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Ch 3 look over econ

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Department
Economics
Course
Economics 1021A/B
Professor
Bruce Hammond
Semester
Fall

Description
Ch 3 Questions to Review – Economics William Gregg owned a mill in SC. In 1862, he advertised his willingness to exchange cloth for food and other items. 1 yard of cloth for 1 pound of bacon 2 yards of cloth for 1 pound of butter 4 yards of cloth for 1 pound of wool 8 yards of cloth for 1 bushel of salt Calculate the relative price of 1 pound of butter in terms of bushels of salt. If the price of butter is $0.30 a pound, what do you predict is the price of a bushel of salt? Relative price = 0.25 Price of a bushel of salt is 1.20 because 2 yards of cloth trade for 1 pound of butter, 8 yards of cloth trade for 1 bushel of salt. Price of a bushel of salt is 4 times the price a pound of butter. 4 x 0.30 a pound of butter, which is $1.20. *Quantity demanded – the amount that consumers plan to buy - not necessarily the same as the quantity actually bought. * The demand curve is a marginal benefit curve – shows the MAX someone is willing to pay for an additional good or service. Complementing objects influence the change in demand for objects. eg. Ketchup on hamburgers. A change in the price of a DVD player does not change the demand, and change in price changes the quantity demanded. *movement along demand curve, but demand curve doesn't shift. • movement up along the demand curve if the price of a product rises. Substitute – can be in place of another good eg. Coal or oil Compliment – used in conjunction eg. Skateboard and iPod. Supply curve – lowest at which someone is willing to sell. *the following events occur one at a time: 1. the price of crude oil rises 2. The price of a car rises 3. All speed limits on highways are abolished 4. Robots cut car production costs. The demand for gasoline decreases when the price of a car rises. The supply of gasoline decreases when the price of crude oil rises. The quantity of gasoline demanded decreases when the price of crude oil rises. The quantity of gasoline supplied increases when the speed limits are abolished. Equilibrium: quantity supplied = quantity demanded – demand chart number must add up to quantity demanded, then match that with the price of the item. The eq. Price is the best deal available for both buyers and sellers because buyers pay the highest price they are willing to pay and sellers receive the lowest price at which they are willing to sell. Demand increase = shifts left Demand decreases = shifts right. A change in price changes the QUANTITY demanded, NOT the demand for something. The law of demand is downward sloping. The demand curve is a marginal benefit curve. Event occurs that changes the demand, the demand curve shifts. Prices rise if the demand increases. Quantity demanded of a good – amount that consumers plan to purchase demand curve – maximum someone is willing to pay for a good or service, is a willingness and ability to pay curve. When the price of a certain food rises, it rises relative to income. Normally buy less of the food that has experienced the price rise. Coal and oil are substitutes. A supply curve is a minimum-supply price curve. The quantity of DVD players firms plan to sell are not influenced by the quantity of DVD players that consumers plan to buy this month b/c a change in the quantity of Dvd players that consumers plan to buy this month changes the quantity supplied. A fall in the price of a cell phone does not change supply when it moves down the supply curve A demand curve is a willingness-and-ability to pay curve. The income effect influences food purchases because when the price of a certain food rises, other things remaining to same____. Consumers ______. Answered: Demand for that food decreases,buy less of the food that has experienced the price rise and more of other foods. Correct: The price rises relative to income; cannot afford to buy all the things they previously bought, so they normally buy less of the food that has experienced the price rise. The quantity of DVD players that consumers plan to buy this month depends of all of the following except ____ because _____. Answered: the price of a DVD player; a change in the price changes the quantity supplied. Correct: The quantity of DVD players that consumers plan to buy this month; a change in the quantity of DVD players that consumers plan to buy this month changes the quantity supplied. A rise in the wage rate of dairy workers _____ the supply
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