Economics Chapter 3 Quiz & Flashcards on Demand

Questions and Answers

Graphically, the market demand curve is:

The vertical sum of individual demand curves.

The horizontal sum of individual demand curves. (correct)

Steeper than any individual demand curve that is part of it.

Greater than the sum of the individual demand curves.

Assuming conventional supply and demand curves, changes in the determinants of supply and demand will:

Alter equilibrium quantity, but not equilibrium price.

Have no effect on equilibrium price or quantity.

Alter equilibrium price, but not equilibrium quantity.

In all likelihood alter both equilibrium price and quantity. (correct)

One can say with certainty that equilibrium price will decline when supply:

Decreases and demand increases.

And demand both decrease.

And demand both increase.

Increases and demand decreases. (correct)

Other things equal, which of the following might shift the demand curve for gasoline to the left?

The development of a low-cost electric automobile. Signup and view all the answers

Because of unseasonably cold weather, the supply of oranges has substantially decreased. This statement indicates that:

The amount of oranges that will be available at various prices has declined. Signup and view all the answers

In the past few years, the demand for donuts has greatly increased. This increase in demand might best be explained by:

A change in buyer tastes. Signup and view all the answers

Which of the following statements is correct?

If supply increases and demand decreases, equilibrium price will fall. Signup and view all the answers

If X is a normal good, a rise in money income will shift the:

Demand curve for X to the right. Signup and view all the answers

A decrease in the demand for recreational fishing boats might be caused by an increase in the:

Price of outboard motors. Signup and view all the answers

The demand curve for a product might shift as the result of a change in:

All of these. Signup and view all the answers

A government subsidy to the producers of a product:

Increases product supply. Signup and view all the answers

The law of supply indicates that:

Producers will offer more of a product at high prices than they will at low prices. Signup and view all the answers

The upward slope of the supply curve reflects the:

Law of supply. Signup and view all the answers

A market is in equilibrium:

If the amount producers want to sell is equal to the amount consumers want to buy. Signup and view all the answers

There will be a surplus of a product when:

Consumers want to buy less than producers offer for sale. Signup and view all the answers

If we say that a price is too high to clear the market, we mean that:

Quantity supplied exceeds quantity demanded. Signup and view all the answers

When the price of oil declines significantly, the price of gasoline also declines. The latter occurs because of a(n):

Increase in the supply of gasoline. Signup and view all the answers

Assume in a competitive market that price is initially above the equilibrium level. We can predict that price will:

Decrease, quantity demanded will increase, and quantity supplied will decrease. Signup and view all the answers

With a downsloping demand curve and an upsloping supply curve for a product, an increase in consumer income will:

Increase equilibrium price and quantity if the product is a normal good. Signup and view all the answers

If L and M are complementary goods, an increase in the price of L will result in:

A decrease in the sales of M. Signup and view all the answers

At the current price there is a shortage of a product. We would expect price to:

Increase, quantity demanded to decrease, and quantity supplied to increase. Signup and view all the answers

Markets explained on the basis of supply and demand:

Assume many buyers and many sellers of a standardized product. Signup and view all the answers

The rationing function of prices refers to the:

Capacity of a competitive market to equate the quantity demanded and the quantity supplied. Signup and view all the answers

Assume product A is an input in the production of product B. In turn, product B is a complement to product C. We can expect a decrease in the price of A to:

Increase the supply of B and increase the demand for C. Signup and view all the answers

An increase in the excise tax on cigarettes raises the price of cigarettes by shifting the:

Supply curve for cigarettes leftward. Signup and view all the answers

An increase in product price will cause:

Quantity demanded to decrease. Signup and view all the answers

When an economist says that the demand for a product has increased, this means that:

Consumers are now willing to purchase more of this product at each possible price. Signup and view all the answers

In constructing a stable demand curve for product X:

The prices of other goods are assumed constant. Signup and view all the answers

By an increase in demand we mean that:

The quantity demanded at each price in a set of prices is greater. Signup and view all the answers

In moving along a stable supply curve which of the following is not held constant?

The price of the product for which the supply curve is relevant. Signup and view all the answers

The location of the supply curve of a product depends on:

All of these. Signup and view all the answers

Allocative efficiency involves determining:

The mix of output that will maximize society's satisfaction. Signup and view all the answers

At the point where the demand and supply curves intersect:

There is neither a surplus nor a shortage of the product. Signup and view all the answers

Digital cameras and memory cards are:

Complementary goods. Signup and view all the answers

Which of the following would not shift the demand curve for beef?

A reduction in the price of cattle feed. Signup and view all the answers

Suppose that in each of four successive years producers sell more of their product and at lower prices. This could be explained:

In terms of a stable demand curve and increasing supply. Signup and view all the answers

The income and substitution effects account for:

The downward sloping demand curve. Signup and view all the answers

Other things equal, if the price of a key resource used to produce product X falls, the:

Product supply curve of X will shift to the right. Signup and view all the answers

The demand curve shows the relationship between:

Price and quantity demanded. Signup and view all the answers

The law of demand states that:

Price and quantity demanded are inversely related. Signup and view all the answers

With a downsloping demand curve and an upsloping supply curve for a product, placing an excise tax on this product will:

Increase equilibrium price and decrease equilibrium quantity. Signup and view all the answers

When product prices change, consumers are inclined to purchase larger amounts of the now cheaper products and less of the now more expensive products. This describes:

The substitution effect. Signup and view all the answers

Increasing marginal cost of production explains:

Why the supply curve is upsloping. Signup and view all the answers

Steve went to his favorite hamburger restaurant with $3, expecting to buy a $2 hamburger and a $1 soda. When he arrived he discovered that hamburgers were on sale for $1, so Steve bought two hamburgers and a soda. Steve's response to the decrease in the price of hamburgers is best explained by:

The income effect. Signup and view all the answers

A product market is in equilibrium:

Where the demand and supply curves intersect. Signup and view all the answers

At the equilibrium price:

There are no pressures on price to either rise or fall. Signup and view all the answers

An increase in the price of a product will reduce the amount of it purchased because:

Consumers will substitute other products for the one whose price has risen. Signup and view all the answers

Allocative efficiency is concerned with:

Producing the combination of goods most desired by society. Signup and view all the answers

Suppose that in 2007 Ford sold 500,000 Mustangs at an average price of $18,800 per car; in 2008, 600,000 Mustangs were sold at an average price of $19,500 per car. These statements:

Suggest that the demand for Mustangs increased between 2007 and 2008. Signup and view all the answers

If a product is in surplus supply, its price:

Is above the equilibrium level. Signup and view all the answers

Study Notes

Market Demand and Supply

Market demand curve is the horizontal sum of individual demand curves.
Changes in supply and demand determinants likely alter equilibrium price and quantity.
Equilibrium price declines with an increase in supply when demand decreases.

Demand Shifts

Demand for gasoline shifts left due to the development of low-cost electric automobiles.
A decrease in the supply of oranges indicates a decline in available quantities at various prices.
Increased demand for donuts may be explained by changes in buyer tastes.

Supply and Demand Interactions

If demand increases and supply decreases, equilibrium price will rise.
A rise in money income shifts the demand curve for normal goods to the right.
An increase in the price of outboard motors can decrease the demand for recreational fishing boats.

Understanding Market Equilibrium

Equilibrium occurs when the amount producers want to sell equals what consumers want to buy.
A surplus occurs when quantity supplied exceeds quantity demanded; prices tend to adjust upward.
A shortage signals that quantity demanded exceeds quantity supplied; prices are expected to increase.

Price Effects

A significant decline in oil prices typically leads to lower gasoline prices due to increased supply.
When prices are above the equilibrium, we expect price to decrease while quantity demanded increases.
An increase in excise tax on a product shifts the supply curve for that product leftward.

Elasticity of Supply and Demand

Movements along the supply curve do not hold certain factors constant, such as the price of the product.
The rationing function ensures that quantity demanded matches quantity supplied in a competitive market.

Costs and Production

The upward slope of the supply curve reflects the law of supply: higher prices encourage more production.
Allocative efficiency determines the output mix that maximizes society's satisfaction.
Increasing marginal costs explain why supply curves are upsloping.

Consumer Behavior and Choices

The substitution effect occurs when consumers opt for less expensive products as prices change.
An increase in consumer income can elevate both equilibrium price and quantity for normal goods.
In response to decreasing prices, demand often increases as consumers are more willing to purchase.

Complementary and Substitute Goods

Digital cameras and memory cards are complementary goods; changes in one affect the other.
Changes in the price of complementary goods can inversely impact the sales of related products.

Summary of Market Concepts

A product market is in equilibrium when both supply and demand curves intersect.
At equilibrium price, there are no pressures causing prices to rise or fall.
Allocative efficiency ensures that resources are utilized effectively to produce goods that society desires most.

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Description

These flashcards cover key concepts from Chapter 3 of the Economics curriculum, focusing on demand and supply curves. Test your understanding of market dynamics and the effects of changes in supply and demand determinants.

Economics Chapter 3 Flashcards