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ECON 1020 Lecture Notes - Lecture 5: Marginal Utility, Demand Curve, Economic Equilibrium

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School
University of Manitoba
Department
Economics
Course
ECON 1020
Professor
Ryan A.Compton

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ECON 1020 Full Course Notes
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ECON 1020 Full Course Notes
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Document Summary

These two problems make command systems perform very poorly. Even politically communist countries have moved towards a market economic system. Chapter 3 demand, supply, and market equilibrium: Demand: amount consumers are willing and able to purchase at a given price. Law of demand: as price falls, quantity demanded rises (and vise versa) Demand curve slopes downward/negative slope because of the law of demand. Law of diminishing marginal utility: the more you buy and consume of a product, the less utility/benefit you will receive. Income effect: when price goes down, you are left with more money to buy the product you are talking about and other products. Substitution effect: when the price of a good goes down, Both effects makes you buy more of the product you substitute towards it and buy more of it. To get from individual demand to market demand, just add up all the individual demands. Change in demand = shift of the curve (left or right)

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Related Questions

Demand is elastic when the elasticity ofdemandis:
Select correct option:
Greater than 0
Greater than 1
Less than 1
Less than 0
The law of diminishing returns assumes:
Select correct option:
There are no fixed factors of production.
There are no variable factors of production.
Utility is maximised when marginal product falls.
Some factors of production are fixed.
The law of diminishing marginal utility states:
Select correct option:
The supply curve slopes upward.
Your utility grows at a slower and slower rate as you consumemoreand more units of a good.
The elasticity of demand is infinite.
None of the given options.
If there is a price ceiling, there will be:
Select correct option:
Shortages
Surpluses
Equilibrium
None of the given options.


A "Giffen good" is defined as one for which:
Select correct option:
Marginal utility is zero.
The demand curve is perfectly elastic.
The substitution effect is positive.
The demand curve is positively sloped.


The concave shape of the production possibilitiescurveillustrates:
Select correct option:
Increasing opportunity costs for both goods
Increasing opportunity cost for good X but not for good Y
Increasing opportunity cost for good Y but not for good X
Constant opportunity costs for both goods


Although there are many reasons why a market can benon-competitive,the principal economic difference between acompetitive and anon-competitive market is:
Select correct option:
The number of firms in the market.
The extent to which any firm can influence the price oftheproduct.
The size of the firms in the market.
The annual sales made by the largest firms in the market.


If marginal product is equal to average product:
Select correct option:
The total product will fall
The average product will not change
Average variable costs will fall
Total revenue will fall


The price elasticity of supply shows us:
Select correct option:
How steep the supply curve is
How fast supply responds to price
How much supply shifts when income changes
How much quantity supplied responds to price changes


Moving from left to right, the typical productionpossibilitiescurve:
Select correct option:
Has a constant negative slope
Has a constant positive slope
Illustrates increasing opportunity costs
Illustrates decreasing opportunity costs

1)The law of demand states that as the price of a good rise, _____.

A. buyers purchase more of the good because the price of a substitute has risen.

B. buyers purchase less of the good because their real income decreases with an increase in price.

C. buyers purchase more of the good because they expect prices to be even higher in the future

D. buyers purchase less of the good because they expect prices to fall in the future.

Ā 

2) A movement along a demand curve can be attributed to a change in:

A. the quantity demanded of a good.

B. the demand for a good.

C. the substitution effect of consuming a good.

D. the opportunity cost of producing a good.

Ā 

3) If we say that demand for a good has increased, we mean that there has been:

A. a leftward shift of the demand curve.

B. a rightward shift of the demand curve.

C. a leftward movement along the demand curve.

D. a rightward movement along the demand curve.

Ā 

4) Which of the following will cause the demand curve for a normal good to shift to the right?

A. An increase in the price of a complementary good.

B. A decrease in income.

C. A decrease in the price of the good.

D. An increase in the price of a substitute good.

Ā 

5)Which of the following best defines supply?

A. The amount of a good that is produced at the least possible cost, other things constant

B. The amount of a good that producers are willing and able to sell at each possible price, other things constant.

C. The amount of a good that consumers want to buy at different income levels

D. The amount of a good that producers want to sell at a fixed price

Ā 

6)The market supply curve of a particular product indicates the total quantities:

A. that are actually sold during a given time period.

B. that sellers are willing to offer for sale at a fixed price.

C. that buyers are willing to purchase at alternative prices.

D. that sellers are willing and able to offer at alternative prices.

Ā 

7)When quantity demanded of a good exceeds the quantity supplied at the prevailing market price, _____.

A. the demand curve shifts rightward until the surplus is eliminated

B. the market is in equilibrium.

C. the price of the good will tend to increase.

D. the price of the good will decrease

Ā 

8)A shortage of textbooks is most likely to cause:

A. an increase in the price of textbooks.

B. a decrease in the supply of textbooks.

C. a decrease in the price of paper.

D. an increase in the cost of printing.

Ā 

9)The most important characteristic of the equilibrium price is that it:

A. maximizes the quantity demanded.

B. clears the market, leaving neither a surplus nor a shortage.

C. minimizes the quantity demanded.

D. guarantees that producers earn the profit.

Ā 

10)If both demand and supply increases in a market that is initially in equilibrium, the price will:

A. increase only if demand increases more than supply.

B. increase only if supply increases more than demand.

C. remain unchanged while quantity will increase.

D. remain unchanged while quantity will decrease.

1. The Houston Chronicle reported that in Houston, the average price of new homes has decreased, while at the same time, the number of new homes sold has increased.Ā This situation could be explained by which one of the following: (draw curves before answering)

  1. An Increase in demand
  2. An Increase in supply
  3. A Decrease in demand
  4. A Decrease in supply

2. In another market, the average price of new homes fell, while at the same time, the number of new homes sold decreased. The situation would best be explained by (Draw the curves before answering)

  1. An Increase in Demand
  2. An Increase in Supply
  3. A Decrease in demand
  4. A Decrease in supply

3. A consumer is said to have achieved maximum total utility when:

  1. Purchases of Good A give the same satisfaction as purchases of Good B.
  2. Purchases of the last dollar spent on Good A give the same satisfaction as purchases of the last dollar spent on Good B.
  3. The average purchases per dollar of Good A give the same satisfaction as the average purchases per dollar of Good B.
  4. The total utility derived from Good A is the same as the marginal utility derived from Good B.

4.Ā You are given the following information about a firm's present output position: MPP (Marginal Physical Product) of Land = 12; MPP of Labor = 16; Price of Land = $2; Price of Labor = $4. With no additional money to spend, this firm should:

5. A firm achieves the least cost in production by substituting factors until

  1. their factor prices are equal
  2. their marginal products are equal to the factor prices
  3. their marginal products are each equal to zero
  4. the ratios of their marginal product equal the ratio of their prices
  5. none of the above

6.The economy is currently on its production possibilities frontier (PPF). A politician says that it is possible to get more of everything--more infrastructure, more schools, more national defense, more spending on social programs, and so on. The politician is

  1. correct if he is assuming a rightward-shifting PPF.
  2. incorrect if he is assuming a rightward-shifting PPF.
  3. correct if he is assuming a PPF that does not change.
  4. none of the above

7. Assume your swimsuit business is at its maximum profit position, and one new change occurs: consumer incomes decrease. If swimsuits are normal goods, the equilibrium price of swimsuits will __________, and the CONSUMER surplus will ________.

  1. increase, increase
  2. decrease, decrease
  3. increase, decrease
  4. decrease, increase

8. Firms that shuts-down in the short-run still must pay:

  1. Marginal cost
  2. Variable cost
  3. Fixed cost
  4. Total cost

9. The term externalities refer to:

  1. Black-market economic activity.
  2. The impact on markets of imported goods.
  3. The costs and benefits of a market activity borne by a third party.
  4. The inequitable distribution of income.

10. If full external costs are not internalized, firms will tend to allocate more of society's scarce resources to produce than is societally warranted, and if full external benefits are not internalized, firms will allocate less of society's resources to produce than is societally justified. True/False.

11. Joe was very careful about smoking in his home until he bought a fire insurance policy. After buying the policy, he became careless. His attitude is: "I'm insured. What do I care if this place burns down; I'll just collect the money". Joe's attitude is an example of ______________.

12. Megatrust Bank had historically scrutinized loans very carefully and extended them, only to persons whom they considered very creditworthy. They made relatively few loans. However, after the government provided guarantees to sub-prime loans, Megatrust relaxed its standards and increased its loan volume. (And its default rate as well.) This is an example of _______________.

13. In the short-run, if a perfectly competitive firm finds itself operating at a loss, it will

  1. Reduce the size of its plant to lower fixed costs.
  2. Raise the price of its product.
  3. Shut down.
  4. Continue to operate as long as it covers its variable cost.

14. If income today is more equally distributed than it was in 1960, a Lorenz Curve depicting today's distribution would be

  1. More bowed and to the left of the 1960's curve.
  2. More bowed and to the right of the 1960's curve.
  3. Less bowed and to the left of the 1960' curve.
  4. Less bowed and to the right of the 1960's curve.

15. Which of the following statements isĀ true?

  1. As output increases, the average fixed cost becomes smaller and smaller.
  2. Average fixed cost does not change as output increases.
  3. The marginal cost curve intersects the average fixed cost curve at its minimum point.
  4. When marginal cost is greater than average fixed cost, average fixed cost increases.
  5. Ā 

16. A firm in any of the market structures we have studied will maximize its profit (or minimizes its loss) when its

  1. Average costs are at a minimum
  2. Marginal revenue andĀ marginal cost are the same.
  3. Marginal revenue is less than marginal cost.
  4. Marginal revenue is zero.

17. If the demand for a good increase, when the price of other good increases, these goods are

  1. Capital goods
  2. Substitute goods
  3. Complementary goods
  4. Luxury goods

18.Ā Which of the following pairs of products are complementary goods?

  1. mobile phones and laptops
  2. pens and pencils
  3. sugar and artificial sweeteners
  4. radios and television
  5. toothbrushes and toothpaste

19. The amount of a good that is given up to produce another good is:

  1. Scarcity
  2. Specialization
  3. Opportunity cost
  4. Trade
  5. Efficiency

20.Ā The most important characteristic of the equilibrium price is that it:

  1. Guarantees that producers earn a profit.
  2. Increases the quantity demanded.
  3. Clears the market.
  4. Decreases the quantity supplied.

21. Rank the following market structures based on the number of participating firms: From the fewest number of firms to the most number of firms:

  1. Oligopoly
  2. Perfect Competition
  3. Monopoly
  4. Monopolistic Competition

22. If firms in a monopolistically competitive market are earning economic profits which of the following scenarios would best reflect the change facing incumbent firms as the market adjusts to its new equilibrium?

  1. an increase in demand
  2. a decrease in demand
  3. a downward shift in their marginal cost curve
  4. an upward shift in their marginal cost curve


23. If labor in Mexico is less productive than labor in the United States in all areas of production,Ā 

  1. neither nation can benefit from trade
  2. Mexico can benefit from trade but the United States cannot
  3. Mexico will not have a comparative advantage in any good
  4. both nations can benefit from trade

24. Which of the following statements is false?

  1. The typical monopolistically competitive firm could reduce its average total cost if it produced more output.
  2. Monopolistically competitive firms advertise to increase the elasticity of the demand curve they face.
  3. Expensive advertising might help consumers if it is a signal that the product is good.
  4. Brand names acquired at great cost might help consumers by assuring quality.

25. Suppose the state of Wyoming passes a law that increases the tax on cigarettes. As a result, smokers who live in Wyoming start purchasing their cigs in surrounding states. Which of the following principles does this best illustrate:

  1. people respond to incentives
  2. rational people think at the margin
  3. a trademark can make everyone better off
  4. markets are usually a good way to organize economic activity