assignment 2 problems exam 2 practice

Question 1

demand

Answer 1

The willingness and ability of buyers to purchase different quantities of a good at different prices during a specific period.

Question 2

supply

Answer 2

The willingness and ability o sellers to produce and offer to sell different quantities of a good at different prices during a specific period.

Question 3

law of demand

Answer 3

As the price of a good rises, the quantity demanded of the good falls, and as the price of a good falls, the quantity demanded of the good rises, ceteris paribus.

Question 4

law of supply

Answer 4

As the price of a good rises, the quantity supplied of the good rises, and as the price of a good falls, the quantity supplied of the good falls, ceteris paribus.

Question 5

Make a distinction between the following concepts and also list factors that might cause each:

Change in quantity demanded vs change in demand

Answer 5

A change in quantity demanded results in a movement from one point to another point on the same demand curve that is caused by a change in the price of the good.
(Something that may cause a shift along the demand curve is price)

Question 6

Make a distinction between the following concepts and also list factors that might cause each:

Change in quantity supplied vs change in supply

Answer 6

A change in quantity supplied results in a movement from one point to another point on the same supply curve that is caused by a change in the price of the good.
(something that would cause a shift upwards or downwards on the supply curve would be price)

A change in supply would result in a shift upwards or downwards from one point to another on the supply curve.
(something that would cause a movement of the whole demand curve to the right or left would be prices of relevant goods, technology, prices of other goods, number of sellers, expectations of future price, taxes and subsidies, government restrictions)

Question 7

Supply vs Demand / Left vs Right

The price of peanuts (an input in peanut butter) decreases

Answer 7

supply; right

Question 8

Supply vs Demand / Left vs Right

Peanut butter is a normal good and consumer income decreases

Answer 8

demand; left

Question 9

Supply vs Demand / Left vs Right

Consumers expect the price of peanut butter to decrease dramatically next month

Answer 9

demand; left

Question 10

Supply vs Demand / Left vs Right

Hormel Foods discontinues production of Skippy brand peanut butter

Answer 10

supply; left

Question 11

Supply vs Demand / Left vs Right

The price of jelly (a complement to peanut butter) decreases sharply

Answer 11

demand; right

Question 12

Price Quantity Demanded of Bagels Quantity Supplied of Bagels
$1 300 0
$2 250 50
$3 200 100
$4 150 150
$5 100 200
$6 50 250

What is the equilibrium price and equilibrium quantity of bagels?

Answer 12

price $4; quantity 150

Question 13

Price Quantity Demanded of Bagels Quantity Supplied of Bagels
$1 300 0
$2 250 50
$3 200 100
$4 150 150
$5 100 200
$6 50 250

If the market price of bagels is $5, is the market in a state of equilibrium, surplus, or shortage? If there is a surplus or a shortage, how large is it (i.e. how many bagels)?

Answer 13

If the price of bagels were to be $5 then the market would be in a state of shortage and the shortage would be a 100-bagel demand decrease.

Question 14

Peanut butter is a normal good. What will happen to the equilibrium price and equilibrium quantity of peanut butter if consumer income falls? Explain and show your answer graphically.

Answer 14

Equilibrium price and quantity will both decrease due to the leftward shift in the demand curve.

Question 15

normal good

Answer 15

A good for which demand rises as income rises or the inverse a good for which demand falls as income falls.

Question 16

inferior good

Answer 16

A good for which demand falls and income rises or the inverse of that a good for which demand rises as income falls.

Question 17

substitute good

Answer 17

A substitute good is two goods that satisfy similar needs or desires (example 2% milk and almond milk).

Question 18

complimentary good

Answer 18

A complementary good is two goods that are used jointly in consumption (example milk and cereal).

Question 19

Describe the situations where price ceilings have no effects or are not-binding.

Answer 19

A price ceiling is at a point of no effect or not binding when it is set above the market equilibrium price.

Question 20

Describe the situations where price floors have no effects or are not-binding.

Answer 20

A price floor is at a point of no effect or not binding when it is set below the market equilibrium price.

Question 21

Explain how the price of a good can rise at the same time that it becomes relatively cheaper.

Answer 21

The price of a good can rise while it becomes cheaper because of other factors like relative prices with another similar substitute good, or when consumer income is increasing higher than the price of the good.

Question 22

1. “When the price of Toyota Corollas rises, ceteris paribus, the demand for Corollas falls”. This sentence is ________

A. True.
B. False
C. It depends on a number of
factors.
D. None of the above.

Answer 22

b. false

Question 23

2. Which of the following illustrates the law of demand?

A. Jorge buys fewer pencils at $2 per pencil than at $1 per pencil, ceteris paribus.

B. Chen buys more ice cream at $4 per half-gallon than at $3 per half gallon, ceteris paribus.

C. Karissa buys fewer sweaters at $35 each than at $50 each, ceteris paribus.

D. A, B, and C

E. A and C

Answer 23

A. Jorge buys fewer pencils at $2 per pencil than at $1 per pencil, ceteris paribus.

Question 24

3. As the price of good X rises, ceteris paribus, the demand for good Y falls. Therefore, goods X and Y are
   A. substitutes.
   B. normal goods.
   C. complements.
   D. inferior goods.
   E. none of the above

Answer 24

C. complements.

Question 25

4. Which of the following is true about the relationship between price and quantity supplied?

A. There is usually a direct relationship between price and quantity supplied.

B. There is always an inverse relationship between price and quantity supplied.

C. There is always a direct relationship between price and quantity supplied.

D. There is usually an inverse relationship between price and quantity supplied.

E. None of the above.

Answer 25

A. There is usually a direct relationship between price and quantity supplied.

Question 26

5. If the supply curve and the demand curve for lettuce both shift to the left by an equal amount, what can we say about the resulting changes in equilibrium price and quantity?
   A. The price will increase, but the quantity may increase or decrease.

B. The price will increase, and the quantity will increase.

C. The price will decrease, and the quantity will increase.

D. The price will stay the same, but the quantity will increase.

E. The price will stay the same, but the quantity will decrease.

Answer 26

e. the price will stay the same, but the quantity will decrease.

Question 27

6. If the price of good X is $90 and the price of good Y is $30, it follows that the relative price of one unit of good Y is ___________ unit(s) of good X.
   A. 0.33
   B. 1.33
   C. 3.00
   D. 2.00
   E. There is not enough information to answer the question.

Answer 27

a. 0.33