Podcast
Questions and Answers
What happens to the equilibrium price when supply increases?
What happens to the equilibrium price when supply increases?
- It remains the same.
- It fluctuates unpredictably.
- It decreases. (correct)
- It increases significantly.
Which factor does NOT cause a shift in the supply curve?
Which factor does NOT cause a shift in the supply curve?
- Consumer Preferences (correct)
- Number of Sellers
- Technology
- Input Prices
In comparative statics, what is held constant while analyzing shifts in supply or demand?
In comparative statics, what is held constant while analyzing shifts in supply or demand?
- Ceteris paribus (correct)
- Government policies
- External market conditions
- The time of year
What is the effect on equilibrium quantity when demand increases?
What is the effect on equilibrium quantity when demand increases?
What does a rightward shift of the demand curve indicate?
What does a rightward shift of the demand curve indicate?
Which statement about the supply curve is FALSE?
Which statement about the supply curve is FALSE?
Which of the following is a determinant of the supply curve?
Which of the following is a determinant of the supply curve?
Which economic variables are primarily analyzed in comparative statics?
Which economic variables are primarily analyzed in comparative statics?
What is indicated by a leftward shift of the demand curve?
What is indicated by a leftward shift of the demand curve?
How does the increase in the price of a substitute good affect the demand for another good?
How does the increase in the price of a substitute good affect the demand for another good?
What is used to determine the effect of an event on equilibrium price and quantity?
What is used to determine the effect of an event on equilibrium price and quantity?
Which of the following does NOT cause a shift in the demand curve?
Which of the following does NOT cause a shift in the demand curve?
What happens to the demand for hybrid cars if the price of gas increases?
What happens to the demand for hybrid cars if the price of gas increases?
If there is a technological change causing a cost reduction, what type of shift results in the supply curve?
If there is a technological change causing a cost reduction, what type of shift results in the supply curve?
Which of the following factors does NOT directly impact demand?
Which of the following factors does NOT directly impact demand?
In terms of demand, what is the difference between a movement along the curve and a shift of the curve?
In terms of demand, what is the difference between a movement along the curve and a shift of the curve?
What happens to the supply of hybrid cars when the price of gas increases?
What happens to the supply of hybrid cars when the price of gas increases?
What effect does new technology reducing the cost of production have on the S curve for hybrid cars?
What effect does new technology reducing the cost of production have on the S curve for hybrid cars?
Which of the following best describes a shift in demand when prices are falling?
Which of the following best describes a shift in demand when prices are falling?
If both a fall in the price of CDs and a reduction in royalties occur, what is the expected effect on music downloads?
If both a fall in the price of CDs and a reduction in royalties occur, what is the expected effect on music downloads?
Which scenario would likely cause an increase in the demand for hybrid cars?
Which scenario would likely cause an increase in the demand for hybrid cars?
What is the immediate effect on the market for music downloads when some demanders prefer to buy physical CDs?
What is the immediate effect on the market for music downloads when some demanders prefer to buy physical CDs?
In the context of supply and demand, which of the following describes a movement along the supply curve?
In the context of supply and demand, which of the following describes a movement along the supply curve?
If the demand and supply curves both shift, which factor most directly describes price adjustment?
If the demand and supply curves both shift, which factor most directly describes price adjustment?
What is the effect on equilibrium price when demand shifts left while supply shifts right?
What is the effect on equilibrium price when demand shifts left while supply shifts right?
What happens to quantity supplied when supply shifts from $P = 10 + Q$ to $P = 5 + Q$?
What happens to quantity supplied when supply shifts from $P = 10 + Q$ to $P = 5 + Q$?
When the demand function becomes $P = 30 - Q$, what happens to the equilibrium quantity compared to the original demand of $P = 20 - Q$?
When the demand function becomes $P = 30 - Q$, what happens to the equilibrium quantity compared to the original demand of $P = 20 - Q$?
Which of the following represents a direct consequence of a simultaneous fall in the cost of royalties and the price of CDs?
Which of the following represents a direct consequence of a simultaneous fall in the cost of royalties and the price of CDs?
How do consumer surplus and producer profit change when moving from equilibrium 1 to equilibrium 2 in a demand shift?
How do consumer surplus and producer profit change when moving from equilibrium 1 to equilibrium 2 in a demand shift?
Which method is used to determine the effects of a supply shift on equilibrium price and quantity?
Which method is used to determine the effects of a supply shift on equilibrium price and quantity?
In the equilibrium calculations, what can lead to a decrease in equilibrium quantity?
In the equilibrium calculations, what can lead to a decrease in equilibrium quantity?
What is the result on equilibrium price when both curves shift simultaneously?
What is the result on equilibrium price when both curves shift simultaneously?
When calculating consumer surplus after a shift from $P = 20 - Q$ to $P = 30 - Q$, what key factor should be considered?
When calculating consumer surplus after a shift from $P = 20 - Q$ to $P = 30 - Q$, what key factor should be considered?
What does a decrease in the cost of royalties imply for the supply curve?
What does a decrease in the cost of royalties imply for the supply curve?
What defines a short-term decision in a business context?
What defines a short-term decision in a business context?
If variable costs for a product are $5, what is the reserve price for selling the product?
If variable costs for a product are $5, what is the reserve price for selling the product?
For a product with only fixed costs of $10 and no variable costs, what is the minimum price to accept?
For a product with only fixed costs of $10 and no variable costs, what is the minimum price to accept?
In comparing the supply between Session 1 and Session 2, which of the following changed?
In comparing the supply between Session 1 and Session 2, which of the following changed?
What is the equilibrium price (P1*) and quantity (Q1*) in the first scenario?
What is the equilibrium price (P1*) and quantity (Q1*) in the first scenario?
What does the shift in supply signify in relation to the equilibrium point?
What does the shift in supply signify in relation to the equilibrium point?
If the supply in Session 2 increased to 25 units, what could be inferred about market behavior?
If the supply in Session 2 increased to 25 units, what could be inferred about market behavior?
How is consumer surplus calculated in equilibrium?
How is consumer surplus calculated in equilibrium?
If seller profits were calculated as (15 x 15) - (15 x 10), what does this represent?
If seller profits were calculated as (15 x 15) - (15 x 10), what does this represent?
Which of the following is true about fixed costs?
Which of the following is true about fixed costs?
What impact does an increase in supply typically have on equilibrium price?
What impact does an increase in supply typically have on equilibrium price?
What characterizes the benefits of equilibrium for sellers?
What characterizes the benefits of equilibrium for sellers?
What happens when the reserve price is not met during a sale?
What happens when the reserve price is not met during a sale?
What does a downward shift in the supply curve generally indicate?
What does a downward shift in the supply curve generally indicate?
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.
