Economics Chapter 3: Supply and Demand Flashcards
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Questions and Answers

How does demand respond to an increase in the price of automobiles today?

Quantity demanded will decrease.

How does demand respond to an expected increase in the future price of automobiles?

The demand curve will shift to the right.

Why is the statement 'Apple increased supply of watches following an unexpected increase in demand' misleading?

Apple increased the quantity supplied, which is not the same as 'supply.'

Explain the mistake in saying consumers are illogical for buying more Starbucks beverages in 2019 despite a price increase.

<p>The statement doesn't consider that the increase in demand caused an increase in price.</p> Signup and view all the answers

Why is it illogical to say consumers buy less at Cost-U-Less when their incomes increase?

<p>The statement doesn't consider that Cost-U-Less goods are inferior goods, so this follows economic intuition.</p> Signup and view all the answers

What is the mistake in saying consumers are illogical for buying an iPhone 12 when an iPhone X costs less?

<p>The statement doesn't consider that tastes and preferences factor into demand curves.</p> Signup and view all the answers

What happens to the demand curve for chocolate ice cream if a severe drought causes dairy farmers to reduce milk-producing cattle?

<p>The demand curve does not shift.</p> Signup and view all the answers

What happens to the supply curve for chocolate ice cream due to a drought?

<p>The supply curve shifts to the left.</p> Signup and view all the answers

What is the expected effect on the equilibrium price of chocolate ice cream due to a drought?

<p>Equilibrium price increases.</p> Signup and view all the answers

What is the expected effect on the equilibrium quantity of chocolate ice cream due to a drought?

<p>Equilibrium quantity decreases.</p> Signup and view all the answers

What happens to the demand curve for chocolate ice cream if it is revealed to have health benefits?

<p>The demand curve shifts to the right.</p> Signup and view all the answers

What happens to the supply curve for chocolate ice cream due to newfound health benefits?

<p>The supply curve does not shift.</p> Signup and view all the answers

What is the expected effect on the equilibrium price of chocolate ice cream if it is found to have health benefits?

<p>Equilibrium price increases.</p> Signup and view all the answers

What is the expected effect on the equilibrium quantity of chocolate ice cream if health benefits are discovered?

<p>Equilibrium quantity increases.</p> Signup and view all the answers

What happens to the demand curve for chocolate ice cream if improvements in processing lower the price of strawberry ice cream?

<p>The demand curve shifts to the left.</p> Signup and view all the answers

What happens to the supply curve for chocolate ice cream due to improved processing of strawberry ice cream?

<p>The supply curve does not shift.</p> Signup and view all the answers

What is the expected effect on the equilibrium price of chocolate ice cream if strawberry prices decrease?

<p>Equilibrium price decreases.</p> Signup and view all the answers

What is the expected effect on the equilibrium quantity of chocolate ice cream if strawberry prices decrease?

<p>Equilibrium quantity decreases.</p> Signup and view all the answers

What happens to the supply curve for chocolate ice cream when production costs decrease?

<p>The supply curve shifts to the right.</p> Signup and view all the answers

What is the expected effect on the equilibrium price of chocolate ice cream if production costs decrease?

<p>Equilibrium price decreases.</p> Signup and view all the answers

What is the expected effect on the equilibrium quantity of chocolate ice cream if production costs decrease?

<p>Equilibrium quantity increases.</p> Signup and view all the answers

What is the expected effect on equilibrium price and quantity for hamburgers with an increase in the price of tacos?

<p>Equilibrium price increases and equilibrium quantity increases.</p> Signup and view all the answers

What is the expected effect on equilibrium price and quantity for hamburgers when all sellers raise the price of french fries?

<p>Equilibrium price decreases and equilibrium quantity decreases.</p> Signup and view all the answers

What is the expected effect on equilibrium price and quantity of hamburgers when income falls, assuming hamburgers are a normal good?

<p>Equilibrium price decreases and equilibrium quantity decreases.</p> Signup and view all the answers

What is the expected effect on equilibrium price and quantity of hamburgers when income falls, assuming hamburgers are an inferior good?

<p>Equilibrium price increases and equilibrium quantity increases.</p> Signup and view all the answers

What is the expected effect on equilibrium price and quantity of hamburgers if the price of hot dogs decreases?

<p>Equilibrium price decreases and equilibrium quantity decreases.</p> Signup and view all the answers

What happens to the lobster market during the summer peak harvest season?

<p>S Line moves right twice, D Line moves right once, E point moves to new intersection.</p> Signup and view all the answers

What happens to the supply and demand curves for Christmas trees after Christmas?

<p>S Line stays, D Line moves left, E point moves to new intersection.</p> Signup and view all the answers

What happens to the market for round-trip tickets to Paris after school vacation ends?

<p>S Line moves left, D Line moves left 2 or 3?, E point moves to new intersection.</p> Signup and view all the answers

How do journalist salary increases affect the newspaper market?

<p>Case 1: S Line moves left 1, D Line stays, E point moves to new intersection.</p> Signup and view all the answers

How does a significant news event affect the newspaper market?

<p>Case 2: S Line stays, D Line moves right 1, E point moves to new intersection.</p> Signup and view all the answers

What happens in the market for Seahawks T-shirts if the Seahawks win the Super Bowl?

<p>Case 1: S Line stays, D Line moves right 1, E point moves to new intersection.</p> Signup and view all the answers

What effect does an increase in cotton price have on Seahawks T-shirts?

<p>Case 2: S Line moves left 1, D Line stays, E point moves to new intersection.</p> Signup and view all the answers

What happens to the market for bagels if people realize they are fattening?

<p>Case 1: S Line stays, D Line moves right 1, E point moves to new intersection.</p> Signup and view all the answers

What happens in the market for bagels if people have less time for breakfast?

<p>Case 2: S Line stays, D Line moves left 1, E point moves to new intersection.</p> Signup and view all the answers

How does making the Krugman and Wells textbook required reading by a professor affect demand?

<p>Case 1: S Line stays, D Line moves right 1, E point moves to new intersection.</p> Signup and view all the answers

What happens to the supply of the Krugman and Wells textbook if printing costs are lowered?

<p>Case 2: S Line moves right 1, D Line stays, E point moves to new intersection.</p> Signup and view all the answers

What is the market demand schedule for soft drinks at $1.50 and $2.00 per gallon?

<p>At $1.50 per gallon: 16,146 million gallons; at $2.00 per gallon: 9,269 million gallons.</p> Signup and view all the answers

Draw the demand and supply curve for Maine lobsters and identify equilibrium price and quantity.

<p>Equilibrium Price: $15; Equilibrium Quantity: 600.</p> Signup and view all the answers

The equilibrium price is ____________ than the price would be if only U.S. consumers could buy Maine lobsters.

<p>higher</p> Signup and view all the answers

What flaw is present in reasoning about how technological innovation affects prices?

<p>Technological innovation may not necessarily result in reduced prices due to subsequent demand increases.</p> Signup and view all the answers

Study Notes

Demand Responses to Price Changes

  • An increase in automobile prices today leads to a decrease in quantity demanded.
  • An expected increase in future automobile prices shifts the demand curve to the right, indicating a higher demand now.

Supply vs. Quantity Supplied

  • Apple increasing the supply of watches is misleading; it actually increased the quantity supplied, not the overall supply.

Consumer Behavior Misunderstandings

  • Increased Starbucks sales despite price hikes can be explained by increased demand leading to higher prices.
  • Consumers buying less at Cost-U-Less when incomes rise contradicts the expectation for regular goods; these are inferior goods.
  • Purchasing the iPhone 12 over the cheaper iPhone X reflects preferences rather than mere price comparison.

Impact of Future Price Expectations on Housing Market

  • Student debates about future home price declines lack clarity without knowing the degree of demand and supply shifts; equilibrium price will decrease, but quantity effects are uncertain.

Effects of External Factors on Chocolate Ice Cream Market

  • Supply of chocolate ice cream reduces due to lower cream availability from a drought, shifting the supply curve left without affecting demand.
  • Health benefits of chocolate increase demand, shifting the demand curve right; equilibrium price and quantity of chocolate ice cream increase.
  • Lower prices for strawberry ice cream reduce demand for chocolate ice cream, shifting its demand curve left, decreasing both equilibrium price and quantity.
  • Cost reductions in production lead to an increase in supply of chocolate ice cream, shifting the supply curve right and increasing both equilibrium price and quantity.

Market Reactions to Competitive Goods

  • Increased taco prices enhance hamburger demand, shifting the demand curve right; equilibrium price and quantity for hamburgers increase.
  • Rising french fry prices decrease hamburger demand, shifting the curve left; equilibrium price and quantity decrease.
  • A fall in overall income reduces demand for normal goods like hamburgers, leading to a decrease in equilibrium price and quantity.
  • Conversely, if hamburgers are inferior goods, a fall in income increases demand, raising both equilibrium price and quantity.

Seasonal Market Fluctuations

  • During peak lobster season, demand increases while supply does as well; hence, equilibrium price tends to decrease due to over-supply.
  • Post-Christmas, reduced demand leads to price drops despite potential supply shifts.
  • Following summer, air travel demand decreases, and although operational costs rise, overall supply adjusts, influencing equilibrium price.

Changes in Local Markets

  • Rising journalist salaries lower the supply of newspapers, increasing price.
  • A significant news event boosts demand for local newspapers, pushing up price.

Reaction to New Events in Product Markets

  • The Seahawks' victory boosts T-shirt demand, increasing price.
  • Increased cotton prices lower the supply of T-shirts, resulting in price increases.
  • Negative perceptions regarding bagels shift demand left as health concerns arise, decreasing both equilibrium price and quantity.
  • Conversely, busier lifestyles can shift demand for bagels right, increasing equilibrium price and quantity.

Textbook Market Influences

  • Making a textbook mandatory increases its demand, raising equilibrium price.
  • Lower printing costs increase supply for textbooks, contributing to lower prices and larger quantities available.

Calculation of Market Demand

  • Average consumption rate of soft drinks, at $1.50 per gallon, leads to a market demand of approximately 16,146 million gallons.
  • At $2.00 per gallon, the market demand is around 9,269 million gallons for the U.S. population.

Equilibrium in Lobster Markets

  • Equilibrium for Maine lobsters can be represented graphically, with demand and supply curves intersecting at price point $15 and quantity 600.
  • When both U.S. and French consumers participate in the Maine lobster market, demand increases, raising equilibrium price to $20 and quantity to 700.

Analyzing Market Reactions to Technological Changes

  • Innovations that lower production costs may initially lower prices, leading to higher demand, which can trigger price increases again, complicating the overall price trend post-innovation.

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Test your understanding of Supply and Demand concepts with these flashcards from Chapter 3. Learn how demand adjusts to price changes and how supply might respond to unexpected shifts in demand. Perfect for quick revision and reinforcing key economic principles.

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