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Final

# BUS 207 Chapter 3: Chapter 3Exam

Department
Course Code
BUS 207
Professor
Bernie Maroney
Study Guide
Final

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Chapter 3: Demand, Supply, and Price
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Fill-in-the-Blank Questions
Question 1
a) desired; actual
b) time; time; flow
c) price; quantity demanded; increases
d) consumersâ€™ income; prices of other goods; tastes; population; changes in weather
e) ceteris paribus; constant
Question 2
a) desired; actual
b) time; time; flow
c) price; quantity supplied; increases
d) prices of inputs; technology; taxes or subsidies; prices of other products; number of suppliers;
changes in weather
Question 3
a) supply; left; decrease; supply
b) demand; right; increase; demand
c) demand; right; increase; demand
d) supply; left; decrease; supply
e) supply; left; decrease; supply
f) demand; left; decrease; demand

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Question 4
a) negatively
b) positively
c) supply; demand
d) equals
e) rise; equilibrium quantity
f) rise; equilibrium quantity
Review Questions
Question 5
a) Decrease in quantity demanded of fish (movement up along the demand curve due to the
resulting increase in price)
b) Decrease in quantity demanded of fish (movement up along the demand curve after the price
rises)
c) Demand for fish decreases (demand curve shifts to the left)
d) Demand for fish decreases (demand curve shifts to the left)
e) Demand for fish decreases (demand curve shifts to the left)
f) Demand for fish increases (demand curve shifts to the right)
Question 6
This is a straightforward repetition of the example given in the text, only now applied to housing.
a) An increase in population (or average household income) will shift the demand curve for housing
to the right and raise equilibrium house prices.
b) As prices rise, individual households will reduce the quantities they demand (perhaps by buying
smaller houses or by only buying later in life) thus moving upward along the demand curve.
The word â€śprohibitiveâ€ť may lead some students to make the error in believing prices are so high
that no one is buying housing. But, of course, prices stay high only if there are enough purchasers
willing to take up all of the available supply at those high prices. The two observations are not
inconsistentâ€”they refer to two different phenomena.

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3
Question 7
a) The finding that eating chicken can improve your health will likely lead to an increase in the
demand for chicken (and a reduction in the demand for less healthy meats). This will be shown by a
rightward shift in the demand curve for chicken.
b) As the price of beef rises, consumers will substitute away from beef and toward other meats,
including chicken. This will be shown by a rightward shift in the demand curve for chicken.
c) If chicken is a normal goodâ€”meaning that consumers want more of it when their real income
risesâ€”then the rise in household income leads to an increase in the demand for chicken. This will
be shown by a rightward shift in the demand curve for chicken.
Question 8
a) The ideal growing conditions in the Ivory Coast lead to an increase in supply from that country;
since it is the worldâ€™s largest supplier of cocoa beans, there is likely a noticeable increase in the
world supply. The world supply curve shifts to the right.
b) The large increase in the world price of coffee beans means that farmers currently growing cocoa
beans (in many countries) have a more attractive alternative. If they substitute toward growing more
coffee beans and fewer cocoa beans, the supply of cocoa beans falls â€“ a leftward shift in the world
supply curve.
c) The rise in wages increases the costs for cocoa farmers, making this activity less profitable. Other
things being equal, this is predicted to reduce current supply of cocoa beans. The result is a
reduction in the world supply of cocoa beans â€“ a leftward shift in the supply curve.
d) Apparently the profits being earned by cocoa farmers (in many countries) are high enough to
attract entry by new farmers. The entry of new farmers results, after a suitable period required for
them to set up their operations, in an increase in the overall supply of cocoa beans. The world
supply curve shifts to the right.
Question 9
a) The reduction in the size of the peach harvest due to bad weather is a decrease in the supply of
peachesâŽŻa leftward shift of the supply curve. (For a given demand curve, this leads to an increase
in equilibrium price.)
b) An increase in income leads to an increase in the demand for all normal goods. Assuming
restaurant meals are a normal good, there will be a rightward shift in the demand curve for
restaurant meals. For a given upward-sloping supply curve, this shock leads to an increase in the
equilibrium price and quantity of restaurant meals. This is an increase in the quantity supplied of
restaurant meals (caused by the price increase).