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Questions and Answers
What happens to the equilibrium price when supply increases?
Which factor does NOT cause a shift in the supply curve?
In comparative statics, what is held constant while analyzing shifts in supply or demand?
What is the effect on equilibrium quantity when demand increases?
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What does a rightward shift of the demand curve indicate?
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Which statement about the supply curve is FALSE?
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Which of the following is a determinant of the supply curve?
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Which economic variables are primarily analyzed in comparative statics?
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What is indicated by a leftward shift of the demand curve?
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How does the increase in the price of a substitute good affect the demand for another good?
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What is used to determine the effect of an event on equilibrium price and quantity?
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Which of the following does NOT cause a shift in the demand curve?
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What happens to the demand for hybrid cars if the price of gas increases?
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If there is a technological change causing a cost reduction, what type of shift results in the supply curve?
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Which of the following factors does NOT directly impact demand?
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In terms of demand, what is the difference between a movement along the curve and a shift of the curve?
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What happens to the supply of hybrid cars when the price of gas increases?
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What effect does new technology reducing the cost of production have on the S curve for hybrid cars?
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Which of the following best describes a shift in demand when prices are falling?
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If both a fall in the price of CDs and a reduction in royalties occur, what is the expected effect on music downloads?
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Which scenario would likely cause an increase in the demand for hybrid cars?
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What is the immediate effect on the market for music downloads when some demanders prefer to buy physical CDs?
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In the context of supply and demand, which of the following describes a movement along the supply curve?
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If the demand and supply curves both shift, which factor most directly describes price adjustment?
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What is the effect on equilibrium price when demand shifts left while supply shifts right?
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What happens to quantity supplied when supply shifts from $P = 10 + Q$ to $P = 5 + Q$?
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When the demand function becomes $P = 30 - Q$, what happens to the equilibrium quantity compared to the original demand of $P = 20 - Q$?
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Which of the following represents a direct consequence of a simultaneous fall in the cost of royalties and the price of CDs?
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How do consumer surplus and producer profit change when moving from equilibrium 1 to equilibrium 2 in a demand shift?
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Which method is used to determine the effects of a supply shift on equilibrium price and quantity?
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In the equilibrium calculations, what can lead to a decrease in equilibrium quantity?
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What is the result on equilibrium price when both curves shift simultaneously?
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When calculating consumer surplus after a shift from $P = 20 - Q$ to $P = 30 - Q$, what key factor should be considered?
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What does a decrease in the cost of royalties imply for the supply curve?
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What defines a short-term decision in a business context?
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If variable costs for a product are $5, what is the reserve price for selling the product?
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For a product with only fixed costs of $10 and no variable costs, what is the minimum price to accept?
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In comparing the supply between Session 1 and Session 2, which of the following changed?
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What is the equilibrium price (P1*) and quantity (Q1*) in the first scenario?
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What does the shift in supply signify in relation to the equilibrium point?
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If the supply in Session 2 increased to 25 units, what could be inferred about market behavior?
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How is consumer surplus calculated in equilibrium?
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If seller profits were calculated as (15 x 15) - (15 x 10), what does this represent?
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Which of the following is true about fixed costs?
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What impact does an increase in supply typically have on equilibrium price?
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What characterizes the benefits of equilibrium for sellers?
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What happens when the reserve price is not met during a sale?
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What does a downward shift in the supply curve generally indicate?
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Study Notes
Short Term Decisions
- When non-recoverable costs have already been incurred, the decisions are called short-term decisions.
Analysis of Supply
- In Experiment 1, apples have variable costs, meaning the minimum price to accept is the variable cost.
- In Experiment 2, fish have only fixed costs, meaning any positive price will help cover the fixed cost already incurred.
Shift in Supply
- Supply shifts between Session 1 and Session 2 of Experiment 2.
- We analyze and compare the supply distributions and predicted equilibriums in both sessions.
Supply Table & Supply Curve
- Supply tables provide information on offered quantities at different price ranges.
- We can convert these tables into supply curves to visually represent the relationship between price and quantity supplied.
Price and Quantity Equilibrium
- The equilibrium point is where supply and demand intersect, determining the equilibrium price (P*) and equilibrium quantity (Q*).
- The equilibrium in Session 1 is P1* = 15 and Q1* = 15.
- The equilibrium in Session 2 is P2* = 5 and Q2* = 25.
Benefits in Equilibrium
- Consumer surplus is the difference between what consumers are willing to pay and what they actually pay.
- Profits of sellers are calculated by subtracting total costs from total revenue.
- In Session 1, consumer surplus is 30, while seller profits are 75.
- In Session 2, consumer surplus is 195, while seller profits are -25.
What Happens When Supply Increases?
- When supply increases, it shifts to the right (outward).
- Equilibrium price decreases.
- Equilibrium quantity increases.
Comparative Statics
- Comparative statics is a procedure to predict how external changes affect economic variables (P*, Q*, surplus) by keeping all else constant (ceteris paribus).
How to Analyze Comparative Statics
- Plot initial supply and demand curves to observe (P1, Q1).
- Plot curves after the variation to observe new equilibrium (P2, Q2).
- Compare (P1, Q1) with (P2, Q2) to analyze changes in equilibrium variables.
Supply Curve
- The supply curve represents the total amount of goods suppliers are willing to sell at different possible prices.
- Supply is a schedule of price-quantity pairs at which the supplier is willing to sell.
Determinants of Supply
- A rightward shift indicates an increase in supply.
- A leftward shift indicates a decrease in supply.
- Factors that can shift supply curves include:
- Input prices
- Technology
- Expectations
- Number of sellers
Demand Curve
- The demand curve shows the total amount buyers are willing to acquire at different possible prices.
Shifts in Demand Curve
- A rightward shift indicates an increase in demand.
- A leftward shift indicates a decrease in demand.
- Factors that can shift demand curves include:
- Income
- Prices of related goods (substitutes and complements)
- Tastes
- Expectations (future income and prices)
- Number of buyers
Analyzing Changes in Equilibrium
- To analyze the effects of events on equilibrium price and quantity:
- Determine if the event shifts supply curve, demand curve, or both.
- Determine the direction of the curve shift.
- Use a supply-demand diagram to visualize the shift's effect on P and Q.
Shifts in Curve vs. Movements Along Curve
- Increase in valuation of a good shifts the demand curve.
- Change in quantity demanded due to a price drop is a movement along the demand curve.
- Cost reduction due to technology shifts the supply curve.
- Reduction in supply due to a price decrease is a movement along the supply curve.
Example: The Market for Hybrid Cars
- The market for hybrid cars is influenced by factors like the price of gas, cost of production and technology advancements.
Example 1: A Shift in Demand
- An increase in the price of gas shifts the demand curve for hybrid cars to the right due to increased demand.
- Consumer preference for hybrid cars increases, leading to both a price increase and a quantity increase, despite no change in the supply curve.
Example 2: A Shift in Supply
- Technological advancements in hybrid car production reduce costs and shift the supply curve to the right.
- Manufacturers are willing to provide more hybrid cars at lower prices.
- The price falls, and the quantity rises, despite no change in the demand curve.
Shifts in Supply and Demand: Music Downloads
- Analyze the effects on the market for music downloads due to factors like:
- A fall in the price of CDs.
- A reduction in royalties for music download sellers.
Shifts with Linear Supply and Demand
- The example analyzes the equilibrium changes when supply or demand curves are linear functions.
Demand Displacement
- This example examines how changes in a linear demand curve affect the equilibrium price and quantity.
Shift in Supply
- This example analyzes the effect of changes in a linear supply curve on the equilibrium price and quantity.
Summary
- Supply analysis focuses on fixed costs vs. variable costs.
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Description
Explore the concepts of short-term decisions in economics, focusing on supply analysis, equilibrium price, and quantity. This quiz covers the relationship between supply tables, curves, and how cost types (fixed and variable) affect decision-making. Test your knowledge on these essential economic principles.
