Exam 2: Market Forces: Demand and Supply

Consider the market for two goods that are substitutes, such as pens and pencils. If a technological breakthrough reduced the cost of producing pens: a. What would happen to the supply of pens? b. What would happen to the price of pens and the quantity exchanged? c. What effect would this change in the price of pens have on the market for pencils?

Given a linear supply function of the form Q_X^S = 3,000 + 3P_X - 2P_r - P_w, find the inverse linear supply function assuming P_r = $1,000 and P_w = $100.

In the early part of 1998, crude oil prices fell to a nine-year low at $13.28 a barrel. Falling crude oil prices were due in part to technological advances that made locating reservoirs and extraction cheaper. What impact will these lower crude oil prices have on the price of gasoline?

If the price of an input rises, producers are willing to produce

Firms advertise in order to cause the demand for their products to

Which of the following statements is incorrect?

An excise tax shifts the supply curve

Suppose you are an aide to a U.S. Senator who is concerned about the impact of a recently proposed excise tax on the welfare of her constituents. You explained to the Senator that one way of measuring the impact on her constituents is to determine how the tax change affects the level of consumer surplus enjoyed by the constituents. Based on your arguments, you are given the go-ahead to conduct a formal analysis, and obtain the following estimates of demand and supply: . a. Graph the supply and demand curves. b. What are the equilibrium quantity and equilibrium price? c. How much consumer surplus exists in this market? d. If a $2 excise tax is levied on this good, what will happen to the equilibrium price and quantity? e. What will the consumer surplus be after the tax?

Consider a market characterized by the following demand and supply conditions: P_X = 50 - 5Q_X and P_X = 32 + Q_X. The equilibrium price and quantity are, respectively,

Other things held constant, the higher the price of a good

A change in income will not lead to:

Consider a market characterized by the following inverse demand and supply functions: P_X = 10 - 2Q_X and P_X = 2 + 2Q_X. Compute the surplus producers receive when an $8 per unit price floor is imposed on the market.

The law of demand states that if the price of a good falls and all other things remain the same, the

Jane pays the market price of $69 for a new pair of running shoes, even though she would be happy to pay a maximum of $100 for the same pair of shoes. This is an example of the concept of

You are the manager of a car dealership that sells luxury automobiles, which are normal goods. Although a recession is expected next year, you expect your clients' incomes to increase over the coming year. What will you do about ordering cars for next year as compared to last year? Why?

An increase in the price of steak will probably lead to:

Advertising provides consumers with information about the underlying existence or quality of a product. These types of advertising messages are called

You are an aide for the Senate Banking Committee Chairman. He comes to you with a bill that proposes setting limits on what ATM owners can charge nonaccount holders, over and above what banks charge their own customers. Currently, large banks charge noncustomers an average fee of $1.35 per transaction in addition to the fees the customer's own bank imposes. The Senator asks you to look at a proposal that would place a $0.50 cap on the fees ATM owners can charge noncustomer for accessing their money. If this legislation is enacted, what would be the likely effects?

The demand for your product has been estimated to be . The relevant price and income data are as follows: . a. Which goods are substitutes for X? Which are complements? b. Is X an inferior or a normal good? c. How much X will be purchased? d. Graph the demand curve for X given the above information. e. How will the demand curve change if M falls to 35,000?

Demand shifters do not include