Chapter 3 Where Prices Come From: The Interaction Of Demand And Supply

Front 1

How did Apple have a runaway success on its hands?

Back 1

The company introduced the iPod digital music player.

Front 2

After paying a royalty to record companies, what happened to Apple?

Back 2

After paying a royalty to record companies, Apple does not make a lot of profit from the songs it sells on iTunes.

Front 3

What makes Apple stand out from other competitors?

Back 3

Apple makes the iPods and owns iTunes, the two systems work smoothly together.

Front 4

What are today firms introducing?

Back 4

Today firms are introducing products with combined features such as 'music phones' and digital music players with video.

Front 5

Describe the shape of demand curve.

Back 5

Downward sloping.

Front 6

In real world, what is similar between demand and supply curves?

Back 6

In real world, these curves are not straight lines but are often drawn as such in economic models for convenience.

Front 7

What can be said about the market for restaurant meals?

Back 7

The market for restaurant meals, is purchased locally would include all the consumers in a city or a relatively small area.

Front 8

Give example of products that are sold internationally.

Back 8

MP3 player.

Front 9

What happens when buyers demand a larger quantity of a product?

Back 9

The price falls because the product becomes less expensive relative to other products and because they can afford to buy more at a lower price.

Front 10

Comment on the law of demand.

Back 10

The law of demand holds for almost any market demand curve.

Front 11

Which other factors might affect the demand?

Back 11

Changes in income or changes in advertising.

Front 12

What happens when the price of MP3 players fall?

Back 12

Consumers will substitute buying players for buying other goods such as compact stereos or radios.

Front 13

What happens when the price of a good falls?

Back 13

The increased purchasing power of consumers' incomes will usually lead them to purchase a larger quantity of the good.

Front 14

What does a fall in the price of MP3 players lead to?

Back 14

A fall in the price of MP3 players leads consumers to buy more players, both because they are now cheaper relative to substitute products and because the purchasing power of the consumers' incomes has increased.

Front 15

Give an example on how change in income affects the change in demand for products.

Back 15

Suppose that the market demand curve in Figure 3.1 reflects the willingness of consumers to buy MP3 players when average household income is $55 000. If household income rises to $60 000, the demand for players will increase, which we show by shifting the demand curve to the right.

Front 16

For instance, what happens when your income rises?

Back 16

For instance, as your income rises you might buy less canned tuna or fewer sausages, and buy more fresh salmon or steak.

Front 17

What happens when the price of compact stereos lowers?

Back 17

Fewer MP3 players will be demanded at every price.

Front 18

What happens when the price to download a song falls?

Back 18

Consumers will buy more song downloads and more MP3 players.

Front 19

What happens if Apple, Microsoft, Sony and other makers of MP3 players begin to advertise their players heavily on television and online?

Back 19

If Apple, Microsoft, Sony and other makers of MP3 players begin to advertise their players heavily on television and online, consumers are more likely to buy them at every price, and the the demand curve will shift to the right.

Front 20

Which play a substantial role?

Back 20

Trends and fashions play a substantial role.

Front 21

What has the popularity of low-fat diets caused?

Back 21

The popularity of low-fat diets caused a decline in demand for some goods, such as burgers and chips, and an increase in demand for chicken and fresh vegetables.

Front 22

What happens as the demographics of a country or region change?

Back 22

As the demographics of a country or region change, the demand for particular goods and services will increase or decrease because different categories of people tend to have different preferences for those goods.

Front 23

What happens when the fraction of the population under the age of two is the greatest?

Back 23

The demand for baby food will be greatest when the fraction of the population under the age of two is the greatest.

Front 24

What happens if enough consumers become convinced that the price of players will be higher three months from now?

Back 24

If enough consumers become convinced that the price of players will be higher three months from now, the demand for players will increase now, as consumers try to beat the expected price increase.

Front 25

What happened after World War 2 ended in 1945?

Back 25

After World War 2 ended in 1945, Australia was one of many countries that experienced a 'baby boom' as birth rates rose and remained high until the mid-1960s.

Front 26

What do falling birth rates after the mid-1960s mean?

Back 26

Falling birth rates after the mid-1960s mean that the baby boom generation is larger than the generation before it and the generations after it.

Front 27

Describe the proportion of the population aged 65 years and over in 2010.

Back 27

In 2010 the proportion of the population aged 65 years and over was 17 per cent in France, 18.3 per cent in Greece, 20.4 per cent in Italy, 22.6 per cent in Japan, 18.3 per cent in Sweden and 16.6 per cent in the UK.

Front 28

Between 2010 and 2050 what will happen to the proportion of the total population aged 65 years and over?

Back 28

Between 2010 and 2050 the proportion of the total population aged 65 years and over is estimated to almost double, from 13.5 per cent to about 23 per cent.

Front 29

What will place increases pressure on Medicare and the government's health budget?

Back 29

In the coming years the demand for doctors, nurses, hospital facilities and aged care facilities should all increase.

Front 30

What effects will the ageing of the baby boom generation have on the economy?

Back 30

Older people have a greater demand for medical care than do younger people.

Front 31

How do older people often 'downsize' their housing?

Back 31

Older people often 'downsize' their housing by moving from large, family homes, to smaller, more easily maintained homes.

Front 32

Give an example of devoting more and more resources to the production of a good results in increasing marginal costs.

Back 32

Apple and Sony increase production of MP3 players during a given time period, they are likely to find that the cost of producing the additional players increases as they run existing factories for longer hours and pay higher prices for components and higher wages for workers.

Front 33

What causes the market supply curve for MP3 players to shift to the left?

Back 33

The price of a component of MP3 players, such as the microprocessor, rises, the cost of producing players will increase and players will be less profitable at every price.

Front 34

What happens if a firm can produce more output with the same amount of inputs?

Back 34

Firm's costs will be lower and the good will be more profitable to produce at any given price.

Front 35

What happens if the price of video music players increases?

Back 35

If the price of video music player increases, video music players will become more profitable, and Apple, Sony, Microsoft and other companies making music players will shift some of their productive capacity away from smaller players and towards video players.

Front 36

How will a change in the number of firms in the market change supply?

Back 36

When new firms enter a market the supply curve shifts to the right, and when existing firms leave, or exit, a market the supply curve shifts to the left.

Front 37

What happens if Apple believes that prices for MP3 players are temporarily low?

Back 37

If Apple believes that prices for MP3 players are temporarily low-perhaps because of a price war between firms making players-it may store some of its production today to sell tomorrow when it expects prices will be higher.

Front 38

What can no firms and consumers do?

Back 38

No firm can sell anything at any price unless it can find a willing buyer, and no consumer can buy anything at any price without finding a willing seller.

Front 39

What happens when the price of a complementary good, such as downloads from music websites, were to rise?

Back 39

If the price of a complementary good, such as downloads from music websites, were to rise, the demand for players would decrease.

Front 40

In the 1960s, what was difficult?

Back 40

Producing a television priced low enough for many consumers to purchase.

Front 41

What finally happened in 1999?

Back 41

Finally, in 1999, Corning Inc. developed a process to manufacture glass less than one millimetre thick that was very clean because it was produced without being touched by machinery.

Front 42

What happened in recent years?

Back 42

In recent years new firms, such as Vizio in California, have entered the market, and existing firms, such as Matsushita, which sells televisions under the Panasonic brand, have greatly expanded production.

Front 43

Describe the effect from the increase in supply.

Back 43

The increase in supply had a dramatic effect on the price of LCD televisions, driving the price of a typical LCD television from US$4000 in 2004 to less than US$1000 by 2010.

Front 44

What happened in 2010?

Back 44

In 2010 the demand for these new technologies in LCD televisions was estimated to be responsible for 20 per cent of the total growth in worldwide sales of LCD televisions.