ECON 101 Lecture Notes - Lecture 16: Marginal Revenue, Demand Curve, Economic Equilibrium

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raspberryimpala524

14 Jan 2017

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Horizontal summation of supply and demand curves (again) Horizontal summation of supply or demand curves is very simple. Suppose we have two individual demand curves given below. To horizontally sum, we simply do the following experiment, and repeat it several times. Pick any price, p0, find the quantity demanded by the first individual, then the quantity demanded by the second individual, and add them up. Then, the one of the points on the market demand curve will be p0 and the sum of the quantities. Repeat for other prices, until you get bored. To remind us that a market demand curve is a horizontal summation of individual demand curves, we"ll denote it d = mv. The first individual would demand q1 units, the second individual would demand 0 units. The market demand curve would be come from only individual one. In fact, at any price above p1, the market demand curve would be identical to person 1"s demand curve.

Related Questions

Considering the demand side of a market for a good, it is reasonable to expect that:
i. demand curves for a given good are identical between consumers
ii. demand curves for a given good differ between consumers
iii. an individual has identical demand curves for different goods
iv. an individual has different demand curves for different goods

iii

i and iii

ii and iv

Suppose the market demand curve for a good is represented by the linear equation Q = 60 - 0.75P. If the market price were to increase from P = $20 to P = $40, then holding all other factors constant:

the quantity demanded would decrease by 10 units and total expenditures on the good would decrease by $400

the quantity demanded would decrease by 15 units and total expenditures on the good would increase by $300

the quantity demanded would decrease by 30 units and total expenditures on the good would increase by $1200

the quantity demanded would increase by 20 units and total expenditures on the good would decrease by $800

the quantity demanded would increase by 10 units and total expenditures on the good would increase by $100

the quantity demanded would increase by 25 units and total expenditures on the good would increase by $1000

A perfectly competitive firms supply curve for a good identifies the:
i. minimum quantity supplied at each price, holding all other factors constant
ii. firms minimum willingness to accept for each incremental unit of the good (e.g., the first unit, second unit, etc.), holding all other factors constant
iii. maximum quantity supplied at each price, holding all other factors constant
iv. firms maximum willingness to accept for each incremental unit of the good (e.g., the first unit, second unit, etc.), holding all other factors constant

Considering the supply side of a market for a good, if a firms supply curve were vertical, then:

the law of supply holds, and quantity supplied is completely insensitive to changes in price

the law of supply holds, and quantity supplied is highly sensitive to changes in price

the law of supply fails to hold, and quantity supplied is completely insensitive to changes in price

the law of supply fails to hold, and quantity supplied is highly sensitive to changes in price

none of the above

The determinants of supply are:
i. factors other than price that will affect the quantity of a good or service a firm is willing and able to purchase
ii. factors that affect a producers maximum willingness-to-accept to produce various quantities of a good
iii. factors that affect a producers minimum willingness-to-accept to produce various quantities of a good

iii

i and ii

i and iii

The market supply curve for a good is derived by:
i. horizontally summing the supply curves of the individual firms in the market
ii. vertically summing the supply curves of the individual firms in the market
iii. summing the quantity supplied by each firm at a given price and then repeating this over the range of prices

iii

i and ii

i and iii

If the level of technology used in the production of a good improves, and assuming the quality of the good does not change, then:
i. more output may be obtained with a given amount of inputs compared to before the technological improvement
ii. a given amount of output may be obtained with fewer inputs compared to before the technological improvement
iii. the firm will increase its use of other inputs, such as the number of workers it employs
iv. market demand for the good will increase

Considering the market for gasoline, which of the following would result in an increase in market supply?
i. a decrease in the price of gasoline
ii. an improvement in oil extraction and refining technologies
iii. an increase in the wage rates paid to gasoline refinery workers
iv. a decrease in the price of crude oil, a key input used to produce gasoline
v. the imposition of a federal gasoline tax aimed a decreasing the emission of greenhouse gases

Suppose a market has two identical sellers. If each sellers supply function is given by P = 20 + Q, then the market supply function is:

From the market framework discussed in class and the readings, it may be concluded that in order for a good to be exchanged between a seller and a buyer, it must be that:

buyer maximum willingness-to-pay is greater than seller minimum willingness-to-accept

buyer maximum willingness-to-pay is greater than or equal to seller minimum willingness-to-accept

buyer minimum willingness-to-pay is greater than or equal to seller maximum willingness-to-accept

buyer minimum willingness-to-pay is greater than seller maximum willingness-to-accept

If the market demand function is given by P = 80 - 0.3Q and the market supply is given by P = 20 + 0.1Q, then the equilibrium price and quantity are:

Of concern are the affects of sustained summer droughts on the domestic supply of wheat. Noting that wheat is a primary ingredient in the production of bread and that potatoes are a substitute for bread, if the supply of wheat declines then it is reasonable to expect:

the price of wheat to fall, the supply of bread to increase, and the demand for potatoes to increase

the price of wheat to fall, the supply of bread to increase, and the demand for potatoes to decrease

the price of wheat to rise, the supply of bread to decrease, and the demand for potatoes to decrease

the price of wheat to rise, the supply of bread to decrease, and the demand for potatoes to increase

the price of wheat to rise, the supply of bread to increase, and the demand for potatoes to increase

the price of wheat to rise, the supply of bread to increase, and the demand for potatoes to decrease

Suppose a perfectly competitive market is initially in equilibrium. If market demand and supply decrease simultaneously, then equilibrium:

price will rise, but the equilibrium quantity may either rise, fall, or remain unchanged

quantity will rise, but the equilibrium price may either rise, fall, or remain unchanged

price will fall, but the equilibrium quantity may either rise, fall, or remain unchanged

quantity will fall, but the equilibrium price may either rise, fall, or remain unchanged

Considering the demand side of a market for a good, the consumer surplus derived by an individual:
i. is the difference between the maximum amount the consumer is willing to pay on each unit and the minimum prices that producers are willing to accept
ii. is the difference between the minimum amount the consumer is willing to pay on each unit and the price he/she
actually pays
iii. is the difference between the maximum amount the consumer is willing to pay on each unit and the price he/she actually pays
iv. will decrease if price increases

Suppose the market demand for a good is described by the equation P = 120 - 2Q. If a change in market supply results in price decreasing from P0 = $80 to P1 = $70, then the resulting change in consumer surplus is:

1. Suppose that a perfectly competitive firm's Total Cost function is given by:
TC = 50 + 80q - 10q² + 0.6q³
a. What is fixed cost equal to? What is Variable Cost equal to?
b. What is Marginal Cost equal to? What is the Average Variable Cost equal to?
c. Find an equation for the inverse supply curve of the firm. Hint: the supply curve presumes profit-maximizing outputs at any market price.
d. Below which market price (a number) will this firm choose to produce 0 output?
e. Choose a market price that is between Average Cost and Average Variable Cost. Will, the firm choose to produce a positive output level?
Depict this output level in a graph that includes all the
appropriate curves. Explain verbally (and with numbers) why this firm would choose to produce the output you chose.
f. What does it mean for a firm to be a price taker? What is the
implication of this for the individual firm's demand curve? You must also mention in your answer the term elasticity (correctly of course).
g. If the firm's cost curve shifted down, what would this do to?
the firm's supply curve? Justify your answer with an example using the short-run total cost curve above.
Q2. Suppose there are two demand curves (e.g two different sets of consumers) for a particular product (two distinct markets that can be segmented-so somehow the consumers in one market cannot buy in the other market and resale from lower-priced consumers to higher-priced consumers is not possible).
The two demand curves are given by the following equations:
Q1 = 14 - P1 (group 1)
Q2 = 12 - 2P2 (group 2)
a. Solve for the inverse demand curve for group 1 and then graph the inverse demand curve with P on the vertical and Q on the horizontal axis.
b. Calculate MR for each group above and graph on the graphs in part a.
c. Suppose MC=AC is constant and equal to 2 for the firm (So the MC curve applies for both groups (because it is the same supplier of a single product for the two groups), although demand and MR are unique to each group since the markets can be segmented. Find the profit-maximizing output, price, and profits in each market. You may assume that TC = AC*Q (cost per unit*number of units). Label the correct price and quantity for each graph in part a.
d. What are the elasticities at the profit-maximizing quantities that you found in part c?
e. Can you say anything about how the price charged in each market relates to the relative price elasticities of demand you calculated in part d? Try to explain intuitively using an example of a real product that you might consume, in which the supplier of a single product can segment the market and in fact charge different prices to two different groups.
f. Now suppose that the above firm cannot segment the two markets. Solve for the single profit-maximizing price and quantity. What are profits equal to?

greenimpala359

1. If the cross price elasticity of demand between two commodities is positive, then these commodities are

Select one:

a. are complements.

b. are inferior.

c. are superior.

d. are substitutes.

Answer...?

2. Along a given indifference curve, a consumer reduces the quantity of one good in favor of more units of the other. In this situation

Select one:

a. the marginal utility of the first rises and the marginal utility of the second good falls.

b. Total utility rises.

c. Both the marginal rate of substitution falls and the marginal utility of the first rises and the marginal utility of the second good falls are correct.

d. the marginal rate of substitution falls.

Answer...?

3. Along a given indifference curve, a consumer reduces the quantity of one good in favor of more units of the other. In this situation

Select one:

a. the marginal utility of the first rises and the marginal utility of the second good falls.

b. Total utility rises.

c. Both the marginal rate of substitution falls and the marginal utility of the first rises and the marginal utility of the second good falls are correct.

d. the marginal rate of substitution falls.

Answer...?

4. Moral hazard is a barrier to financing global growth because

Select one:

a. of the differences between financing using loans, portfolio investment and foreign direct investment.

b. there is the possibility that the funds are used for riskier behavior than the lender agreed to.

c. firms sometimes have trouble determining whether they need funds or not.

d. if investors have trouble identifying high-risk firms they may be unwilling to give money to creditworthy firms.

5. Moral hazard is a barrier to financing global growth because

Answer...?

6. Which of the following statements is FALSE?

Select one:

a. Price elasticity of supply can never equal 1.

b. Time is an important consideration in determining supply elasticity.

c. A horizontal supply curve is possible.

d. A perfectly inelastic supply curve is a vertical line.

Answer...?

7. Corporations are able to raise large amounts of financial capital because

Select one:

a. of limited liability and the treatment of a corporation as an individual entity.

b. of the tax breaks corporations are given relative to partnerships or proprietorships.

c. of the elimination of the problem of separation of ownership and control.

d. of their greater ability to monitor the performance of decision makers.

Answer...?

8. The largest quota subscriber of the International Monetary Fund (IMF) is

Select one:

a. China.

b. Japan.

c. Germany.

d. the United States.

Answer...?

9. To derive the demand curve from the indifference map,

Select one:

a. vary the prices of both goods while holding income constant.

b. vary the price of one good while holding the price of the other good and income constant.

c. vary income while holding the prices constant.

d. vary the price of one good and income while holding the price of the other good constant.

Answer...?

10. As an individual consumes more of a particular commodity, the total level of utility derived from that consumption will

Select one:

a. increase at a constant rate.

b. increase at a decreasing rate.

c. remain constant.

d. increase at an increasing rate.

Answer...?

11. Which of the following is a TRUE statement about stock markets?

Select one:

a. It is always better to buy growth stocks than the older and more stable blue-chip stocks.

b. Economists can make above-average profits in the stock market because of their specialized knowledge of economics.

c. It is illegal for a friend of a corporate executive to make large profits in the stock market by using his inside information.

d. The stock market on average over time is random and totally unrelated to the performance of the economy.

Answer...?

12. Income elasticity of demand is defined as

Select one:

a. the percentage change in demand divided by the percentage change in income.

b. the percentage change in income divided by the percentage change in quantity demanded.

c. the change in quantity demanded divided by the change in market price.

d. the change in quantity demanded divided by the change in income.

Answer...?

13. The consumption possibilities curve is the

Select one:

a. budget constraint.

b. indifference curve.

c. supply curve.

d. demand curve.

Answer...?

14. According to the random walk theory,

Select one:

a. the probability that a stock's price will increase tomorrow is greater if it increased today.

b. the probability that a stock's price will increase tomorrow is greater if it decreased today.

c. the best forecast of tomorrow's price is today's price.

d. the best forecast of tomorrow's price is found by determining the trend for the last five trading days.

Answer...?

15. "Unit elasticity of demand can be found everywhere along a straight-line demand curve with a slope of -1." Do you agree or disagree? Explain.

Answer:

16. For which of the following would the absolute price elasticity of demand be greatest?

Select one:

a. Pepsi Cola

b. Tickets to the Super Bowl

c. Salt

d. Gasoline

Answer...?

16. The price of a hamburger is $1 and the price of a movie is $4 and the consumer has $10. A consumer has purchased 2 hamburgers and 2 movies, receiving 25 units of utility for the second hamburger and 100 units of utility for the second movie. The set of goods

Select one:

a. is not an optimum because the marginal utility per dollar spent is greater for hamburgers than for movies.

b. is not an optimum because the consumer has not spent all of his money.

c. is an optimum since the entire income is spent and total utility is minimized.

d. is an optimum since the entire income is spent and the marginal utility per dollar spent is the same for the last unit of each good.

Answer...?

17. Marginal utility

Select one:

a. is stable, but then as a person consumes more of a good or service, has a propensity to increase.

b. equals the total satisfaction from consumption of goods and services.

c. can be thought of as being the equivalent to total utility.

d. at first rises and then declines as a person consumes more of a good or service.

Answer...?

18. The nominal rate of interest is 4% and the anticipated rate of inflation is 5%. What is the real rate of interest?

Select one:

a. 1%

b. 4%

c. -1%

d. 9%

Answer...?

19. Using the above table, what is the total utility of consuming 3 bottles of soda?

Select one:

a. 115

b. 135

c. 120

d. 240

Answer...?

20. Dead capital is

Select one:

a. machinery that fails to operate properly.

b. a capital resource that depreciates rapidly.

Answer...?

21. What is the annual rate of growth of per capita real GDP if real GDP grows at a constant rate of 5 percent per year and the annual rate of population growth is 3 percent?

Select one:

a. 1.7 percent

b. 8 percent

c. 5 percent

d. 2 percent

c. machinery that requires constant maintenance.

d. any capital resource that lacks clear title of ownership.

Answer...?

ECON 101 Lecture Notes - Lecture 16: Marginal Revenue, Demand Curve, Economic Equilibrium

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