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ECON-2110 Lecture Notes - Lecture 17: Ceteris Paribus, Economic Equilibrium, Shortage

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browncricket202
1 Nov 2017
School
Clemson University
Department
Economics
Course
ECON-2110
Professor
Chen Wang

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Document Summary

Chapter 4: putting demand and supply together, or where do prices. Demand and supply are represented as sires of prices and quantity pairs. In a freely operating market, the one price we see is the price that equates quantity demanded and quantity supplied = equilibrium price. If the price is greater than where demand and supply intersect then there is excess supply (there were more units for sale than buyers willing to purchase at that price) If the price is less than where demand and supply intersect then there is excess demand (there were buyers trying to purchase a good at that price than there were units) At an equilibrium, there is no excess demand or excess supplied - market price will be at a price that clears the market. Law of supply and demand: the price of any good adjust to bring the quantities of that good supplied and demanded into balance. Demand increases higher equilibrium price and quantity.

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Related Questions

The primary difference between a change in supply and a change in the quantity supplied is:
Choose one answer.
a. a change in quantity supplied is a shift in the supply curve, and a change in supply is a movement along the supply curve.
b. both a change in quantity supplied and a change in supply are movements along the supply curve, only in different directions.
c. a change in quantity supplied is a movement along the supply curve, and a change in supply is a shift of the supply curve.
d. a change in supply is a movement to the left along the supply curve and a change in quantity supplied is a movement to the right along the supply curve.

Question 2
What is the difference between a shortage and scarcity?
Choose one answer.
a. Scarcity will always exist because choices must be made, but a shortage will only exist if the price is kept below the equilibrium level.
b. Scarcity is a result of two or more alternative uses and will always exist, and quantities of supply and demand adjusting to flexible prices will create shortages.
c. A surplus will exist when a good is scarce; a shortage merely implies that there isn't as much of something as people would like, which is nearly always the case.
d. There is no distinction between the two. They are the same thing.

Question 3
A decrease in supply means:
Choose one answer.
a. a shift to the left of the entire supply curve.
b. moving downward (to the left) along the supply curve with lower prices.
c. less will be demanded at every price.
d. more will be supplied at every price.

Question 4
A decrease in demand, with no change in supply, will lead to ________ in equilibrium quantity and ________ in equilibrium price.
Choose one answer.
a. an increase; an increase
b. an increase; a decrease
c. a decrease; an increase
d. a decrease; a decrease

Question 5
After graduation from college you will receive a substantial increase in your income from a new job. If you decide that you will purchase more T-bone steak and less hamburger, then for you hamburger would be considered a( n ):
Choose one answer.
a. normal good.
b. substitute good.
c. complementary good.
d. inferior good.

Question 6
There is equilibrium in the market when:
Choose one answer.
a. there is no shortage.
b. there is no surplus.
c. price is established where the supply curve and the demand curve intersect.
d. all of the above are true.

Question 7
Which would not cause the supply curve to shift?
Choose one answer.
a. a change in technology
b. a change in factor costs
c. a change in the price of the good
d. a change in the prices of related goods

Question 8
Given that meat and potatoes are complementary goods, if the price of meat decreases substantially, there would be:
Choose one answer.
a. an increase in the demand for potatoes.
b. an increase in the quantity of potatoes demanded.
c. a decrease in the demand for potatoes.
d. no change in the demand for potatoes.

Question 9
Given that milk and cookies are complements, suppose the price of flour (an ingredient in cookies) rises. What happens in the market for milk?
Choose one answer.
a. The equilibrium price and quantity rise.
b. The equilibrium price rises and the equilibrium quantity falls.
c. The equilibrium price and quantity fall.
d. The equilibrium price falls and the equilibrium quantity rises.

Question 10



A temporary price of $2 in this market would result in:
Choose one answer.
a. a surplus of 8,000 bushels.
b. a shortage of 8,000 bushels.
c. a shortage of 10,000 bushels.
d. a surplus of 10,000 bushels.

Question 11
The price of oranges rises. What happens in the market for apples, which are a substitute for oranges?
Choose one answer.
a. The equilibrium price falls, and the equilibrium quantity rises.
b. The equilibrium price rises, and the equilibrium quantity falls.
c. The equilibrium price and quantity rise.
d. The equilibrium price and quantity fall.

Question 12
A market surplus occurs if the:
Choose one answer.
a. price is below the equilibrium price.
b. price is equal to the equilibrium price.
c. equilibrium price is above the actual price.
d. equilibrium price is below the actual price.

The law of supply indicates that:
a. there is an inverse relation between price and quantity supplied.
b. there is a direct relation between price and quantity supplied.
c. there is an inverse relation between the cost of inputs and the quantity supplied.
d. none of the above.

Graphically, an increase in supply can be shown as:
a. a rightward shift of the supply curve.
b. a leftward shift of the supply curve.
c. a rightward and upward movement along the supply curve.
d. a leftward and downward movement along the supply curve.

The full price of a visit to a movie includes:
a. the price of the tickets.
b. transportation costs.
c. the opportunity cost of using time for this activity instead of the next-best alternative.
d. all of the above.

Consumers make decisions based on:
a. full prices.
b. money prices.
c. transaction costs.
d. absolute costs.

Quantity demanded is graphically represented by a ______, while demand is graphically represented by a _______.
a. line, point.
b. intersection, line.
c. point, line.
d. point, intersection.

When demand for a good is very elastic, revenue ________ when the price falls.

(2)

An elasticity measure less than one means that demand is __________.

(3)

An elasticity measure greater than one means that demand is __________.

(4)

The Latin expression ceteris paribus means

having made all other necessary changes.

holding constant all other variables.

assuming all households have similar incomes.

given the level of income in the economy.

(5)

A variable measured in terms of money is called a ____________________.

real variable

nominal variable

macroeconomic variable

microeconomic variable

(6)

Which of the following is true about the importance of money in economics?

Money is important in both macroeconomics and microeconomics.

Money is important in macroeconomics but not microeconomics.

Money is important in microeconomics but not macroeconomics.

Money is not important in either microeconomics or macroeconomics.

(7)

What is the difference between normative and positive economics?

Positive economics is descriptive and predictive; normative economics is prescriptive.

Positive economics highlights the positive aspects of the economy; normative economics highlights the average features.

Positive economics studies the actions of individuals; normative economics studies the actions of households.

Positive economics is an applied social science; normative economics is a theoretical social science.

(8)

The slope of the demand curve is negative because

the quantity of a good demanded decreases as income declines.

the quantity of a good demanded increases as income declines.

the quantity of a good demanded increases as the price declines.

the quantity of a good demanded decreases as the price declines.

(9)

What is the result of an increase in the price of bread, a normal good?

The demand curve shifts to the right.

The demand curve shifts to the left.

The quantity demanded increases.

The quantity demanded decreases.

(10)

What is the effect on demand for bread when the price of bagels, a substitute for bread, rises?

The demand curve for bread shifts to the right.

The demand curve for bread shifts to the left.

The quantity of bread demanded increases.

The quantity of bread demanded decreases.

(11)

Which of the following would cause the supply curve for bread to shift inward?

An increase in the price of bread

An increase in the price of bagels

A decrease in the price of bread

An increase in the price of flour

(12)

An improvement in technology shifts the supply curve outward because

at every price, firms find producing the good to be more profitable.

the price of the good increases.

at every price, firms find producing the good to be less profitable.

the price of the good decreases.

(13)

Which of the following factors does not affect how much bread a baker is willing to produce?

The price of bread

The demand for bread

The cost of inputs

Technology

(14)

How do expectations of prices affect how much of a good producers are willing to sell?

Expectations of prices affect only demand, not supply.

Actual prices, not expectations of prices, affect supply.

If producers expect prices to fall in the future, they supply less at every price.

If producers expect prices to rise in the future, they supply less at every price.

(15)

When the price of a good is above equilibrium level,

the quantity demanded exceeds the quantity supplied.

the quantity supplied exceeds the quantity demanded.

the supply curve shifts to the left.

the supply curve shifts to the right.

(16)

At a price of P0 in the diagram below, which of the following statements is true?

Supply equals demand.

There is excess demand.

There is excess supply.

There is scarcity.

(17)

If demand for bread increases at every price, the equilibrium price of bread will

fall.

rise.

remain unchanged.

depend on income.

(18)

If the demand for bread declines, then

at the original equilibrium price, there is excess demand.

at the original equilibrium price, there is excess supply.

the supply curve shifts to the right.

the supply curve shifts to the left.

(19)

Peanut butter and jelly are complementary goods. When the price of peanut butter rises, the demand for jelly ________ and the price of jelly ________.

rises; falls

rises; rises

falls; rises

falls; falls

(20)

The measure of elasticity that economists use is

always a positive number.

always a negative number.

positive when demand is elastic and negative when demand is inelastic.

negative when demand is elastic and positive when demand is inelastic.

(21)

Which of the following formulas is the correct expression for the slope of a line?

(22)

Graphically how would an increase in income affect the demand for hamburgers?

The slope of the demand curve would increase.

The slope of the demand curve would decrease.

The demand curve would shift outward, parallel to the original demand curve.

The demand curve would shift inward, parallel to the original demand curve.

(23)

Given the equation P = $6.00 ? $.40Q, where P is the price of the good and Q is the quantity of the good demanded, how many units will this consumer demand if the price is $3.60?

1.44 units

3 units

3.6 units

6 units

(24)

Which of the following is true about unit elasticity?

Revenues remain unchanged when the price changes.

Elasticity of demand increases as one moves down the demand curve.

Elasticity of demand decreases as one moves down the demand curve.

The elasticity of demand is greater than one at every point along the demand curve.

(25)

Which of the following could be a determinant of the quantity demanded of a good?

The price of the good

The price of related goods

Income

Expectations about the future price of the product

All of the above