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ECON 101 Lecture Notes - Lecture 5: Economic Equilibrium, Demand Curve, Market Clearing

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School
U of M
Department
Economics
Course
ECON 101
Professor
Ronald C Caldwell

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ECON 101 Full Course Notes
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ECON 101 Full Course Notes
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Document Summary

Shocking the system: once at market clearing price, no reason to expect the market price to change. Sellers would like to charge a higher price, but would end up with unsold inventories, excess supply. Consumers would like to pay a lower price, but not everyone who wants the good at that lower price would be able to buy it, excess. Demand: unless something causes the demand curve or the supply curve to shift, shift in demand curve causes movement along supply curve. Changes in demand: increase in demand. Rightward shift in the entire demand curve. Changes in quantity supplied due to change in price. Equilibrium price rises, equilibrium quantity rises: decrease in demand. Change in quantity demanded due to change in price. Equilibrium price falls, equilibrium quantity rises: decrease in supply. Equilibrium price rises, equilibrium quantity falls: real world is complex, may want to analyze what happens with both a demand and supply shock.

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Related Questions

28) All shredded wheat producers have decided to add a new ingredient, the "crunch enhancer" to shredded wheat. Crunch enhancer keeps cereals crisper longer in milk and, as a result, consumers decide they like shredded wheat more than before. What happens to the supply and demand curves for shredded wheat now that it costs more to produce and consumers like it better? A) The supply curve shifts rightward and the demand curve remains unchanged. B) The supply curve shifts leftward and the demand curve remains unchanged. C) The supply and demand curves both shift rightward. D) Neither curve changes but a movement occurs up along the demand curve and a movement occurs up along the supply curve. E) The supply curve shifts leftward and the demand curve shifts rightward.

1. A change in quantity supplied:

A. refers to a shift in the supply curve.

B. results from a change in a determinant of supply.

C. refers to a movement along a given supply curve.

D. is caused by a change in the number of sellers in the industry.

 

2. Which one of the following would most likely cause the supply curve for microwaves to shift to the right:

A. a decrease in the price of microwaves.

B. an increase in the wage rate earned by workers who produce microwaves.

C. a decrease in consumer preferences for microwaves.

D. an increase in the number of firms that produce microwaves

 

3. If the actual price sellers are pricing their goods at is currently above the equilibrium price. There is a ____________. Therefore, we would expect sellers to ____________ the price until the market reaches equilibrium.

A.

surplus; raise
B.

surplus; lower
C.

shortage; raise
 

D. shortage; lower

4. Suppose the demand and the supply of wine both increase. The net effect of these changes in demand and supply will be

A

an increase in equilibrium quantity, but a decrease in equilibrium price.
B

an increase in equilibrium price and quantity.
C.

an increase in equilibrium price, but the change in equilibrium quantity is indeterminate.
D.

an increase in equilibrium quantity, but the change in equilibrium price is indeterminate.

 

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.