Supply and Demand
What is the law of demand?
As price increases, quantity demanded decreases
What is true at the market equilibrium?
What is the price and quantity in the labor market?
wage, jobs
Regulation that says price can't be above a certain amount. Example: rent control
What does elasticity of demand measure?
Responsiveness of quantity demanded to a change in price
Explain the difference between an increase in supply and an increase in quantity supplied
An increase in supply means that more is supplied at every price - never due to a change in price. An increase in quantity supplied is movement along the supply curve (due to a change in price)
A severe freeze has once again damaged the Florida orange crop. What is the impact on equilibrium price and quantity of orange juice?
supply decreases
How will a decrease in the price of oil impact the wages in the market for oil workers?
wages will decrease because demand will decrease
What is the effect of a price control (floor or ceiling) on the total surplus (consumer + producer)
decreases
What is the shape of elastic supply curves (relative to inelastic supply curves)?
They are flatter
After widespread press reports about the dangers of contracting "mad cow disease" by consuming beef from Canada, what will be the likely economic effect on the U.S. market for beef from Canada?
Demand will shift to the left, and equilibrium quantity & price will decrease
What will be the effect on market price and quantity if demand and supply both increase?
quantity will increase, effect on price is ambiguous (depends on size of shift)
On April 1, 2009, in the middle of a recession, the government of the province of Ontario, Canada increased the provincial minimum wage from $8.75 to $9.50. What will the likely effect of this policy be?
There will be a surplus in the market for minimum wage jobs (Both the leftward shift in the labor demand curve and the higher minimum wage will lead to an increase in the unemployment rate.)
When is a price floor binding (meaning, it will have an impact on the market)?
when it is above the equilibrium price
What is the shape of a supply curve with constant elasticity?
Straight line from the origin
If an increase in the price of Good X causes a decrease in the demand for Good Y, we can conclude that the two goods are:
complements
Many cooks view butter and margarine to be substitutes. If the price of butter rises, what will be the effect on the equilibrium price and quantity of margarine?
both the equilibrium price and quantity will rise.
If the United States allowed a greater quantity of immigration of foreign highly skilled workers, what will be the impact on the average wages of highly skilled employees?
Wages will decrease
Whenever there is a surplus at a particular price, the quantity sold at that price will equal:
the quantity demanded
If the supply curve for housing is perfectly inelastic, what will be the effect on price and quantity if demand decreases?
price will decrease and quantity will stay the same
Explain why the following statement is false: “In the goods market, no seller would be willing to sell for less than the equilibrium price.”
Firms will typically sell at any price that gives a nonnegative profit margin. Those with very low costs are making profits at the equilibrium price, but even if the price decreased, they would still sell as long as it was above their cost (the producer surplus would just be lower).
If the supply curve is P=2Q-2 and the demand curve is P=10-2Q, what is the equilibrium price and quantity?
3,3
Several types of economic events can cause a shift in labor demand, so that a higher or lower quantity of labor is hired at every salary or wage. List three of these events.
Changes in education and training, changes in technology, changes in government regulations
Suggest an alternative to setting a minimum wage. Explain it in the supply and demand framework.
Some options: job creation, universal basic income, collective bargaining
Billy Bob's Barber Shop knows that a 5 percent increase in the price of their haircuts results in a 15 percent decrease in the number of haircuts purchased. What is the elasticity of demand facing Billy Bob's Barber Shop?
3