ECON 2010 Lecture Notes - Lecture 3: Reservation Price, Demand Curve, Marginal Cost

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12 Feb 2018

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Buyers and sellers signal wants and costs. Interaction of supply and demand answer the 3 basic questions. Mixed economies use both the market and central planning. The market for any good consists of all the buyers and sellers of the good. Cost to produce one more unit of the good. A demand curve illustrates the quantity buyers would purchase at each possible price. The buyer"s reservation price is the highest price a individual is willing to pay for a good. Demand reflects the entire market, not one consumer. Lower prices bring more buyers into the market. Lower prices cause existing buyers to buy more. Buyers buy more at lower prices and buy less at higher prices. The substitution effect: buyers switch to substitutes when price goes up. The income effect: buyers overall purchasing power goes down. At a price of , the quantity demanded is 8,000 slices/day. At a price of , the quantity demanded is 12,000 slices/day.

Related Questions

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

""Please give answer with simple explaination""""Please give answer with simple explaination""""Please give answer with simple explaination""

1. In every society, choices must be made because resources are

a. Infinite, but economic want are finite

b. Finite, but economic wants are insatiable

c. Unlimited, but economic wants limited

d. Limited, and so are economic wants

2. Which question is an illustration of a microeconomic question

a. Is the quantity of wine purchased in one year dependent upon the price of wine?

b. Does government spending influence the total level of employment in the economy?

c. Is the purchasing power of the dollar higher or lower today than it was in 2000?

d. Is capitalism superior to socialism?

3. The purpose of the ceteris paribus assumption used in economic analysis is to :

a. Avoid making normative statements

b. A void the post hoc, ergo propter hoc fallacy

c. Make sure that all relevant factors are considered

d. Restrict the analysis to effect of a single economic factor

4. The profit motive is

a. Ineffective at producing consumer goods

b. Inherently beneficial to society if left alone to pursue its own self interests

c. Effective at producing goods when consumption is non-rival or non-excludable

d. Is often at odds with societies interests

5. In the system of central planning

a. There is repaid of the infrastructure

b. There is severe inflation in wholesale and retail prices

c. Economic growth leads to widespread unemployment among workers

d. The outputs of some industries become inputs for other industries

6. The market system communicates changes in supply and demand and elicits appropriate responses from businesses and resource suppliers. This is known as the:

a. Rationing function of prices

b. Guiding function of prices

c. Monetary function of prices

d. Circular flow of income

7. An increase in the quantity of automobiles supplied would be caused by which be caused by which of the following?

a. An increase in the demand for automobiles

b. A decrease in the demand for automobiles

c. Higher prices for steel

d. Higher prices for gasoline

8. All of the following would cause an increase in the demand for private airplanes at a given price, except a:

a. Decrease in interest rates

b. Increase in consumer incomes

c. Decrease in taxes on luxury goods

d. Decrease in the costs of constructing private airplanes

9. In modern economies of mass production,

a. Biological need motivates most consumption

b. The intrinsic value of goods and services motivates mass consumption

c. Affluence makes relative depravation meaningless

d. Invidious comparison motivates much of mass consumption

10. a more equal distribution of income in the United States would result in greater total consumer satisfaction. This statement is based on the concept that:

a. Income inequality is unfair

b. Income inequality is undemocratic

c. Income equality stimulates efficiency

d. Incomes are subject to diminishing marginal utility

11. While command systems suffer from incentive problems, market economies

a. Have no incentive problems

b. Suffer from incentive problems of their own

c. Tend to resolve all problems by their own dynamics

d. Have problems to the degree that there is government interference.

12. What economic concepts can be used to explain the reason that a new car purchased by a consumer and driven off a new car lot decrease in value almost immediately compared with the value of the same make and model of a car still on the new car lot?

a. Positive and negative externalities

b. Liability rules and lawsuits

c. The Coase theorem and moral hazard

d. Asymmetric information and adverse selection

13. Consider a situation where the U.S. Congress wants to place a special tax on private airplanes to increase tax revenue. This tax would only be effective in raising new tax revenues if the price elasticity of:

a. Supply is elastic

b. Supply is inelastic

c. Demand is elastic

d. Demand is inelastic

14. Under what circumstances would you expect economic profits to be zero in a particular industry?

a. During a recession

b. When there is little competition in the industry

c. When the industry is neither expanding nor contracting

d. When the demand for the product being produced is increasing

16. If economic resources are perfectly interchangeable between the two products shown on a production possibilities graph:

a. The economy will always be at full employment

b. More of one product can be produced without producing less fo the other product

c. The production possibilities curve would be straight line

d. The two products are of equal value to the economy

17. Opportunity cost is best defined as:

a. Marginal cost minis marginal benefit

b. The time spent on an economic activity

c. The value of the best foregone alternative

d. The money cost of an economic decision

18. All of the following would affect the position of a country production possibilities curve expect:

a. The quality of labor

b. The level of employment

c. The amount of the capital stock

d. Technological progress

19. The post hoc, ergo propter hoc fallacy consists of:

a. Using an example to a different point

b. Inferring causality from chronological sequence

c. Jumping to conclusions from an inadequate number of cases

d. Arguing for or against the person rather than the position being supported

20. Which is one of the five fundamental question that needs to be answered by economic system

a. What is the rate of unemployment?

b. Who will be the richest person in the economy?

c. What goods and services will be produced?

d. Why are the prices for goods and services so high?

21. The institution of private property is sustained over time by:

a. Competition

b. Bequests

c. Self-interest

d. Free enterprise

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ECON 2010 Lecture Notes - Lecture 3: Reservation Price, Demand Curve, Marginal Cost

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