Where Prices Come From Flashcards
Technology- New technology might make it more profitable to produce more goods for the same cost, creating more supply and shifting the graph the the
Right
If, in the market for oranges, the supply has increased then That will shift the supply curve to the
Right
The income effect of a price change refers to the impact of a change in
demand when income changes.
What happens to Equilibrium price and Equilibrium quantity in this scenario?
Equilibrium quantity decreases, Equilibrium price increases, decreases or is unchanged.
In October, market analysts predict that the price of platinum will fall in November. What happens in the platinum market in October, holding everything else constant? -We The supply curve shifts to the left. -The supply curve shifts to the right. -The demand curve shifts to the right. -The quantity demanded and the quantity supplied of platinum increase.
The supply curve shifts to the right
The change in the quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods that are substitutes is known as the:
The Substitution effect
As the price for apples increases the demand for bananas __________ because they are a __________.
As the price for apples increases the demand for bananas increase because they are a Substitute
What happens to Equilibrium price and Equilibrium quantity in this scenario?
Equilibrium price increases and Equilibrium quantity decreases.
What happens to Equilibrium price and Equilibrium quantity in this scenario?
Equilibrium price decreases and Equilibrium quantity decreases
Smart Watches
Apple launches its Apple Watch. As a result, the supply of smart watches increases. What conclusion can we draw about smart watches using this graph?
We can predict that price will fall and quantity traded will rise.
When the price of a good falls, two effects take place:
- Consumers substitute toward the newly less-expensive good. 2. Consumers have more purchasing power, which is like an increase in income.
A Market in perfect competition makes these assumptions:
-All goods supplied by all sellers are identical -There is Free entry into the market- any seller can start selling -Perfect information- all buyers and sellers have identical information
Equilibrium is the point where supply and demand curve —–.
Meet
In the market for electric guitars, there’s an increase in the number of teenagers, an age group known for playing guitars. As a result:
There’s an increase in demand
This represents what?
A Decrease in Demand
The law of demand implies, holding everything else constant, that:
as the price increases, the quantity demanded will decrease.
What are the variables that cause a shift in demand?
- Income 2. Price of related goods 3. Tastes and preferences 4. Population and demographics 5. Expectation that prices will change or expectation of scarcity.
The Substitution effect
The change in the quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods that are substitutes is known as the
Substitutes are:
Goods people buy instead of the subject (apples vs bananas)
When the price a seller can sell a good goes up, the ________________ goes up.
Quantity supplied
The change in the quantity demanded of a good that results from the effect of a change in the good’s price on a consumers’ purchasing power is known as the:
The Income effect
Number of firms: an increase of the number of producers of split pea soup will lead to an overall increase of split pea soup supplied, shifting the supply curve to the:
Right
In figure 1, a move from D to C would be described as:
A decrease in demand and a decrease in quantity supplied
An increase in the price of pineapples will result in: -a decrease in the demand for pineapples. -an increase in the supply of pineapples. -a smaller quantity of pineapples supplied. -a larger quantity of pineapples supplied.
a larger quantity of pineapples supplied.
______ effects Quantity Demanded.
Price
A change in all of the following variables will change the market demand for a product except: - income. -population and demographics. -the price of the product. -tastes.
-the price of the product.
Shortage is the difference between:
the quantity demanded and the quantity supplied. Subtract Qs from Qd.
From 2006 to 2013, the price of Blu-ray players fell from about $800 to about $95, while the number of Blu-ray players traded increased dramatically.
What best explains this change?
a. Increase in demand
b. Decrease in demand
c. Increase in supply
d. Decrease in supply
Can you show this change on a supply-and-demand diagram?
Supply increased as additional firms started manufacturing Blu-ray players and input costs fell.
Demand is the relationship between:
the price and the quantity demanded
Economic Theory
There’s an excess of demand over supply. Economic theory predicts:
Price will rise
______ effects Quantity Supplied.
Price
Ice cream example: Say the cost of milk goes up (the input cost increases). The cost to produce ice cream has increased, causing a shift in the supply curve to shift to the left. Now the amount supplied is less than the amount demanded, causing a shortage. What conclusions can we draw?
The price of ice cream is increased which leads to the demand of ice cream decreasing and a new equilibrium is created.
Variable that effect demand curve: Substitution effect- how people:
exchange purchases to get more for the budget.
In figure 1, a move from C to A, would be described as:
An increase in quantity demanded and an increase in supply
Price of a an alternative in production: say you make split pea soup, and you can make chicken soup instead. If chicken soup becomes more profitable to make, so you start making more chicken noodle soup and less split pea. This would cause a drop in the ____________ of split pea soup. ( the graph would shift to the left)
Supply
Cost of input- if the cost of producing a good decreases, supply will natural increase but the price a seller is willing to sell may not, shifting the graph to the
Right
Suppose an increase in supply occurs. We now know:
Equilibrium quantity will increase, and
Equilibrium price will decrease.
It is tempting to believe the decrease in price will cause an increase in demand. But this is incorrect.
draw a demand curve to explain why?
The decrease in price will cause a movement along the demand curve, but not an increase in demand.
Why? The demand curve already describes how much of the good consumers want to buy, at any given price.
When the price change occurs, we just look at the demand curve to see what happens to how much consumers want to buy.
If prices change we move along the curve. If other variables change, there will be a ______in the curve itself.
Shift
What happens to Equilibrium price and Equilibrium quantity in this scenario?
Equilibrium quantity increases decreases or remains unchanged, Equilibrium price increases.
As the demand curve shifts, the ______________ will change, even if the price doesn’t change.
As the demand curve shifts, the quantity demanded will change, even if the price doesn’t change.
The quantity demanded changes at every possible price.
An increase in consumer incomes might cause the demand curve to shift to the right, causing a shortage in supply. As a result, consumers might be willing to pay a higher price for a good crafting a new __________.
a new equilibrium.
In figure 1, if this is the market for Apple I-Pods, a normal good, what could cause a movement from D to C?
a. An increase in the price of electronic components
b. A decrease in the price of I-Tunes
c. Sony begins to produce and sell their Sony-Pod
d. An increase in income
e. A decrease in the price of non-Apple MP3 players
An increase in income means consumers __________ increases
buying power
Suppose incomes increase. What happens to the equilibrium in the smartwatch market?
Smartwatches are a normal good, so as income rises demand _____________
Equilibrium price _____________
Equilibrium quantity ____________
so as income rises, demand shifts to the right
Equilibrium price increases
Equilibrium quantity increases
What is the difference between an”increase in supply” and an “increase in quantity supplied”?
An “increase in supply” means the supply curve has shifted to the right while an “increase in quantity supplied” refers to a movement along a given supply curve in response to an increase in price.
Sellers are called ______.
Sellers are called Supply.
Expectation of price: If you have a house that you want to sell, and you expect prices to go up, you might not want to sell right now and instead wait for the price to go up. This would cause an overall supply of houses to sell to decrease, shift the supply curve to the
Left.
If the price of water was to fall, I might buy more water and less bottles of ice tea, or less juice. If the price of Juice falls I might buy more juice and less water. This is known as the
Substitution effect
What happens to Equilibrium price and Equilibrium quantity in this scenario?
Equilibrium price increases and Equilibrium quantity increases
What happens to Equilibrium price and Equilibrium quantity in this scenario?
Equilibrium price cecreases and Equilibrium quantity increases.
Supply is the relationship between:
Price and Quantity Supplied.
Sellers are willing to __________ of a product if it can sell for a higher price
sell more
This represents what?
An Increase in Demand
Variables that cause a shift in demand Prices of related goods: What are the 2 goods that are related to a product
Substitutes: Goods people buy instead of the subject (apples vs bananas) Complements: Goods people buy along side subject (hot dogs + buns)
Variable that effect demand curve: Income effect- the way changing prices effect:
the way changing prices effect a consumers buying power.
Demand Curve- as the price goes up the quantity of demanded goes 
Down
What happens to Equilibrium price and Equilibrium quantity in this scenario?
Equilibrium quantity increases, decreases or is unchaged. Equilibrium price decreases.
In figure 1, a move from C to B would be described as:
An increase in supply and an increase in demand
A decrease in supply will result in the a decrease in _________________.
Quantity demanded
If the market is in equilibrium than there is no reason for prices to….
Prices have no reason to increase or decrease
A movement along the demand curve for toothpaste would be caused by: -a change in consumer income. -a change in population. -a change in the price of toothbrushes. -a change in the price of toothpaste.
a change in the price of toothpaste.
What is the difference between an “increase in demand” and an “increase in quantity demanded”?
An “increase in demand” is represented by a rightward shift of the demand curve while an “increase in quantity demanded” is represented by a movement along a given demand curve.
Complements are:
Goods people buy along side subject (hot dogs + buns)
The relationship between price and quality demanded is known as the:
Law of demand
Which of the following will shift the demand curve for a good? -an increase in the price of the good -a change in the technology used to produce the good -a decrease in the price of a complementary good -a decrease in the price of the good
a decrease in the price of a complementary good
If price is falling, then the market is reacting to:
a potential surplus
If an increase in income leads to in an increase in the demand for peanut butter, then peanut butter is a-
Normal Good
In the market for electric guitars, the price of accessories (tuners, amps, cases, etc) decreases. As a result:
There’s an increase in demand
Suppose an increase in supply occurs. We now know:
- Equilibrium quantity will ___________
- Equilibrium price will ____________
Equilibrium quantity will increase, and
Equilibrium price will decrease.
The demand by all the consumers of a given good or service is the ________ for the good or service.
Market Demand
In figure 1, if this is the market for Apple I-Pods, a normal good, what could cause a movement from C to A?
a. Lower Output Costs
b. New Technology
c. New factory
d. decrease in wages
All of these
As the price of hot dog buns goes up, the demand for hot dogs goes ______ because hot dog buns are _________.
As the price of hot dog buns goes up, the demand for hot dogs goes down because hot dog buns are compliments.
Cost of input- if the cost of producing a good increases, supply will natural decrease but the price a seller is willing to sell may not, shifting the graph to the
Left
In the market for electric guitars, the wage of guitar makers increase. As a result-
There’s a decrease in supply
Which of the following would cause a decrease in the supply of milk? -a decrease in the price of milk -an increase in the number of firms that produce milk -an increase the price of a product that producers sell instead of milk -an increase in the price of cookies (assuming that milk and cookies are complements)
an increase the price of a product that producers sell instead of milk
Quantity Demanded is:
The amount of a good or service that people are going to want to buy at a given price. (If the price goes up, quantity demanded goes down)
If there’s an increase in the price of a substitute to a good, then theory predicts for that good
price will increase, quantity will increase
Price effects:
Quantity Supplied Quantity demanded
What happens to Equilibrium price and Equilibrium quantity in this scenario?
Equilibrium quantity increases, Equilibrium price increases, decreases or remains unchanged
Variables the effect supply:
- Cost of input 2. Technology 3. Price of a an alternative in production: 4. Number of firms 5. Expectation of price
If an increase in income leads to a decrease in the demand for popcorn, then popcorn is an -
Inferior Good
A Surplus is the difference between :
quantity supplied and the Quantity demanded. Subtract Qd from Qs.
Variables that cause a shift in demand Income: as incomes go up, people buy ______ even if the price _________.
Income: as incomes go up, people buy more even if the price doesn’t change.
The Income effect
The change in the quantity demanded of a good that results from the effect of a change in the good’s price on a consumers’ purchasing powe
In the market for a bag of socks, what happens if the price of cotton falls?
price of a bag of socks will decrease, quantity will increase
