cars

	Price of gasoline cars
	Quantity of electric cars demanded by buyers

Question 43 pts

Use the following graph of the demand for coffee:

Refer to the above diagram of three demand curves for coffee. An increase in the price of coffee, other factors constant, would cause a:

	Movement from point a to point b
	Movement from point b to point a

	Shift from D₁ to D₂
	Shift from D₁ to D₃

Question 44 pts

Which of the following factors will decrease the current demand for a product?

	A decrease in the current price of a complementary product
	A decrease in the current price of a substitute product

	An increase in the current price of a substitute product
	An expected increase in the future price of the product

Question 45pts

In competitive markets, a surplus or shortage will:

	Cause shifts in the demand and supply curves that tend to eliminate the surplus or shortage
	Cause changes in the quantities demanded and supplied that tend to intensify the surplus or shortage

	Cause changes in the quantities demanded and supplied that tend to eliminate the surplus or shortage
	Never exist because the markets are always at equilibrium

Question 46 pts

Which of the following would cause a leftward shift in the supply curve for car washes?

	A decrease in taxes on car washes
	An increase in the price of car washing equipment

	A decrease in the price of water
	An increase in the number of cars in the city

Question 47pts

The market system automatically corrects a surplus condition in a competitive market by:

	Raising the price of the commodity in question while decreasing the quantity demanded
	Raising the price of the commodity in question while increasing the quantity demanded

	Reducing the price of the commodity in question while increasing the quantity demanded
	Reducing the price of the commodity in question while decreasing the quantity demanded

Question 48 pts

A leftward shift of the supply curve for oil in the United States is most likely to result from:

	A decrease in the world price of oil
	An increase in the costs of exploration and drilling for oil

	An increase in the subsidy for oil exploration and drilling
	A decrease in the fees that oil companies must pay for drilling licenses

Question 49 pts

A fall in the price of milk, used in the production of ice cream, will:

	Decrease the supply of ice cream
	Have no effect on the supply of ice cream

	Increase the supply of ice cream
	Cause a movement along the supply curve of ice cream

Question 50 pts

Refer to the above graph, which shows the market for beef where demand shifted from D₁ and D₂. The change in equilibrium from E₁ to E₂ is most likely to result from:

	An increase in the cost of cattle feed
	A decrease in consumer incomes

	A decrease in the tax on beef products
	An increase in the price of pork

ECN 109 Lecture Notes - Lecture 1: Market Power, Demand Curve, Absolute Advantage

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