Exam 3: Where Prices Come From: the Interaction of Demand and Supply

An increase in the quantity of a product supplied is caused by an increase in the price of the product.

As the number of firms in a market increases, the supply curve will shift to the right and the equilibrium quantity will rise.

What would happen in the market for knee replacement surgery if insurance companies started to cover a smaller portion of the cost of the surgery?

Figure 3-1 -Refer to Figure 3-1. If the product represented is an inferior good, a decrease in income would be represented by a movement from

Figure 3-8 -Refer to Figure 3-8. The graph in this figure illustrates an initial competitive equilibrium in the market for motorcycles at the intersection of D₂ and S₁ (point C). Which of the following changes would cause the equilibrium to change to point B?

If the price of prime rib falls, the income effect due to the price change will cause

If, in response to an increase in the price of pineapples, the quantity of pineapples demanded decreases, then economists would describe this as

Figure 3-2 -Refer to Figure 3-2. A decrease in the number of firms in the market would be represented by a movement from

Assume that the demand curve for MP3 players shifts to the right and the supply curve for MP3 players shift to the left, but the supply curve shifts more than the demand curve. As a result

According to the Australian Wool Innovation, severe drought conditions in Australia contributed to the lowest level of wool production in 50 years. This record low production has driven up prices sharply in Australian wool markets. Meanwhile, the price of raw cotton increased significantly for the first time in many years. a. Illustrate this observation with one demand and supply graph for the market for Australian wool and another demand and supply graph for raw cotton. b. Make sure that your graphs clearly show (1) the initial equilibrium before the decrease in the supply of Australian wool and (2) the final equilibrium. c. Use arrows to indicate any shifts in the demand and supply curves for each market. d. Label your graphs fully and write an explanation of your work.

A shortage is defined as the situation that exists when the quantity of a good supplied is greater than the quantity demanded.

Ranchers can raise either cattle or sheep on their land. Which of the following would cause the supply of sheep to increase?

Figure 3-1 -Refer to Figure 3-1. A decrease in the expected future price of the product would be represented by a movement from

It is possible for a market for a good to experience a surplus and a shortage at the same time.

Figure 3-1 -Refer to Figure 3-1. A decrease in the price of a substitute good would be represented by a movement from

If in the market for apples the supply has decreased, then

What is the ceteris paribus condition?

Which of the following is evidence of a surplus of bananas?

Table 3-3 -Refer to Table 3-3. The table above shows the demand schedules for Kona coffee of two individuals (Luke and Ravi) and the rest of the market. If the price of Kona coffee rises from $4 to $5, the market quantity demanded would

The substitution effect explains why there is an inverse relationship between the price of a product and the quantity of the product demanded.