HON 1302 Lecture Notes - Lecture 4: Lead, Economic Equilibrium

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erinhound847

3 Feb 2017

School

St. John's University

Department

HON - HONORS

Course

HON 1302

Professor

Tomic

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Document Summary

#6) price of homes and number of new homes have risen. In this situation, none of the determinants of supply or demand are mentioned so we must see what we can do to achieve the specified conditions (price and quantity increasing). In order to increase both price and quantity, demand must increase. Beef and chicken are substitute goods; as a result, an increase in the price of beef will lead to an increase in the demand for chicken. Both equilibrium price and quantity for chicken will increase. Since the grape companies must now pay their workers more, the cost of production is increasing. As a result, supply decreases and equilibrium price increases while equilibrium quantity decreases. The first three choices would lead to an increase in the supply of cheese, which would lead a decrease in the equilibrium price of cheese rather than an increase. If demand is elastic (elasticity of demand > 1), lowering prices will increase total revenue.

Related Questions

(1) If a demand curve shifts to the left, then:
a) price would go up and quantity would go down
b) price would go down and quantity would go up
c) a lower price and quantity would result
d) a higher price and quantity would result

(2) Demand and supply curves are drawn assuming ceterisparibus.This means that:
a) economists ignore all assumptions
b) economists don't watch for the fallacy of false cause
c) changes will be proportional
d) all other things besides price and quantity are unchanged

(3) If steak and potatoes are complements, when the price ofsteakgoes up, the demand curve for potatoes:
a) shifts to the right
b) shifts to the left
c) stays the same
d) shifts to the right and then moves back

(4) Given that chicken and beef are substitute goods, if thepriceof chicken decreases substantially, there would be:
a) an increase in the demand for beef
b) a decrease in the demand for beef
c) a decrease in the quantity for beef demanded
d) no change in the demand for beef

(5) Every day for the past two years you've had ham and cheese onawhole wheat bagel for lunch at Bungalow Bob's BagelBoutique.However, the price of whole wheat bagels has risen by 10cents sotoday you decide to have ham and cheese on rye bagel. Inthis case,whole wheat and rye bagels are best considered:

a) superior goods
b) normal goods
c) substitute goods
d) complementary goods

(6) For most goods, purchases tend to rise with increases inbuyers'incomes and to fall with decreases in buyers' incomes. Suchgoodsare known as:

a) inferior goods
b) direct goods
c) normal goods
d) luxury goods

(7) Economists know that a particular good can be classified asaninferior good if a(n)______ increase in buyers' incomecausesa(n)_____

a) increase; increase in demand
b) increase; increase in quantity demanded
c) increase; decrease in demand
d) decrease; decrease in demand

(8) An increase in the demand for medical services caused byanincrease in the number of people 65 is most likely attributabletowhich demand shifter?

a) income
b) consumer preferences
c) prices of other goods
d) demographic characteristics

(9) Which of the following would shift the demand curve fornewtextbooks to the right?

a) a decrease in the price of paper
b) a fall in the price of used textbooks
c) an increase in college enrollments
d) a fall in the price of new textbooks

(10) How a supply curve is sloped and located depends on:

a) technology
b) resources prices
c) the number of producers or sellers
d) all of the above

(11) A decrease in supply means:

a) a shift to the left of the entire supply curve
b) moving downward (to the left) along the supply curve withlowerprices
c) less will be demanded at every price
d) more will be supplied at every price

greycrocodile249

An MBA student has proposed the following demand equation for good Y. QdY = a + b PY + c M

where: QdY = quantity demanded of good Y in millions of tons per year PY = Price of good Y in dollars per ton M = Average consumer income in thousands of dollars

What sign should this student expect a, b, and c to have? Explain.

The regression output from the computer is as follows:

Dependent Variable:

QdY R-Square F-ratio p-value on F

Observations: 90 .4 12.84 0.015

Variable Parameter Estimate Standard Error T-ratio P-Value

Intercept 60.00 5468.32 3.12 0.0082

PY -1.00 0.65 -1.27 0.2145

M 0.02 3.29 5 .12 0.0121

This economist is confortable using parameter estimates that are statistically significant at the 10 percent level or better.

Does PY have a statistically significant effect on the quantity demanded of good Y? Explain, using the appropriate p-value.

Does M have a statistically significant effect on the quantity demanded of good Y? Explain, using the appropriate p-value.

What fraction of the total variation in the quantity demanded of good Y remains unexplained? What can the student do to increase the explanatory power of his demand equation? What other variables might he add to his demand equation?

What is the expected quantity demanded of good y when PY = 200 and M = 10,000?

If demand decreases and supply increases simultaneously then for sure a. Prices will increase b. Prices will decrease c. Quantities will increase d. Quantities will decrease e. None of the above

Which of the following will increase the demand for chicken? a. An increase in the price of red meats b. A decrease in the price of red meats c. An increase in the price of chicken d. A decrease in the price of chicken e. None of the above

skychinchilla148

Part 3: Questions requiring a quantitative answer

Note: All but the last blank are worth 3 points. The last blank in Question 3 is worth 4 points.

1. Suppose HEB sells 2,500 pounds of chicken a week at $3.00 per pound
and is considering raising its prices by 10 percent. The own price elasticity of chicken is â0.41. Given this information:

How many pounds of chicken will
HEB sell if it raises the price? _______.

HEBâsweeklyrevenueaftertheprice increase will be $_____________.

This represents a change in weekly revenue of $_________.

Consumers will be ___________ off as a result of this price change.

Is chicken considered a normal good or an inferior good?___________________ ________________________________.

2. SupposeHEBdoesnotraiseitsprice
and currently sells 2,500 pounds of chicken at $3.00 a week. Assume Kroger located just down the street, however, decides to cut its price of chicken by 10 percent. Assume the elasticity of HEB chicken with respect to the price of Kroger chicken is 0.80. Given this information:

WhatimpactwillKrogerâspricecuthaveon the amount of chicken sold weekly by HEB? ______________ pounds.

What impact will this have on HEBâs weekly revenue? $ __________.

What is the new level of revenue at Krogerâs as a result of the price cut? $____________ _________.

3. Assumetheincomeelasticityofdemand
for HEB chicken is 0.60 and it is currently selling 2,500 pounds of chicken a week at $3.00 a pound. Further assume that neither HEB or Kroger raise their prices. If the government, however, raises taxes, thereby lowering consumer disposable income by 5 percent,

How many pounds of chicken will HEB
sell as a result of this tax increase? _______

What impact will this have upon the weekly revenue at HEB? $___________ ___________________

What impact will this have on quantity of chicken sales at Krogerâs? ___________ ________________________________

HON 1302 Lecture Notes - Lecture 4: Lead, Economic Equilibrium

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