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A series of questions related to microeconomics, including demand and supply curves, market equilibrium, and shifts in supply and demand. The questions are accompanied by graphs and tables, and each question is followed by an explanation of the correct answer. intended for students studying microeconomics at the university level.
Typology: Exams
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Individual and market demand Suppose that Sam and Teresa are the only consumers of pizza slices in a particular market. The following table shows their annual demand schedules: Price (Dollars per slice) Sam's Quantity Demanded (Slices) Teresa's Quantity Demanded (Slices) 1 40 60 2 25 40 3 15 30 4 5 20 5 0 10 On the following graph, plot Sam's demand for pizza slices using the green points (triangle symbol). Next, plot Teresa's demand for pizza slices using the purple points (diamond symbol). Finally, plot the market demand for pizza slices using the blue points (circle symbol).
6. Shifts in supply or demand I The following graph shows the market for cereal in Miami, where there are over a thousand stores that sell cereal at any given moment. Suppose the price of milk increases. (Assume that people regard cereal and milk as complements.) Show the effect of this change on the market for cereal by shifting one or both of the curves on the following graph,
holding all else constant
Explanation: Cereal and milk are complementary goods because people like to consume them together. When the price of milk increases, it becomes more costly to consume milk and cereal together. Therefore, people decrease their consumption of cereal at any given price. Consequently, the demand for cereal decreases, and the demand curve shifts to the left. Notice that it is the price of milk, rather than the quantity demanded of milk, that changes the demand for cereal. Note that the supply curve does not shift because none of the factors affecting supply have changed. In particular, the supply curve shifts in response to changes in the following:
affect the supply of sedans are the level of technical knowledge—in this case, the speed with which manufacturing robots can fasten bolts, or robot speed—and the wage rate that auto manufacturers must pay their employees. Initially, the graph shows the supply curve when robots can fasten 2,500 bolts per hour and autoworkers earn $25 per hour. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly.
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Graph Input Tool Supply for Sedans Price of a Sedan (Thousands of dollars)
Supply for Sedans Quantity Supplied (Sedans per month) SUPPLY SHIFTERS Robot Speed (Bolts per hour) Autoworker Wage (Dollars per hour) 25 2500 225
Consider the previous graph. Suppose that the price of a sedan decreases from $31,000 to $26,000. This would cause the selector 1 quantity supplied of sedans to decrease, which is reflected on the graph by a
selector 2 movement along the supply curve. Points: 0.5 / 1 Close Explanation Explanation: The supply curve shows the relationship between the price of a good and the
supplied, other factors held constant. Therefore, when the price of the good changes, the result is a movement along the supply curve (changing the quantity supplied), not a shift of the entire supply curve. Since the supply curve is upward sloping, a decrease in the price of sedans causes a decrease in the quantity of sedans supplied. Following a technological decline—for example, a decrease in the speed with which robots can attach bolts to cars— there is a selector 1 leftward shift of the supply curve because the technological decline makes cars selector 2 more expensive to build . Points: 1 / 1 Close Explanation Explanation: The supply curve shows the relationship between the price of a good and the quantity supplied, other factors held constant. One of those other factors is technology—that is, the production process by which resources are transformed If technology declines, fewer goods can be produced with the same number of inputs. In this case, slower robots produce fewer automobiles each month, which results in a lower quantity supplied at each price. Graphically, a decrease in
quantity at every price (as opposed to a decrease due to a change in price) is shown as a leftward shift of the supply curve.
6. Shifts in supply or demand I The following graph shows the market for hot dogs in Denver, where there are over a thousand hot dog stands at any given moment. Suppose the price of hamburgers decreases. (Assume that people regard hot dogs and hamburgers as substitutes.) Show the effect of this change on the market for hot dogs by shifting one or both of the curves on the following graph, holding all else constant.
Points: 1 / 1 Close Explanation Explanation: Hot dogs and hamburgers are substitutes because people who enjoy eating hot dogs often enjoy eating hamburgers as well and may be willing to eat one in place of the other when the prices are not the same. When the price of hamburgers decreases, it becomes relatively more costly to consume hot dogs than hamburgers. Consumers who normally prefer hot dogs over hamburgers begin to consume hamburgers rather than hot dogs. Therefore, demand for hot dogs decreases, and the demand curve shifts to the left. Notice that it is the price of hamburgers, rather than the quantity demanded of hamburgers, that changes the demand for hot dogs. Note that the supply curve does not shift because none of the factors affecting supply have changed. In particular, the supply curve shifts in response to changes in the following:
Explanation: Market supply depends on the number of sellers in the market, among other factors. If the number of sellers increases, then there will be more hot dogs produced at any given price, so the supply curve for hot dogs will shift to the right. Note that the demand curve does not shift because none of the factors affecting demand have changed. In particular, the demand curve shifts in response to changes in any of the following:
Explanation: Market supply depends on the number of sellers in the market, among other factors. If the number of sellers increases, then there will be more hot dogs produced at any given price, so the supply curve for hot dogs will shift to the right. Note that the demand curve does not shift because none of the factors affecting demand have changed. In particular, the demand curve shifts in response to changes in any of the following:
Explanation: The decrease in the price of flour decreases each seller's cost of producing cakes. Therefore, for any given price of a cake, sellers are willing and able to supply more cakes. For instance, if a seller is willing to sell 250 cakes per day at a given price when the cost of flour is $4 per sack, the seller would be willing to sell more than 250 cakes per day at the same price if the cost of flour decreased to $3 per sack. Visually, this is seen as a rightward shift of the supply curve. Note that the demand curve does not shift because none of the factors affecting demand have changed. In particular, the demand curve shifts in response to changes in any of the following:
Market for Teapots Price (Dollars per teapot) Quantity Demanded Quantity Supplied (Teapots) (Teapots) 500 210 30
Graph Input Tool
Market for Teapots
The equilibrium price in this market is $50 per teapot, and the equilibrium quantity is 250 teapots bought and sold per month.
Points: 1 / 1 Close Explanation Explanation: The market equilibrium occurs at the price at which quantity demanded equals quantity supplied. In this case, the demand and supply curves intersect at a price of $50 per teapot and a quantity of 250 teapots per month. You can see this by adjusting the values in the Price field until the black points (cross symbol) overlap, Complete the following table by indicating at each price whether there is a shortage or surplus in the market, the amount of that shortage or surplus, and whether this places upward or downward pressure on prices. Price Shortage or Surplus Shortage or Surplus Amount Pressure (Dollars per teapot) (Teapots) selector 1 60 Surplus 145 selector 2 Downward selector 3 145 selector 4 40
Points: 0.67 / 1 Close Explanation Explanation: At a price of $40 per teapot, consumers demand 375 teapots per month, but producers are willing to supply 230 teapots per month. Therefore, demand exceeds supply by 145 teapots per month. Because consumers want to buy more teapots than producers are willing to sell at that price, there will be a shortage (excess demand) of teapots, and sellers will realize that they can raise their prices and still sell out their entire inventory. Thus, the shortage (excess demand) will put upward
Price Shortage or Surplus Shortage or Surplus Amount Pressure (Dollars per teapot) (Teapots) Shortage Upward At a price of $60 per teapot, consumers demand 125 teapots per month, but producers supply 270 teapots per month. Therefore, supply exceeds demand by 145 teapots per month. Because producers want to sell more teapots than consumers are willing to buy at that price, there will be a surplus (excess supply) of teapots, and sellers will start lowering prices to sell off their excess inventory. Thus, the surplus (excess supply) will put downward pressure on the price of a teapot, causing it to fall.
9. Market equilibrium and disequilibrium The following graph shows the monthly demand and supply
Market for Keyboards Price (Dollars per keyboard) Quantity Demanded Quantity Supplied (Keyboards) (Keyboards) 600 400 24
curves in the market for keyboards. Use the graph input tool to help you answer the following questions. Enter an amount into the Price field to see the quantity demanded and quantity supplied at that price. You will not be graded on any changes you make to this graph Created with Raphaël 2.1.2 Graph Input Tool
Market for Keyboards
The equilibrium price in this market is $30