supply and demand
butter and olive oil are substitutes. If the price of olive oil rises what happens to the market for butter?
The ______ curve shifts to the right.
demand
A price ceiling will only be binding if it is set:
a. equal to equilibrium price.
b. above equilibrium price.
c. below equilibrium price.
d. a price ceiling is never binding in a free market system
C!!!!!!!
Since price ceiling is a legal maximum it will only be binding (distort market) if it is set below equilibrium
price, meaning that charging equilibrium price that is bigger than legally set maximum - is illegal.
If the economy goes into a recession and incomes fall, what happens in the markets for normal
goods?
a.Equilibrium price and quantity will both rise due to an increase in the demand for normal good.
b. Equilibrium price will fall while quantity will rise due to a decrease in the demand for normal good.
c. Equilibrium price and quantity will both fall due to a decrease in the demand for normal good.
d. Equilibrium price and quantity will both fall due to a increase in the demand for normal good
C!!!! Equilibrium price and quantity will both fall due to a decrease in the demand for normal good
As income falls demand for normal goods decreases and demand curve shifts to the left. With lower
demand, the product becomes less valuable and thus price falls. Due to the fall in price producers are willing to supply less of this good and thus quantity supplied decreases
A binding price ceiling:
a. is a legal minimum on the price at which a good can be sold.
b. will benefit consumers but hurt suppliers.
c. occurs when the price control is above equilibrium.
d. will usually result in a market surplus
B!!!! Price ceiling is a legal maximum price (A is incorrect), that benefits consumers (at least those who had a chance to buy a product before shortage) but hurts suppliers (B is correct). Binding price ceiling occurs when legally set price is below equilibrium price (C is incorrect), which will usually result in market shortage (D is incorrect)
Sydney makes $150 a day as a stripper. She takes off two days off work without pay to fly to another
city to attend the magic mike show. The cost of transportation for the trip is $250. The cost of
the concert ticket is $50. The total economic cost (implicit+explicit) of Sydney attending the show?
$600
total economic cost=Explicit Cost+Implicit Cost. Explicit cost (monetary cost)=$250+$50=$300.
Implicit Cost (Opportunity cost)=wage that Kevin is losing=$150*2=$300. As a result, Total Cost=300+300=$600
according to the law of demand as the price of a good rises, quantity of the good will__________
decrease
When binding price ceilings are imposed:
a. every seller in the market benefits because of higher prices.
b. some buyers will not be able to buy any of the product.
c. every buyer in the market benefits because of higher prices.
d. the quantity sellers want to sell will equal the quantity buyers want to buy.
b. some buyers will not be able to buy any of the product
Which of the following indicates that there is a surplus in the Market?
a. quantity demanded exceeds quantity supplied.
b. quantity supplied exceeds quantity demanded.
c. price is below equilibrium price.
d. price is in equilibrium, but quantity is not
B! quantity supplied exceeds quantity demanded.
If you can produce more of something than others with the same resources, you have:
an absolute advantage.
what is the best choice and what is the opportunity cost?
best choice is to dig for jewels
opportunity cost is $70 from the night club because its the best alternative
a decrease in quantity demanded is represented by a ________________ while an increase in demand is represented by a _________.
a movement up the demand curve
rightward shift in the demand curve
A binding price floor in the Labor Market results in each of the following EXCEPT
a. unemployment.
b. shortages.
c. buyer bias.
d. illegal market where wage is below minimum wage
B!!!!! shortages.
A binding price floor in the Labor Market results in surplus, where quantity supplied is greater than quantity
demanded, not shortage.
Note: buyer bias is a result of the binding price floor, because quantity demanded is less than quantity
supplied, buyers (employers in the labor market) can discriminate according to their own biases.
The discovery of a large new reserve of crystals will shift the ________ curve for rings to the
right, leading to a ________ equilibrium price.
a. supply, higher
b. supply, lower
c. demand, higher
d. demand, lower
B!!!! supply, lower
A discovery of a new crystals reserve increases supply of rings. Thus, supply curve shifts to the right. With higher supply, the product becomes less valuable and thus price falls.
what is scarsity?
situation in which unlimited wants exceed limited resources
Samantha can do only one of the following with her money: i) open the brothel and get $500 in
profits, ii) open a crack house and get $600 in profits, iii) build a casino and get $1000 in profits. If Samantha will open a crack house, what is an opportunity cost of this action?
$1000
The opportunity cost of opening a crack house is $1000: the value of the best alternative not taken. Note: opening the brothel AND building a casino at the same time is not feasible. Thus, opportunity cost is NOT the sum of alternatives
On the Stock Exchange, the current price per share for stock of the Apple Inc. is $217.73. At that
price the total quantity of shares demanded is 6.5 billion, while the total quantity supplied for trade is 5.5 billion.
It follows that
a. $217.73 is the equilibrium price per share.
b. there will be downward pressure on the price of shares of the Apple Inc.
c. there is a surplus of shares of the Apple Inc. on the stock exchange.
d. there is a shortage of shares of the Apple Inc. on the stock exchange.
d. there is a shortage of shares of the Apple Inc. on the stock exchange.
what are the assumptions when creating a production possibilities frontier? (PPF)
that there are only 2 goods being produced and one resource/ factor of production
What is likely to happen in the market with shortage?
a. consumers will agree on who receives a product first.
b. market will not be in equilibrium until government get involved.
c. producers are likely to rise prices to return market back to equilibrium.
d. producers are likely to decrease prices to return market back to equilibrium
C!!! producers are likely to rise prices to return market back to equilibrium.
what is an autarky?
nation that does not trade and is self-sustainable. The production=consumption
Mullet man can produce either a combination of 35 cigarettes and 70 hickeys or a combination of 50
cigarettes and 45 hickeys. If he now produces 35 cigarettes and 70 hickeys, what is the opportunity cost of producing an additional 15 cigarettes?
25 hickeys
Suppose that a major food manufacturer in the United States, can produce either canned soup or
canned tomato juice. As a result of an increase in the cost of tomatoes, food manufacturer decides to produce more soup and less tomato juice. You correctly explain this by saying:
a. there has been a decrease in the quantity supplied of tomato juice and an increase in the quantity supplied of
soup.
b. the supply of tomato juice decreased and the supply of soup increased.
c. there has been a decrease in the quantity supplied of tomato juice and an increase in the supply of soup.
d. the supply of tomato juice decreased and the quantity supplied of soup increased.
b. the supply of tomato juice decreased and the supply of soup increased.
As a result of an increase in the cost of tomatoes (input used to produce tomato soup), at each given price
making tomato soup is now less profitable. As a result, supply of tomato soup decreases (S shifts left). In the
same time, since making tomato soup is now more costly, food manufacturer decides to produce more of
alternative good - canned soup, and so supply of canned soup increases (S shifts to the right). In both cases,
supply curve shifts, so we call it a change in supply. Remember, the change in quantity supplied (movement
along the supply curve) will only occur if price changes, so other choices are just not applicable
arguments against trade restrictions
with tariffs prices for consumers increases a lot, the increase outweighs the benefits from additional production and employment.
The price of beer – a substitute for wine – plummets. This will shift the ________ curve for wine
to the ________, leading to a ________ equilibrium price and ___________.
a. supply, left; higher; lower quantity demanded.
b. supply, left; lower; higher quantity demanded.
c. supply, right; lower; higher quantity demanded.
d. demand, left; lower; lower quantity supplied.
e. demand, right; higher; higher quantity supplied.
f. demand, left; higher; higher quantity supplied
d. demand, left; lower; lower quantity supplied.
With cheaper beer, demand for wine falls (Demand curve shifts to the left). With less demand, price falls.
At a lower price, producers make less wine (QS decreases
what is price gouging?
situation in which suppliers take advantage of spikes in demand induced by a natural disaster or emergency.
Producers will increase prices and charge exorbant prices for necessities