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ECON 200 Lecture Notes - Lecture 3: Iowa Electronic Markets, Margarine, Arbitrage

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beigelion235
8 Sep 2016
School
University of Maryland
Department
Economics
Course
ECON 200
Professor
Robert Schwab

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Document Summary

You can buy a bundle of tickets for . The bundle will include a clinton ticket and a trump ticket. You can also sell a bundle back for . Instead of buying or selling these bundles, you could also buy or sell individual tickets. So recently, you could go to the trump market and buy a trump ticket for. It is important to look at multiple markets at once. There are different attributes that cause prices to be lower or higher in certain areas. The simultaneous purchase and sale of the same securities, commodities, or foreign exchange in different markets to take advantage of differential pricing of the same asset. Stock market, iowa electronic market, foreign exchange markets. Some stocks are sold on two or more stock exchanges. For example, verizon is traded on both nasdaq and the nyse. There is an opportunity for arbitrage is the prices are different on the two markets.

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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.

QUESTION 1

The demand for oranges increases while the supply decreases. The equilibrium price of oranges ________, and the equilibrium quantity ________.

falls; increases

falls; perhaps changes but we can't say if it increases, decreases, or stays the same

rises; decreases

rises; perhaps changes but we can't say if it increases, decreases, or stays the same

1 points

QUESTION 2

Assume a competitive market is in equilibrium. There is an increase in demand, but no change in supply. As a result the equilibrium price ________, and the equilibrium quantity is ________.

rises; increases

falls; decreases

falls; does not change

rises; does not change

1 points

QUESTION 3

Bagels and cream cheese are complementary goods. Suppose that the price for flour, which is used to produce bagels, increases. The equilibrium price of cream cheese ________ and the equilibrium quantity of cream cheese ________.

does not change; does not change

rises; increases

falls; decreases

rises; decreases

1 points

QUESTION 4

If consumers buy a large number of plug-in electric cars, the equilibrium price of electricity will ________ and the equilibrium quantity of electricity will ________.

rise; increase

rise; decrease

fall; increase

fall; decrease

1 points

QUESTION 5

Which of the following shifts the supply curve for oranges?

an increase in income for all orange consumers if oranges are a normal good

disastrous weather that destroys about half of this year's orange crop

an increase in the price of bananas, a substitute in consumption for oranges

a newly discovered increase in the nutritional value of oranges

1 points

QUESTION 6

Which of the following shifts the supply curve of rutabagas rightward? (A rutabaga is a potato-like vegetable.)

normal goods in production.

an exceptionally cold summer that killed much of the rutabaga crop.

a fall in the price of fertilizer used to grow rutabagas.

an increase in the price of a rutabaga

1 points

QUESTION 7

Suppose over the next several years the productivity of firms producing electric cars improves dramatically. The advance in productivity leads to

an increase in the supply electric cars so that the supply curve shifts rightward.

an increase in the supply of electric cars so that the supply curve shifts leftward.

a decrease in the supply of electric cars so that the supply curve shifts rightward.

a decrease in the supply of electric cars so that the supply curve shifts leftward.

1 points

QUESTION 8

Hot dogs and hot dog buns are complements. If the price of a hot dog falls, then

the demand for hot dogs will increase.

the demand for hot dog buns will decrease.

the quantity demanded of hotdogs will decrease.

the demand for hot dog buns will increase.

1 points

QUESTION 9

Demand curves slope ________ because as the price increases and other things remain the same, the quantity demanded ________.

upward; increases

downward; decreases

upward; decreases

downward; increases

1 points

QUESTION 10

Water bottlers announce that next month the price of bottled water will rise by 25 percent. Which of the following occurs immediately?

The quantity of bottled water demanded increases.

The demand for bottled water increases.

The quantity of bottled water demanded decreases.

The demand for bottled water decreases.

1 points

QUESTION 11

If the price of carrots is below the equilibrium price, the

quantity supplied of carrots exceeds the quantity demanded and a shortage exists.

quantity demanded of carrots exceeds the quantity supplied and a shortage exists.

quantity supplied of carrots exceeds the quantity demanded and a surplus exists.

quantity demanded of carrots exceeds the quantity supplied and a surplus exists.

1 points

QUESTION 12

Which of the following is true regarding demand?
i. Demand is the relationship between quantity demanded and the price of a good when all other influences on buying plans remain the same.
ii. Demand refers to one quantity at one time.
iii. "Demand" and " quantity demanded" are the same thing.

both i and ii

i only.

ii only.

iii only.

1 points

QUESTION 13

Suppose the current price of a pound of steak is $6 per pound and the equilibrium price is $9 per pound. What takes place?

There is a shortage, so the price rises and quantity demanded decreases.

There is a shortage, so the price rises and quantity demanded increases.

There is a shortage, so the price falls and quantity demanded increases.

There is a surplus, so the price falls and quantity demanded increases.

1 points

QUESTION 14

The number of corn producers increases, so the supply of corn ________ and the supply curve of corn ________.

decreases; shifts leftward

decrease; shifts rightward

increases; shifts rightward

increases; shifts leftward

1 points

QUESTION 15

Market equilibrium

i. can never occur because there are always people who want a good but cannot afford it.

ii. occurs at the intersection of the supply and demand curves.

iii. is the point where the price equals the quantity.

iii only

ii and iii

ii only

i only

1 points

QUESTION 16

Milk can be used to produce cheese or butter. If the price of a pound of butter rises, what happens to the supply of cheese?

The supply of cheese stays the same and there is a decrease in the quantity supplied of cheese.

The supply of cheese decreases.

The supply of cheese stays the same and there is no change in the quantity supplied of cheese.

The supply of cheese increases.

1 points

QUESTION 17

Consumers regard Dell computers and Apple computers as substitutes. If the price of a Dell computer decreases, the

demand for Dell computers decreases.

demand for Apple computers increases.

demand for Apple computers decreases.

demand for Dell computers increases.

1 points

QUESTION 18

Suppose the current price of a pound of steak is $12 per pound and the equilibrium price is $9 per pound. In this case, there is a

surplus, so the price rises and quantity demanded increases.

shortage, so the price rises and quantity demanded decreases.

surplus, so the price falls and quantity demanded increases.

shortage, so the price falls and quantity demanded increases.

1 points

QUESTION 19

Plywood is used in the construction of houses. If the price of plywood rises, what happens to the supply of houses?

The supply increases so that the supply curve shifts rightward.

The quantity supplied increases but there is no shift in the supply curve.

The supply decreases so that the supply curve shifts leftward.

The quantity supplied decreases but there is no shift in the supply curve.

1 points

QUESTION 20

In stores, it is common to find seasonal products marked down when the season ends. What explains this behavior?

The store is trying to increase its customers' demand for the product.

The law of demand is being used to increase the quantity demanded.

The store manager must be trying to drive away customers by selling low quality products.

The store is trying to increase its consumer's incomes by increasing their purchasing power.

1 points

QUESTION 21

Suppose that the price of flour used to produce bagels increases. Hence the equilibrium price of a bagel ________ and the equilibrium quantity ________.

rises; increases

rises; decreases

falls; increases

falls; decreases

1 points

QUESTION 22

If both the supply and demand curves shift simultaneously, we can always predict what will happen to

either the price or the quantity, but not both.

only the quantity.

only the price.

both the price and the quantity.

1 points

QUESTION 23

If income increases and the demand for bus rides decreases,

bus rides are a substitute good.

consumers are behaving irrationally.

bus rides are an inferior good.

bus rides are a normal good.

1 points

QUESTION 24

A surplus of cardboard boxes means that

at the current price of a cardboard box, the quantity demanded equals the quantity supplied and the price will fall to restore the equilibrium..

the current price of a cardboard box is less than the equilibrium price.

at the current price of a cardboard box, the quantity demanded exceeds the quantity supplied.

at the current price of a cardboard box, the quantity demanded is less than the quantity supplied.

1 points

QUESTION 25

If a freeze destroys oranges before they are harvested, the equilibrium price of an orange ________ and the equilibrium quantity ________.

rises; increases

rises; decreases

falls; increases

falls; decreases

1 points

_____ 1. Suppose you make silver jewelry. If the price of silver falls, we would expect you to:

a. be willing and able to produce less jewelry than before at each possible price.

b. be willing and able to produce more jewelry than before at each possible price.

c. face greater demand for your jewelry.

d. face a weaker demand for your jewelry.

_____ 2. If suppliers expect the price of their product to fall in the future, then they will:

a. increase supply (supply curve shifts out) now.

b. decrease supply (supply curve shifts in) now.

c. increase supply in the future, but not now.

d. decrease supply in the future, but not now.

_____ 3. Consider the market for portable air conditioners, initially in equilibrium. When a heatwave strikes, the equilibrium price:

a. increases and equilibrium quantity decreases.

b. decreases, and the equilibrium quantity increases.

c. and quantity both increase.

d. and quantity both decrease.

_____ 4. Buyers can buy all they want to buy and sellers can sell all they want to sell at:

a. prices at and above the equilibrium price.

b. prices at and below the equilibrium price.

c. prices above and below the equilibrium price, but not at the equilibrium price.

d. the equilibrium price, but not at prices above or below the equilibrium price.

_____ 5. The law of supply and demand states that:

a. demand and supply curves shift out as time goes by.

b. the price of a goodwill rise in response to excess demand for that good.

c. when the supply curve for good shifts, the demand curve for that good shifts in response.

d. the equilibrium price of goodwill be rising more often than it will be falling.

_____ 6. If Doritos and Cheetos are substitutes, a rise in the price of Cheetos will cause:

a. the equilibrium quantity of Doritos to fall and the price of Doritos to rise.

b. the equilibrium quantity and price of Doritos to rise.

c. the equilibrium quantity and price of Doritos to fall.

d. the equilibrium quantity of Doritos to rise and the price of Doritos to fall.

_____ 7. New production technology is perfected that allows auto manufacturers to build an automobile using half the labor hours formerly needed. As a result:

a. the equilibrium quantity of automobiles increases and the price decreases.

b. the equilibrium quantity and price of automobiles increase.

c. the equilibrium quantity and price of automobiles decreases.

d. there is likely no change in the number of automobiles produced.

_____ 8. The U.S. government announces that it will raise the interest rate on college student loans beginning in January of next year. The immediate market impact is:

a. the demand curve for student loans shifts out.

b. the supply curve for student loans shifts out.

c. we anticipate that more student loans will be completed next year than this year.

d. all of the above are correct.

_____ 9. What curve shift produces a fall in price and increase in quantity exchanged?

a. An inward shift in the demand curve.

b. An inward shift in the supply curve.

c. An outward shift in the supply curve.

d. An outward shift in the demand curve.

_____ 10. We note that fewer motorcycles were sold this year than last and that the price is also lower. What event could have caused this outcome?

a. A technological change that improved the fuel efficiency of motorcycles.

b. A rise in the wages paid to motorcycle manufacturing workers.

c. A motorcycle craze due to the popularity of Sons of Anarchy.

d. Increasing concerns about health impacts from breathing motorcycle exhaust.

_____ 11. The price that results in quantity supplied equaling quantity demanded is the optimal (best) price because it:

a. maximizes the combined welfare of buyers and sellers.

b. maximizes the cost of the seller.

c. minimizes the expenditure of buyers.

d. all of the above are correct.

_____ 12. Consumer surplus is the:

a. quantity of good consumers get without paying anything.

b. amount a consumer pays minus the amount the consumer is willing to pay.

c. amount a consumer is willing to pay minus the amount the consumer pays.

d. value of a good to a consumer.

_____ 13. In a market, the marginal buyer is the one:

a. whose willingness to pay is higher than all other buyers and potential buyers.

b. whose willingness to pay is lower than all other buyers and potential buyers.

c. who is willing to buy exactly one unit of the good.

d. who would be the first to leave the market if the price were any higher.

_____ 14. If a consumer is willing and able to pay $20 for a particular good and if she actually pays $16 for the good, then her consumer surplus is:

a. $4.

b. $16.

c. $20.

d. $36.

_____ 15. Suppose there is an early freeze in California that reduces the size of the orange crop. What happens to consumer surplus in the market for oranges?

a. Consumer surplus increases.

b. Consumer surplus decreases.

c. Consumer surplus is not affected by this change.

d. We would have to know whether the demand for oranges is elastic or inelastic.

_____ 16. Producer surplus is the area on a supply/demand graph:

a. under the supply curve.

b. between the supply and demand curves.

c. below the price line and above the supply curve.

d. under the demand curve and above the price line.

_____ 17. Economists typically measure economic efficiency using:

a. total producer and consumer surplus.

b. profits to firms.

c. the quantity supplied by sellers.

d. the price paid by buyers.

_____ 18. Which of the following statements is correct?

a. Efficiency and equality are both maximized when total surplus is maximized.

b. Efficiency deals with the size of the economic pie; equality with how fairly the pie is sliced.

c. Efficiency is more difficult to evaluate than equality.

d. Equality is judged on positive grounds; efficiency requires normative judgments.

_____ 19. The price elasticity of demand measures how much:

a. quantity demanded a response to changes in price.

b. quantity demanded a response to changes in income.

c. price responds to a change in demand.

d. Both a and c are correct

_____ 20. Goods with many close substitutes tend to have:

a. less elastic demands.

b. more elastic demands.

c. price elasticities of demand that are unit elastic.

d. income elasticities that are negative.

Short Answer Questions:

All of the following questions are based on the data shown here for coffee demand and supply at a fictional Columbus coffee shop called Go-bucks.

Price Quantity Quantity

per Cup Demanded Supplied

$1.60 1,700 1,220

$1.80 1,555 1,300

$2.00 1,400 1,400

$2.20 1,235 1,520

$2.40 1,060 1,660

$2.60 875 1,820

_____ 21. (6 points) Using the mid-point formula, calculate the price elasticity of demand as the price increases from $1.60 to $1.80.

_____ 22. (6 points) Repeat the calculation of the price elasticity of demand, this time for a price increase from $1.80 to $2.00.

_____ 23. (6 points) Repeat the calculation of the price elasticity of demand, this time for a price increase from $2.40 to $2.60.

24. (4 points) Over which price range is demand inelastic? Over which price range is demand elastic? Does this follow the trend noted in class?

_____________________________________________________________________________

_____________________________________________________________________________

_____________________________________________________________________________

_____ 25. (6 points) Turning to the supply side, calculate the price elasticity of supply as the price increases from $2.20 to $2.40.

26. (2 points) How would you describe the price elasticity of supply over this range?

_____________________________________________________________________________

_____________________________________________________________________________