ECON 103 Lecture Notes - Demand Curve, Economic Equilibrium, Marginal Cost

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coralgoose33

19 Apr 2013

School

Simon Fraser University

Department

Economics

Course

ECON 103

Professor

Vera Lantinova

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Document Summary

Market equilibrium (what it shows, what it means, be able to find equilibrium price and quantity) Recall the definition of economics from chapter 1: Economics is a social science in which we study how people make choices and respond to incentives in presence of scarcity. One incentive that people respond to is a price of a good. By markets in other words, by demand and supply. Recall the concept of opportunity cost from chapter 1: Opportunity cost refers to the best alternative forgone. Demand can be described as quantity of good or service consumers are willing to buy at a given price and time period. The quantity demanded of a good or service is the amount that consumers plan to buy during a given time period at a particular price. The quantity demanded is measured as per unit of time. Many factors influence how much of a good people are planning to buy, and one of these factors is price.

Related Questions

When demand for a good is very elastic, revenue ________ when the price falls.

(2)

An elasticity measure less than one means that demand is __________.

(3)

An elasticity measure greater than one means that demand is __________.

(4)

The Latin expression ceteris paribus means

	having made all other necessary changes.
	holding constant all other variables.
	assuming all households have similar incomes.
	given the level of income in the economy.

(5)

A variable measured in terms of money is called a ____________________.

	real variable
	nominal variable
	macroeconomic variable
	microeconomic variable

(6)

Which of the following is true about the importance of money in economics?

	Money is important in both macroeconomics and microeconomics.
	Money is important in macroeconomics but not microeconomics.
	Money is important in microeconomics but not macroeconomics.
	Money is not important in either microeconomics or macroeconomics.

(7)

What is the difference between normative and positive economics?

	Positive economics is descriptive and predictive; normative economics is prescriptive.
	Positive economics highlights the positive aspects of the economy; normative economics highlights the average features.
	Positive economics studies the actions of individuals; normative economics studies the actions of households.
	Positive economics is an applied social science; normative economics is a theoretical social science.

(8)

The slope of the demand curve is negative because

	the quantity of a good demanded decreases as income declines.
	the quantity of a good demanded increases as income declines.
	the quantity of a good demanded increases as the price declines.
	the quantity of a good demanded decreases as the price declines.

(9)

What is the result of an increase in the price of bread, a normal good?

	The demand curve shifts to the right.
	The demand curve shifts to the left.
	The quantity demanded increases.
	The quantity demanded decreases.

(10)

What is the effect on demand for bread when the price of bagels, a substitute for bread, rises?

	The demand curve for bread shifts to the right.
	The demand curve for bread shifts to the left.
	The quantity of bread demanded increases.
	The quantity of bread demanded decreases.

(11)

Which of the following would cause the supply curve for bread to shift inward?

	An increase in the price of bread
	An increase in the price of bagels
	A decrease in the price of bread
	An increase in the price of flour

(12)

An improvement in technology shifts the supply curve outward because

	at every price, firms find producing the good to be more profitable.
	the price of the good increases.
	at every price, firms find producing the good to be less profitable.
	the price of the good decreases.

(13)

Which of the following factors does not affect how much bread a baker is willing to produce?

	The price of bread
	The demand for bread
	The cost of inputs
	Technology

(14)

How do expectations of prices affect how much of a good producers are willing to sell?

	Expectations of prices affect only demand, not supply.
	Actual prices, not expectations of prices, affect supply.
	If producers expect prices to fall in the future, they supply less at every price.
	If producers expect prices to rise in the future, they supply less at every price.

(15)

When the price of a good is above equilibrium level,

	the quantity demanded exceeds the quantity supplied.
	the quantity supplied exceeds the quantity demanded.
	the supply curve shifts to the left.
	the supply curve shifts to the right.

(16)

At a price of P₀ in the diagram below, which of the following statements is true?

	Supply equals demand.
	There is excess demand.
	There is excess supply.
	There is scarcity.

(17)

If demand for bread increases at every price, the equilibrium price of bread will

	fall.
	rise.
	remain unchanged.
	depend on income.

(18)

If the demand for bread declines, then

	at the original equilibrium price, there is excess demand.
	at the original equilibrium price, there is excess supply.
	the supply curve shifts to the right.
	the supply curve shifts to the left.

(19)

Peanut butter and jelly are complementary goods. When the price of peanut butter rises, the demand for jelly ________ and the price of jelly ________.

	rises; falls
	rises; rises
	falls; rises
	falls; falls

(20)

The measure of elasticity that economists use is

	always a positive number.
	always a negative number.
	positive when demand is elastic and negative when demand is inelastic.
	negative when demand is elastic and positive when demand is inelastic.

(21)

Which of the following formulas is the correct expression for the slope of a line?

(22)

Graphically how would an increase in income affect the demand for hamburgers?

	The slope of the demand curve would increase.
	The slope of the demand curve would decrease.
	The demand curve would shift outward, parallel to the original demand curve.
	The demand curve would shift inward, parallel to the original demand curve.

(23)

Given the equation P = $6.00 ? $.40Q, where P is the price of the good and Q is the quantity of the good demanded, how many units will this consumer demand if the price is $3.60?

	1.44 units
	3 units
	3.6 units
	6 units

(24)

Which of the following is true about unit elasticity?

	Revenues remain unchanged when the price changes.
	Elasticity of demand increases as one moves down the demand curve.
	Elasticity of demand decreases as one moves down the demand curve.
	The elasticity of demand is greater than one at every point along the demand curve.

(25)

Which of the following could be a determinant of the quantity demanded of a good?

	The price of the good
	The price of related goods
	Income
	Expectations about the future price of the product
	All of the above

violethare488

I've completed this but I want to check my answers. Thanks

1) List and briefly explain three economic variables that shift the Demand Curve.

2) Define opportunity cost. How is opportunity cost used to determine comparative advantage?

3) In the market for calculators we observe that the price has fallen and more calculators are being sold. What might have happened to cause this change?

4) The price of gasoline rises. What would we expect to see happen in the market for cars with high gas mileage (like the Prius)?

5) What is the effect of a price floor (a price set above equilibrium) in the sugar market. Why does the government impose price floors?

6) Define the price elasticity of demand. Why is this concept important in economics?

7) Define the income elasticity of demand. Why is this concept important in economics?

8) List and briefly explain three economic variables that shift the Supply Curve.

9) A firm lowers of price of its product by 10% and consumers buy 5% more of the product. What is the price elasticity of demand for the product?

10) If the price elasticity of demand for a product is elastic, explain what will happen to total revenue when the price is decreased.

11) What is the difference between a change in quantity supplied and a shift in supply?

12) Write out the equation for the arc price elasticity of demand using symbols. Then write out the equation using the following numbers: the price increases from $8 to $10 and the quantity demanded falls from 3 units to 2 units. (Do not calculate the equation.)
Three Questions (no choice)

Long Answer Questions (20 points each)

Be certain to label all graphs. Write all explanations in complete sentences.

1) Draw a supply and demand graph for the market for oranges.

Illustrate and explain what happens with when a freeze destroys part of the crop.

2) Draw an increasing cost Production Possibilities Curve (PPC) for the U.S. with computers on the horizontal axis and textiles on the vertical axis.
a) What is the definition of a PPC

b) Choose a point on the PPC. What does this point represent?

c) Illustrate the opportunity cost of producing more computers.

d) Explain a point inside the PPC.

e) Explain a point outside the PPC.

f) Technological change reduces the cost of producing computers and textiles, illustrate and explain what happens in the graph.

g) Choose a new point that represents production and consumption after technological change.

h) Where does the U.S. produce and consume relative to before technological change.

i) Illustrate and explain the opportunity cost of producing more computers after technological change.

3) Define the price elasticity of demand. What does elastic, inelastic and unitary price elasticity of demand mean? For each of the three values of the price elasticity of demand explain what happens to quantity demanded and total revenue when the price of the product is increased? What about when the price of the product is decreased?

4) Using a supply and demand graph in the market for bread, illustrate and explain the effect of a price ceiling (Price set below equilibrium price).

Why would the government impose such a price ceiling?

How is the available bread distributed to consumers when there is a price ceilin

1. In economics, the demand for a good refers to the amount of the good that people:
a. Will buy at alternative income levels
b. Need to achieve a minimum standard of living.
c. Will buy at various prices
d. Would like to have if the good were free
2. The term ceteris paribus means that:
a. What is for the individual is not necessarily true for the whole
b. All variables except those specified are constant
c. Everything is variable
d. No one knows which variables will change and which will remain constant.
3. When economist talk about supply, they are referring to a relationship between price received for each unit sold and the ____________________.
a. Quantity supplied
b. Demand schedule
c. Demand curve
d. Market price
4. But nearly all supply curves share a basic similarity: they slop______________.
a. Up from left to right
b. Down from left to right
c. Up from right to left
d. Down from right to left
5. The nature of demand indicates that as the price of a good increases:
a. Suppliers wish to sell less of it.
b. Buyers desire to purchase less of it
c. More of it is desired
d. More of it is produced
6. Any given demand or supply curve is based on the certeris paribus assumption that _______.
a. Everything is variable
b. All else is held equal
c. No one knows which variables will change and which will remain constant
d. What is true for the individual is not necessary true for the whole.
7. Economist refer to the relationship that a higher price leads to lower quantity demand as the ______________.
a. Price model
b. Law of demand
c. Market equilibrium
d. Income gap
8. A perfect elastic supply curve is:
a. Vertical
b. Downward sloping to the left
c. Horizontal
d. Upward sloping to the right
9. A 10 percent increase in the price of soda leads to a 20 percent increase in the quantity of iced tea demanded. It appears that:
a. Elasticity of demand for iced tea is 2 and is elastic
b. Cross-price elasticity of demand for iced tea is -2
c. Cross-price elasticity of demand for soda is -0.5
d. Elasticity of demand for soda 0.5 AND IS INELASTIC
10. ___________ is the change in what is on the horizontal axis (quantity) divided by the change in what is the vertical axis (price).
a. Elasticity
b. Supply
c. Demand
d. Revenue
11. A severe freeze has once again damaged the Florida orange crop. The impact on the market for orange juice will be a leftward shift of:
a. The supply curve and the rightward shift of the demand curve resulting in a higher equilibrium price
b. Both the supply and demand curves
c. The supply curve
d. The demand curve, as consumers try to economize because the shortage.
12. Got the answer.
13. A drought decreases the supply of agricultural products, which means that at any given price a lower quantity will be supplied; conversely, especially good weather would shift the _____________.
a. Demand curve to the right
b. Supply curve to the left
c. Supply curve to the right
d. Demand curve to the left
14. Interpret the following statements:

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ECON 103 Lecture Notes - Demand Curve, Economic Equilibrium, Marginal Cost

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