chapter 3

Question 1

increase in demand and increase in supply results in

Answer 1

increase in price from D
decrease in price from S

and an increase in quantity traded from both
p can either increase decrease or stay the same depending on what’s going on

Question 2

increase in demand (p and Q)

Answer 2

increase in price

increase quantity traded

Question 3

decrease in demand

Answer 3

decreases price and decreases quantity traded

Question 4

increase in supply

Answer 4

decreases price, increases quantity traded

Question 5

decreases in supply

Answer 5

increase in price , decrease in quantity traded

Question 6

what happens when there’s an increase in demand and decrease in supply

Answer 6

increase in price from D
increase in price form S

Increase in Q from D
decrease in Q from S
therefore q traded is unclear but the price will definitely increase

Question 7

what happens when there’s a decrease in demand and increase in supply

Answer 7

decrease in price form D
decrease in price from S

decrease in Q from D
increase in Q from S
therefore the quantity is unclear but the price will definitely decrease

Question 8

what happens if supply and demand both decrease

Answer 8

decrease in Q from S
decrease in Q from S

increase in price from S
decrease in price from D
price unclear but the quantity would definitely decrease

Question 9

what is an effective price floor that prevents equilibrium form being met?

Answer 9

must be above equilibrium, the floor only keeps the price from dropping (therefore the price would not naturally drop below eq’m)

Question 10

what is a price floor

Answer 10

govt imposed minimum price that can be paid for something (minimum wage) – creates shortage, at a lower price, suppliers will want to produce less but consumers will want more

• price must be above equilibrium
• govt is assisting producers

Question 11

who is govt assisting with price floor

Answer 11

producers,
so people who are selling themselves for labour ;)
or farmers

Question 12

minimum wage definition

Answer 12

the lowest legal rate of pay per hour for workers set by govt

Question 13

graph of minimum wage: what do supply and demand curves represent

Answer 13

the demand curve represents companies wanting to buy labour, it is inversely related, the higher the price of labour the less people they want to hire.

the supply curve represents people they sell their labour. the higher the prices paid the more people want to work

Question 14

price floor and minimum wage what is happening/what is the result

Answer 14

• govt imposes price floor when minimum wage or equilibrium is too low. (not a living wage)
• the price floor will be imposed above equilibrium, this will result in a decrease in demand for workers from companies because of the price increase, however there will be in increase in quantity supplied by workers because more workers will be willing to work there at higher wages.
• this results in a surplus, at a higher minimum wage than equilibrium you have more workers than there are jobs for (than companies can afford to hire)

Question 15

illegal market price and price floor (minimum wage)

Answer 15

since there is a surplus there are people willing to work for less just to have a job
the illegal market price is on the supply graph it shows the price at which the quantity traded (quantity of hired people) are actually willing to work.

Question 16

price controls

Answer 16

govt regulations to set either a max or min price of a product

Question 17

price ceiling

Answer 17

a govt regulated max price that can be charged for a product
-done when govt deems that price of product (usually a necessity) is too high - like rent

Question 18

rent control

Answer 18

govt regulation making it illegal to rent out accommodation above the stipulated or price ceiling level

Question 19

how are price ceilings effective?

Answer 19

they must be below equilibrium

Question 20

what happens when there is a price ceiling to supply and demand

Answer 20

the lower price, say in rent decreases the quantity supplied, but it increases the quantity demanded this leads to a shortage.
not as many people will be able (to produce say rental units at such a low price so the quantity supplied will decrease, but more people will be able to afford it so the quantity demanded will increase)

Question 21

what is the illegal selling price

Answer 21

when there is a decrease in supply (resulting from a price ceiling), naturally the price would rise, but since this is illegal there will be an illegal selling price and this is the real price (above the ceiling) that people are willing a that quantity

Question 22

price ceiling creates–blank— which results in– (2 ways)

Answer 22

shortage which results in an allocation of goods in two ways:

producers preference: sellers determine who they sell to based on their own preverences
or
rationing: products allocated using coupons issued by govt guaranteeing a certain quantity of something per person/family unit

Question 23

what is a quota

Answer 23

limits supply of a product, this increases and stablizes revenue for product (usually a farm product)
-since quantity decreases the demand is high and therefore the price increases, to find how much this product is selling at check the demand curve at the quota quantity, it will be higher than eq’m price

Question 24

what does a tax do to supply and demand

Answer 24

a tax shifts the supply curve vertically, this decreases the amount of consumption-QD because the product costs more, and therefore decreases the amount produced

immediately after a price increase, the same amount is produced but there is a surplus because less people are buying , this pushes price down to a new eq’m

Question 25

what do subsidies do to supply and demand

Answer 25

subsidies shifts supply curve down- the govt is paying part of the cost of the good being sold.
-immediate effect will be the amount the subsidy is for but since there is a shortage at such a cheap price, the company can offer more and it will move to a new equilibrium

Question 26

rent control

Answer 26

govt regulation making it illegal to rent out accommodation above a stipulated price

Question 27

price ceiling creates what (shortage or surplus)

Answer 27

shortage, low price more people want it

Question 28

rationing

Answer 28

allocating products that are in short supply using coupons issued by government and quaranteeing a certain quantity of something per family

Question 29

price floor creates (shortage or surplus)

Answer 29

surplus, price is above equilibrium, so less people want it but more is produces

Question 30

what does increasing minimum wage do

Answer 30

it is setting a price floor, and it creates a surplus of workers, companies can’t afford to have as many workers so the qd of workers decreases at a higher price but at a higher wage more people want to work therefore creating the surplus of workers