Micro Econ Exam 1

Front 1

Market, what does it do?

Back 1

Brings buyers and sellers together.

Front 2

Supply

Back 2

Maximum amount of a product that producers are both willing and able to offer for sale at various prices.

Front 3

What kind of relationship exists between price and supply?

Back 3

There is a positive relationship because as the price goes up, a firm's willingness and availability to produce the product increases.

Front 4

Substitution effect

Back 4

A firm will shift resources to produce a good that has a relatively higher price.

Front 5

Change in quantity supplied

Back 5

A change that is caused by a change in the price. A s;ode on the supply curve.

Front 6

Supply shifters

Back 6

1. price of other goods the firm can produce.
2. Input costs
3. Number of suppliers
4. Technology changes
5. Expectations about the future.

Front 7

Change in the price of other goods effect on supply

Back 7

Shifts supply becuase we can produce tennis racquets or gold clubs. What happens to the supply of tennis racquets if the price of golf clubs goes up? we will produce more golf clubs and fewer tennis racquets.

Front 8

Input costs effect on supply

Back 8

If cost of production increases then the supply will go down. If the price stays the same then we will produce less. If the price goes down we will supply more.

Front 9

Number of suppliers effect on supply

Back 9

As more firms enter the market supply goes up because one firm can produce so much. If another 2 firms join in then the supply will increase.

Front 10

Technology change effect on supply

Back 10

If we have an increase in technology there is usually increased efficiency which generally lowers production costs and makes te supply increase.

Front 11

Expectations about the future and their effect on supply

Back 11

This depends on what you're producing. If you're producing tomatoes or other perishable goods this doesn't work. However, if you're producing Ipods and you anticipate hte price going up 3 months from now we can store it and then put it out when it is worth more.

Front 12

Equillibrium

Back 12

the point at which the market is said to clear. No tendency to change. Price is the coordinating factor.

Front 13

Economic shortage

Back 13

Can be eliminated by increasing the price.

Front 14

Real shortage

Back 14

Cannot be eliminated by increasing the price.

Front 15

When the law of increasing opp costs is in effect, what does the PPC look like?

Back 15

It is curved.

Front 16

When we hold other things equal how does the PPC look?

Back 16

It is a straight line

Front 17

Changes in equillibrium questions to answer.

Back 17

1. Has D or S changed?
2. Did D or S go up or down?
3. What happened to P and Q?

Front 18

If demand goes down what happens to P and Q

Back 18

P goes down, Q goes down.

Front 19

If demand goes up what happens to P and Q?

Back 19

P goes up, Q goes up

Front 20

If supply goes down what happens to P and Q

Back 20

P goes up, Q goes down.

Front 21

If supply goes up what happens to P and Q?

Back 21

P goes down, Q goes up.

Front 22

If Demand and Supply both go down what happens to P and Q?

Back 22

P down, Q down + P up, Q down= P ?, Q down.

Front 23

What happens if demand goes up and supply goes down?

Back 23

P up, Q up + P up, Q down= P up, Q ?

Front 24

What happens if demand goes down and supply goes up

Back 24

P down, Q down + P up, Q up= P?, Q up.

Front 25

T/F or uncertain:
A rise in minimum wage can be expected to increase the price of a big mac?

Back 25

If the employees are making minimum wage and minimum wage increases then true. If they are making more than minimum wage, the statement is false. If big macs are an inferior good the statement would be false because people would then buy steak burgers instead and demand would go down causing price to fall.

Front 26

Beach resorts increase tehir price during the summer months yet more people book rooms at that time. Is this a violation of demand? Explain

Back 26

The law of demand says that as P increases quantity demanded should go down all other things being equal. However, things are not euqal. rather, there are more people who want to travel during the summer months because of such things as better weather and kids being out of school.

Front 27

In an attempt to reduce poaching of elephants, officials in kenya burn illegally obtained ivory. Using supply and demand explain whether the policy is helpful in protecting elephants.

Back 27

No because this depleates the supply making the price even higher. With the higher price, there are more people who are going to be willing to poach elephants in the hopes of making a profit. Instead they need to find a way to increase the supply so that people will not demand it.

Front 28

Assuming that shoe repair is an inferioir good, an increase in consumer incomes will cause: A) a rightward shift in the demand curve, B) a decrease in the demand for shoe repair, C) a downward movement along the demand curve, D) a decrease in the quantity of shoe repair demanded.

Back 28

B.

Front 29

Saccharin and Nutra Sweet areboth low calorie substitutes for sugar. If a new study is released that shows that saccharin causes cancer, we would expect: A) the price of sugar to decrease, B) the price of Nutra Sweet to decrease, C) The demand for sugar and Nutra Sweet to increase, D) the demand for sugar and Nutra sweet to decrease.

Back 29

C the demand for sugar and Nutra Sweet to increase.

Front 30

A technological breakthrough sharply lowers the cost of manufacturing DVD players. Once a new equillibrium is established the market for DVD playwer one would expect: A) A surplus of DVD players, B) A decrease in the price of DVD players C) a decrease in the demand fr DVD players, D) a decrease in the quantity of DVD players purchased.

Back 30

B a decrease in the price of DVD players.

Front 31

Between 2000 and 2006, per capita coffee conosumption fell in the US while the price per poubd more than doubled. Why? A) the supply of coffee is insensitive to price, B) the supply of coffee decreased during this period, C) the demand for coffee increased during this period, D) both the supply and demand of coffee increased during this period.

Back 31

B the supply of coffee decreased.

Front 32

Based on events of 9/11 consumers are scared to fly on airplanes. In addition, because the price of oil has increased, airplanes have seen their operating costs increase. Based on this we predict that. A) equilibrium price and quantity haveboth increased. B) equilibrium price and quantity have both decreased, C) Equilibrium price has increased and the effect on equilibrium quantity is unknown, D) equilibrium quantity has decreased and the effect on equilibrium price is unknown.

Back 32

D.