Economics > EXAM > California State University, San Marcos ECON 201 Quiz 3. All Answers With Explanation. For 100% Scor (All)

California State University, San Marcos ECON 201 Quiz 3. All Answers With Explanation. For 100% Score.

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California State University, San Marcos ECON 201 Quiz 3 1. Demand terminology Complete the following table by selecting the term that matches each definition. Definition Quantity Demanded Demand Cu... rve Demand Schedule Law of Demand The claim that, other things being equal, the quantity demanded of a good falls when the price of that good rises A table showing the relationship between the price of a good and the amount that buyers are willing and able to purchase at various prices The amount of a good that buyers are willing and able to purchase at a given price A graphical representation of the relationship between the price of a good and the amount of the good that buyers are willing and able to purchase at various prices Points: 1 / 1 Apply your understanding of the previous key terms by completing the following scenario with the appropriate terminology. Your boss would like your help on a marketing research project she is conducting on the relationship between the price of juice and the quantity of juice demanded. He hands you the following document: Price of Juice Quantity of Juice Demanded (Dollars per can) (Billions of cans) 0.50 2,000 0.75 1,500 1.00 1,000 1.25 750 Your task is to take this demand schedule and construct a graphical representation of the data. In doing so, you determine that as the price of juice rises, the quantity of juice demanded decreases. This confirms the law of demand Points: 1 / 1 Close Explanation This indicates that the quantity of juice demanded falls when the price of juice rises, also known as the law of demand. 2. Individual and market demand Suppose that Charles and Dina are the only consumers of pizza slices in a particular market. The following table shows their annual demand schedules: Price Charles's Quantity Demanded Dina's Quantity Demanded (Dollars per slice) (Slices) (Slices) 1 40 80 2 25 60 3 15 40 4 5 30 5 0 20 On the following graph, plot Charles's demand for pizza slices using the green points (triangle symbol). Next, plot Dina's demand for pizza slices using the purple points (diamond symbol). Finally, plot the market demand for pizza slices using the blue points (circle symbol). Points: 1 / 1 Price Charles's Qty Demanded + Dina's Qty Demanded = Market Qty Demanded ($ per slice) (Slices) (Slices) (Slices) 1 40 80 120 2 25 60 85 3 15 40 55 4 5 30 35 5 0 20 20 Visually, this corresponds to a horizontal summation of the demand curves. In other words, although each point on an individual's demand curve refers to a price and a quantity, it's best to think of that point as the quantity the individual would buy at that price rather than as the price the individual would be willing to pay for that quantity. Therefore, to find the total quantity demanded in a market at a given price, add up the quantity demanded by each individual at that price—that is, you add the horizontal component of each point on each individual's demand curve. 3. Determinants of demand The following calculator shows the demand curve for sedans (for example, Toyota Camrys or Honda Accords) in New York City. For simplicity, assume that all sedans are identical and sell for the same price. Initially, the calculator shows market demand under the following circumstances: Average household income is $50,000 per year, the price of a gallon of regular unleaded gas is $4 per gallon, and the price of a subway ride is $2.00. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. Graph Input Tool Demand for Sedans Price of a sedan (Thousands of dollars) Quantity Demanded (Sedans per month) Demand Shifters Average Income (Thousands of dollars) Price of Gas (Dollars per gallon) Price of a Subway Ride (Dollars) Consider the graph. Suppose that the price of a sedan decreased from $20,000 to $15,000. This would cause a movement along the demand curve. Points: 1 / 1 Close Explanation A decrease in average income causes a leftward shift of the demand curve; therefore, you may conclude that sedans are a normal good. (Hint: Try substituting different values for Average Income in the calculator and observing what happens.) Points: 1 / 1 Suppose that the price of a gallon of gas falls from $4 to $3. Because sedans and gasoline are complements , a decrease in the price of a gallon of gas shifts the demand curve for sedans to the right . Points: 1 / 1 Close Explanation Attempts:3-- Highest: 3 / 3 Try Another Version 4. Individual and market supply Suppose that Manuel and Poornima are the only suppliers of pizza slices in a particular market. The following table shows their annual supply schedules: Price Manuel's Quantity Supplied Poornima's Quantity Supplied (Dollars per slice) (Slices) (Slices) 1 0 20 2 20 35 3 30 45 4 35 50 5 40 55 On the following graph, plot Manuel's supply of pizza slices using the green points (triangle symbol). Next, plot Poornima's supply of pizza slices using the purple points (diamond symbol). Finally, plot the market supply of pizza slices using the orange points (square symbol). Points: 1 / 1 Price Manuel's Qty Supplied + Poornima's Qty Supplied = Market Qty Supplied (Dollars per slice) (Slices) (Slices) (Slices) 1 0 20 20 2 20 35 55 3 30 45 75 4 35 50 85 5 40 55 95 Attempts:1-- Highest: 1 / 1 Try Another Version 5. A change in supply versus a change in quantity supplied The following calculator shows the supply curve for sedans in an imaginary market. For simplicity, assume that all sedans are identical and sell for the same price. Two factors that affect the supply of sedans are the level of technical knowledge—in this case, the speed with which manufacturing robots can fasten bolts, or robot speed—and the wage rate that auto manufacturers must pay their employees. Initially, the graph shows the supply curve when robots can fasten 2,500 bolts per hour and autoworkers earn $25 per hour. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. Created with Raphaël 2.1.2010020030040050060070080090050403020100PRICE (Thousands of dollars)QUANTITY (Sedans per month)Supply Created with Raphaël 2.1.2 Graph Input Tool Supply for Sedans Price of a Sedan (Thousands of dollars) Quantity Supplied (Sedans per month) SUPPLY SHIFTERS Robot Speed (Bolts per hour) Autoworker Wage (Dollars per hour) Consider the previous graph. Suppose that the price of a sedan increases from $26,000 to $31,000. This would cause the quantity supplied of sedans to increase, which is reflected on the graph by a movement along the supply curve. Points: 1 / 1 Following a technological improvement—for example, an increase in the speed with which robots can attach bolts to cars—there is a leftward shift of the supply curve because the technological improvement makes cars more expensive to build . Points: 0 / 1 Close Explanation If technology improves, more goods can be produced with the same number of inputs. In this case, faster robots produce more automobiles each month, which results in a higher quantity supplied at each price. Graphically, an increase in quantity at every price (as opposed to an increase due to a change in price) is shown as a rightward shift of the supply curve. 6. Shifts in supply or demand I The following graph shows the market for cereal in Philadelphia, where there are over a thousand stores that sell cereal at any given moment. Suppose the municipal government, in an attempt to attract new residents, issues $1,000 move-in vouchers to each new household that moves to Philadelphia. As a result, many new families move into the city. Show the effect of this change on the market for cereal by shifting one or both of the curves on the following graph, holding all else constant Points: 1 / 1 Factors Affecting Supply • Price of inputs • Production technology • Number of producers • Expectations of producers 7. Shifts in supply or demand II The following graph shows the market for hamburgers in San Francisco, where there are over a thousand burger joints at any given moment. Suppose the number of burger joints decreases significantly. Show the effect of this change on the market for hamburgers by shifting one or both of the curves on the following graph, holding all else constant. Points: 1 / 1 Factors Affecting Demand • Price of a related good (complement or substitute) • Income of consumers • Tastes of consumers • Number of consumers • Expectations of consumers 8. Market equilibrium The following table shows the weekly demand and supply in the market for shoes in Detroit. Price Quantity Demanded Quantity Supplied (Dollars per pair of shoes) (Pairs of shoes) (Pairs of shoes) 20 1,100 200 40 900 400 60 800 500 80 600 900 100 500 1,200 Based on the preceding table, plot the demand for shoes on the following graph using the blue points (circle symbol). Next, plot the supply of shoes using the orange points (square symbol). Finally, use the black point (cross symbol) to indicate the equilibrium price and quantity in the market for shoes. 9. Market equilibrium and disequilibrium The following graph shows the monthly demand and supply curves in the market for teapots. Use the graph input tool to help you answer the following questions. Enter an amount into the Price field to see the quantity demanded and quantity supplied at that price. You will not be graded on any changes you make to this graph. Graph Input Tool Market for Teapots Price (Dollars per teapot) Quantity Demanded (Teapots) Quantity Supplied (Teapots) The equilibrium price in this market is $30 per teapot, and the equilibrium quantity is 500 teapots bought and sold per month. Points: 1 / 1 Close Explanation Complete the following table by indicating at each price whether there is a shortage or surplus in the market, the amount of that shortage or surplus, and whether this places upward or downward pressure on prices. Price Shortage or Surplus Shortage or Surplus Amount Pressure (Dollars per teapot) (Teapots) 42 Surplus • 700 Downward • 18 Shortage • 700 Upward • Points: 1 / 1 At a price of $42 per teapot, consumers demand 300 teapots per month, but producers supply 1,000 teapots per month. Therefore, supply exceeds demand by 700 teapots per month. Because producers want to sell more teapots than consumers are willing to buy at that price, there will be a surplus (excess supply) of teapots, and sellers will start lowering prices to sell off their excess inventory. Thus, the surplus (excess supply) will put downward pressure on the price of a teapot, causing it to fall. 10. Determining consumers' and producers' surplus Identify whether each statement in the following table best illustrates the concept of consumers’ surplus, producers’ surplus, or neither. Statement Consumers’ Surplus Producers’ Surplus Neither I sold a jersey sweater for $32, even though I was willing to go as low as $23 in order to sell it. Even though I was willing to pay up to $46 for a used textbook, I bought a used textbook for only $37. A local store was having a sale on laptops, so I bought a used laptop for my brother. The remaining statement about laptops does not illustrate the concept of either consumers’ surplus or producers’ surplus. 11. Equilibrium in terms of consumers' and producers' surplus The following graph shows supply and demand in the market for computer keyboards. Use the black point (cross symbol) to indicate the equilibrium price and quantity of computer keyboards. Then use the green point (triangle symbol) to fill the area representing consumers’ surplus, and use the purple point (diamond symbol) to fill the area representing producers’ surplus. Points: 1 / 1 Total surplus in this market is $6,300,000,000 . Consumers’ surplus=1/2 x Base x Height =1/2x 700million keyboards x $90 per keyboard =1/2x $6.3million =$3.15billion Producers’ surplus=1/2 x Base x Height =1/2x 700million keyboards x $90 per keyboard =1/2x $6.3million =$3.15billion Therefore, total surplus equals $3.15 billion +$3.15 Billion = $6.3billion 12. A supply and demand puzzle The following graph shows the market for roses in 2010. Between 2010 and 2011, the equilibrium quantity of roses remained constant, but the equilibrium price of roses increased. From this, you can conclude that between 2010 and 2011, the supply of roses decreased , and the demand for roses increased . Points: 1 / 1 Adjust the graph to illustrate your answer by showing the positions of the supply and demand curves in 2011. Effects of Shifts in Demand or Supply on Equilibrium No Change in Supply Increase in Supply Decrease in Supply No Change in Demand P and Q unchanged P ↓, Q ↑ P ↑, Q ↓ Increase in Demand P ↑, Q ↑ P ?, Q ↑ P ↑, Q ? Decrease in Demand P ↓, Q ↓ P ↓, Q ? P ?, Q ↓ (Note: The ↑ (up arrow) indicates that the equilibrium object increases; the ↓ (down arrow) indicates that it decreases; and the ? (question mark) indicates that the direction of the change is unknown.) 13. Another supply and demand puzzle The market price of hamburgers in a college town increased recently, and the students in an economics class are debating the cause of the price increase. Some students suggest that the price increased because several burger joints in the area have recently gone out of business. Other students attribute the increase in the price of hamburgers to a recent decrease in the price of french fries. Everyone agrees that the decrease in the price of french fries was caused by a recent decrease in the price of potatoes, which are not generally used in making hamburgers. The first group of students thinks the increase in the price of hamburgers is due to the fact that several burger joints in the area have recently gone out of business. On the following graph, adjust the supply and demand curves to illustrate the first group’s explanation for the increase in the price of hamburgers. The second group of students attributes the increase in the price of hamburgers to the decrease in the price of french fries. On the following graph, adjust the supply and demand curves to illustrate the second group’s explanation for the increase in the price of hamburgers Suppose that both of the causes suggested by the students are partly responsible for the increase in the price of hamburgers. Based on your analysis of the explanations offered by the two groups of students, how would you figure out which of the possible causes is the dominant cause of the increase in the price of hamburgers? If the equilibrium quantity of hamburgers increases, then the supply shift in the market for hamburgers must have been larger than the demand shift. If the equilibrium quantity of hamburgers increases, then the demand shift in the market for hamburgers must have been larger than the supply shift. If the price increase was small, then the supply shift in the market for hamburgers must have been larger than the demand shift. Whichever change occurred first must have been the primary cause of the change in the price of hamburgers. Points: 1 / 1 When demand and supply shift in opposite directions, the change in price is clear, but the quantity shift is determined by which curve moves more. The following graphs both illustrate an increase in demand and a decrease in supply—causing the equilibrium price to increase—but the magnitudes of the shifts vary, causing different results for the change in the equilibrium quantity: Created with Raphaël 2.1.2Supply Shift DominatesPRICE (Dollars per hamburger)QUANTITY (Hamburgers)D1 D2 S1 S2 Created with Raphaël 2.1.2 Created with Raphaël 2.1.2Demand Shift DominatesPRICE (Dollars per hamburger)QUANTITY (Hamburgers)D1 D2 S1 S2 Created with Raphaël 2.1.2 [Show More]

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