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213 Cards in this Set
- Front
- Back
The forces that make market economies work are
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demand and supply
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Which of the following are the words most commonly used by economists?
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supply and demand
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In a market economy,
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supply and demand determine prices and, in turn, prices allocate scarce resources.
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In a market economy, supply and demand are important because they
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1. play a critical role in the allocation of the economy’s scarce resources
2. determine how much of each good gets produced 3. can be used to predict the impact on the economy of various events and policies |
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A market is a
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group of buyers and sellers of a particular good or service
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For a market for a good or service to exist,
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there must be a group of buyers and sellers
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The term market always refers to
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a group of buyers and sellers of a particular good or service
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A group of buyers and sellers of a particular good or service is called a
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market
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A market is always characterized by
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the presence of buyers and sellers
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Which of the following statements is correct?
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Buyers determine demand and sellers determine supply
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For each good produced in a market economy, the interaction of demand and supply determines
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both the price of the good and the quantity of the good
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A competitive market is a market in which
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no individual buyer or seller has any significant impact on the market price
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The demand for a good or service is determined by
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those who buy the good or service
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A competitive market is one in which
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there are so many buyers and so many sellers that each has a negligible impact on the price of the product
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In a competitive market
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each seller has a limited degree of control over the price of his product
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In a competitive market, each seller has limited control over the price of his product because
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other sellers are offering similar products
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Most markets in the economy are
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highly competitive
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For a competitive market, which of the following statements is correct?
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If a seller charges more than the going price, buyers will go elsewhere to make their purchases
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Assume Teresa buys computers in a competitive market. Then
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None of the above is correct
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The highest form of competition is called
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perfect competition
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Which of the following is not a characteristic of a perfectly competitive market?
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1. Different sellers sell identical products
2. There are many sellers 3. Sellers must accept the price the market determines |
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Which of the following is not a characteristic of a perfectly competitive market?
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Sellers possess market power
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The term price takers refers to buyers and sellers in
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perfectly competitive markets
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Buyers and sellers who have no influence on market price are referred to as
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price takers
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Price takers have no influence over prices in markets that feature
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numerous buyers and numerous sellers
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An example of a perfectly competitive market would be the
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soybean market
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The market for ice cream is
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a competitive market
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If a seller in a competitive market chooses to charge more than the market price, then
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buyers will tend to make purchases from other sellers
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If buyers and sellers in a certain market are price takers, then individually
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they have no influence on market price
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A monopoly is a market
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with one seller, and that seller sets the price
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Which of the following would most likely serve as an example of a monopoly?
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a local cable television company
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Despite the fact that not all markets are perfectly competitive, the study of perfect competition is worthwhile, in part because
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some degree of competition is present in most markets, not just in perfectly competitive markets
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To say that the quantity demanded of a good is negatively related to the price of the good is to say that
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an increase in the price of the good leads to a decrease in the quantity demanded of the good
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Quantity demanded falls as the price rises and rises as the price falls, so we say that
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quantity demanded is negatively related to the price
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The negative relationship between price and quantity demanded
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1. applies to most goods in the economy
2. is represented by a downward-sloping demand curve 3. is referred to as the law of demand |
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Which of the following would not be a determinant of the demand for a particular good?
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the prices of the inputs used to produce the good
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Each of the following is a determinant of demand except
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technology
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The amount of the good buyers are willing and able to purchase is called the
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quantity demanded
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If a good is normal, then an increase in income will result in
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an increase in the demand for the good
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If Francis experiences a decrease in his income, we would expect that, as a result, Francis’s demand for
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normal goods will decrease
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You lose your job and as a result you buy fewer romance novels. This shows that you consider romance novels to be a(n)
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normal good
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Currently you purchase 6 packages of hot dogs a month. You will graduate from college in December and you will start a new job in January. You have no plans to purchase hot dogs in January. For you, hot dogs are
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an inferior good
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Two goods are substitutes if a decrease in the price of one good
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decreases the demand for the other good
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Two goods are complements if a decrease in the price of one good
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increases the demand for the other good
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A likely example of complementary goods for most people would be
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hamburgers and French fries
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A likely example of substitute goods for most people would be
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pencils and pens
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Which of the following statements about people’s tastes is correct?
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Generally, economists are interested in how changes in people’s tastes affect markets
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When it comes to people's tastes, economists generally believe that
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tastes are based on historical and psychological forces
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Economists in general
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do not try to explain people's tastes, but they do try to explain what happens when tastes change
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Suppose today people change their expectations about the future. This change in expectations
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can affect today’s demand
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You love peanut butter. You hear on the news that 50 percent of the peanut crop in the South has been w
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your demand for peanut butter increases today
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Ford Motor Company announces that it will offer $3,000 rebates on new Mustangs starting next month. As a result of this information, today’s demand curve for Mustangs
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shifts to the left
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Suppose you like to make, from scratch, pies filled with banana cream and vanilla pudding. You notice that the price of bananas has increased. How would this price increase affect your demand for vanilla pudding?
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It would decrease
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Alyssa rents 5 movies per month when the price is $3.00 per rental and 7 movies per month when the price is $2.50 per rental. Alyssa’s demand demonstrates the law of
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demand
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According to the law of demand,
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price and quantity demanded are negatively related
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The law of demand says that
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an increase in price causes quantity demanded to decrease
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Which of the following demonstrates the law of demand?
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Dave buys more donuts at $0.25 per donut than at $0.50 per donut, other things equal
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A downward-sloping demand curve reflects
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the law of demand
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The negative relationship between price and quantity demanded
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1. applies to most goods in the economy
2. is represented by a downward-sloping demand curve 3. is referred to as the law of demand |
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A higher price for batteries would result in a(n)
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decrease in the demand for flashlights
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If a decrease in income increases the demand for a good, then the good is
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an inferior good
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Which of the following is not a determinant of demand?
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the price of a resource that is used to produce the good
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What will happen in the rice market if buyers are expecting higher rice prices in the near future?
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The demand for rice will increase
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A table that shows the relationship between the price of a good and the quantity demanded of that good is called a(n)
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demand schedule
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A demand schedule is a table showing the relationship between
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price and quantity demanded
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A demand schedule is a table showing the relationship between
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price and quantity demanded, and those quantities are usually negatively related
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With respect to the variables price and quantity demanded,
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price is the independent variable and quantity demanded is the dependent variable
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When constructing a demand curve,
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price is on the vertical axis and quantity demanded is on the horizontal axis
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The line that relates the price of a good to the quantity demanded of that good is called the
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demand curve, and it usually slopes downward
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The line that relates the price of a good to the quantity demanded of that good is called the
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demand curve, and it slopes downward as long as the good in question conforms to the law of demand
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A downward-sloping demand curve illustrates the
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law of demand
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The demand curve for a good is
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a line that relates the price to quantity demanded
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When we move along a given demand curve,
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all nonprice determinants of demand are held constant
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Which of the following changes would not shift the demand curve for a good or service?
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a change in the price of the good or service
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Which of the following would not affect an individual's demand curve?
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the number of buyers
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When the number of buyers in a market increases,
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1. the market demand curve shifts to the right
2. the demand curves of the individual demanders in the market are unaffected 3. the market demand for the good in question increases |
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If the number of buyers in the market decreases, the
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market demand will decrease
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When the law of demand applies to a good, then
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1. the quantity demanded of the good is negatively related to the price of the good
2. the demand curve for the good slopes downward 3. when the price of the good falls, the quantity demanded of the good rises |
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The market demand curve
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represents the sum of the quantities demanded by all the buyers at each price of the good
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. Suppose Spencer and Kate are the only two demanders of lemonade. Each month, Spencer buys six glasses of
lemonade when the price is $1.00 per glass, and he buys four glasses when the price is $1.50 per glass. Each month, Kate buys four glasses of lemonade when the price is $1.00 per glass, and she buys two glasses when the price is $1.50 per glass. Which of the following points is on the market demand curve? |
(quantity demanded = 10, price = $1.00)
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An increase in demand is represented by
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a rightward shift of a demand curve
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Pizza is a normal good if
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the demand for pizza rises when income rises
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Today's demand curve for gasoline could shift in response to
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a change in the expected future price of gasoline
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Which of the following events could shift the demand curve for gasoline to the left?
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Public service announcements are run on television, encouraging people to walk or ride bicycles instead of
driving cars |
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The sum of all individual demand curves for a product is called
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market demand
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The market demand is
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the sum of all individual demands
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To find the market demand for a product, individual demand curves are summed
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horizontally
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A market demand curve
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is derived by a horizontal summation of individual demand curves
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A market demand curve represents
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how much of a good all buyers are willing and able to buy at each possible price
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Suppose the American Medical Association announces that men who shave their heads are less likely to die of heart failure. We could expect the current demand for
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razors to increase
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Suppose scientists provide evidence to the effect that chocolate pudding increases cholesterol. We would expect to see
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a decrease in the demand for chocolate pudding
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If buyers today become more willing and able than before to purchase larger quantities of Vanilla Coke at each price of Vanilla Coke,
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the demand curve for Vanilla Coke will shift to the right
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Once the demand curve for a product or service is drawn, it
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can shift either rightward or leftward
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Once the demand curve for a product or service is drawn, it
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can shift either rightward or leftward.
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When the price of a good or service changes,
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there is a movement along a given demand curve
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Suppose that Carolyn receives a pay increase. We would expect
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Carolyn's demand for inferior goods to decrease
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Nancy likes pasta today more than she did yesterday. This fact leads us to conclude that
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Nancy is now willing to pay more than before for pasta at each relevant price of pasta
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A very hot summer in Atlanta will cause
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the demand for jackets to decrease
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If a study by medical researchers found that brown sugar caused weight loss while white sugar caused weight gain
we likely would see |
an increase in demand for brown sugar and a decrease in demand for white sugar
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Warrensburg is a small college town in Missouri. At the end of August each year, the market demand for fast food in Warrensburg
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increases
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Which of these statements best represents the law of demand?
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When the price of a good falls, buyers respond by purchasing more of the good
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An increase in the number of college scholarships issued by private foundations would
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increase the demand for education
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When quantity demanded decreases at every possible price, we know that the demand curve has
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shifted to the lef
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When quantity demanded has increased at every price, it might be because
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the price of a complementary good has decreased
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The demand curve for textbooks shifts
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when a determinant of the demand for textbooks other than the price of textbooks changes
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The demand curve for hot dogs
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does not shift when the price of hot dogs changes, because the price of hot dogs is measured on the vertical axis
of the graph |
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Most studies indicate that tobacco and marijuana tend to be
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complements
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The belief that tobacco is a “gateway drug” is consistent with
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most of the available evidence
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For teens, a 10 percent increase in the price of cigarettes leads to a
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12 percent drop in teenage smoking
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For which of the following groups of people does a 10 percent increase in the price of cigarettes lead to a decrease in the quantity demanded of cigarettes that exceeds 10 percent?
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teenagers
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The side of the market that deals with the willingness and ability to produce and sell is
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supply
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The relationship between price and quantity supplied is
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positive
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According to the law of supply,
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the supply curve for a good is upward-sloping
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Which of the following events would cause a movement upward and to the right along the supply curve for
tomatoes? |
The price of tomatoes rises
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A decrease in the supply of televisions is represented by
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a leftward shift of the supply curve for televisions
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Which of the following events could cause an increase in the supply of ceiling fans?
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The number of sellers of ceiling fans increases
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Other things equal, when the price of a good rises, the
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quantity supplied of the good increases
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If the price of a good is low,
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the quantity supplied of the good could be zero
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The supply schedule is a table that shows the relationship between
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price and quantity supplied
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The difference between a supply schedule and a supply curve is that
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a supply schedule is a table and a supply curve is drawn on a graph
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A market supply curve is determined by
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horizontally summing individual supply curves
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The market supply curve shows
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the total quantity supplied at all possible prices
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For a seller, which of the following quantities are not positively related?
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the seller's profit and production costs
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The positive relationship between price and quantity supplied is called
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the law of supply
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The supply of a good is negatively related to the
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price of inputs used to make the good
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“Other things equal, when the price of a good rises, the quantity supplied of the good rises also.” This is a
statement of the law of |
supply
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If the number of sellers in a market increases, the
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supply in that market will increase
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A decrease in the number of sellers in the market causes
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the supply curve to shift to the left
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Which of the following is a determinant of market supply curve but not a determinant of an individual seller’s
supply? |
the number of sellers
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A movement along the supply curve might be caused by a change in
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the price of the good or service that is being supplied
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Lead is an important input in the production of crystal. If the price of lead decreases, other things equal, we would
expect the supply of |
crystal to increase
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Suppose you make jewelry. If the price of gold falls, we would expect you to
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be willing and able to produce more jewelry than before at each possible price
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A technological advance will shift the
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supply curve to the right
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An advance in production technology will
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shift the supply curve to the right, but the demand curve will be unaffected
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A dress manufacturer recently has come to expect higher prices for dresses in the near future. We would expect
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the dress manufacturer to supply fewer dresses now than it was supplying previously
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Holding the nonprice determinants of supply constant, a change in price would
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result in a movement along a stationary supply curve
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A supply curve slopes upward because
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an increase in price gives producers an incentive to supply a larger quantity
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Which of the following events could shift both the demand curve and the supply curve for a good?
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Everyone revises upward their expectation of next month’s price of the good
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An increase in the price of rubber coincides with an advance in the technology of tire production. As a result of these two events,
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none of the above is necessarily correct
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In a market, to find the total amount supplied at a particular price,
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we must add up all of the amounts that firms are willing and able to supply at that price
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When we compare an increase in supply with an increase in quantity supplied, we know that
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both are always caused by a change in the number of market participants
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A leftward shift of a supply curve is called
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a decrease in supply
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Workers at a bicycle assembly plant currently earn the mandatory minimum wage. If the federal government
increases the minimum wage by $1.00 an hour it is likely that the |
supply of bicycles will shift to the lef
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If car manufacturers begin utilizing new labor-saving technology on their assembly lines, we would not expect
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individual car manufacturers to move up and to the right along their individual supply curves
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Recent forest fires in the western states are expected to cause the price of lumber to rise in the next 6 months. As a
result we can expect the supply of lumber to |
fall now
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If suppliers expect the price of their product to fall in the future they will
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increase supply now
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Funsters, Inc., the largest toy company in the country, sells its most popular doll for $15. It has just learned that its leading competitor Toysorama is mass producing an excellent copy and plans to flood the market with their $5 doll in 6 weeks. Funsters should
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increase the supply of their doll now before the other doll hits the market
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Suppose there is an increase in steel prices. We would expect the supply curve for steel barrels
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to shift leftward
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Suppose there is an increase in steel prices. We would expect the supply curve for steel barrels
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to shift leftward
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An increase in the price of a good would
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give producers an incentive to produce more
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A decrease in the price of a good would
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increase the quantity demanded of the good
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Wheat is the main input in the production of flour. If the price of wheat decreases, all else equal, we would expect
the |
supply of flour to increase
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An increase in the price of oranges would lead to
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a movement up and to the right along the supply curve for oranges
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The unique point at which the supply and demand curves intersect is called
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equilibrium
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The dictionary defines equilibrium as a situation in which forces
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balance
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The price at which quantity supplied equals quantity demanded is called the
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equilibrium price
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Another term for equilibrium price is
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market-clearing price
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If, at the current price, there is a shortage of a good,
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the price is below the equilibrium price
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A decrease in input costs to firms in a market will result in
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a decrease in equilibrium price and an increase in equilibrium quantity
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In markets, prices move toward equilibrium because of
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the actions of buyers and sellers
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When the price of a good is higher than the equilibrium price,
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sellers desire to produce and sell more than buyers wish to purchase
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Suppose roses are currently selling for $40.00 per dozen, while the equilibrium price of roses is $30.00 per dozen. We would expect a
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surplus to exist and the market price of roses to decrease
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A surplus exists in a market if
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the current price is above its equilibrium price
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If a surplus exists in a market we know that the actual price is
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above equilibrium price and quantity supplied is greater than quantity demanded
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If excess demand exists in a market we know that the actual price is
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below equilibrium price and quantity demanded is greater than quantity supplied
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Step one in the Three-Step program for analyzing changes in equilibrium is as follows:
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Decide whether the event shifts the supply or demand curve
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You have been asked by your economics professor to graph the market for lumber and then to analyze the change that would occur in equilibrium price as a result of recent forest fires in the west. Your first step would be to
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decide whether the fires affected demand or supply
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Suppose there is an earthquake that destroys several corn canneries. Which of the following would not be a direct result of this event?
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Buyers would not be willing to buy as much as before at each relevant price
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If goods A and B are complements, then an increase in the price of good A will result in
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less of good B being sold
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Holding all other things constant, a higher price for ski lift tickets would
|
decrease the number of skis sold
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Which of the following events will definitely cause equilibrium quantity to fall?
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demand and supply both decrease
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If the demand for a product increases, we would expect
|
equilibrium price and equilibrium quantity both to increase
|
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If the demand for a product decreases, we would expect
|
equilibrium price and equilibrium quantity to both decrease
|
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If the supply of a product increases, we would expect
|
equilibrium price to decrease and equilibrium quantity to increase
|
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If the supply of a product decreases, we would expect
|
equilibrium price to increase and equilibrium quantity to decrease
|
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Suppose the number of buyers in a market increases and a technological advancement occurs also. What would we expect to happen in the market?
|
Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous
|
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Suppose that demand decreases and supply decreases. What would you expect to occur in the market for the good?
|
Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous
|
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Which of the following events would result in an increase in equilibrium price and an ambiguous change in equilibrium quantity?
|
a decrease in supply and an increase in demand
|
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Suppose that a decrease in the price of good X results in fewer units of good Y being sold. This implies that X and Y are
|
substitute goods
|
|
A weaker demand together with a stronger supply would necessarily result in
|
a lower price
|
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Which of the following events would cause the price of oranges to fall?
|
The price of land throughout Florida decreases, and Florida produces a significant proportion of the nation’s oranges
|
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Which of the following quantities would increase in response to a decrease in the price of ironing boards?
|
1. the quantity of irons demanded at each possible price of irons
2. the equilibrium quantity of irons 3. the equilibrium price of irons |
|
In a given market, how are the equilibrium price and the market-clearing price related?
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They are the same price
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The current price of neckties is $30 and the equilibrium price of neckties is $25. As a result,
|
1. the quantity supplied of neckties exceeds the quantity demanded of neckties at the $30 price
2. the equilibrium quantity of neckties exceeds the quantity demanded at the $30 price 3. There is a surplus of neckties at the $30 price. |
|
The law of supply and demand asserts that
|
the price of a good will eventually rise in response to an excess demand for that good
|
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Suppose buyers of computers and printers regard those two goods as complements. Then an increase in the price of computers will cause
|
a decrease in the demand for printers and a decrease in the quantity supplied of printers
|
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During the last few decades in the United States, health officials have argued that eating too much beef might be harmful to human health. As a result, there has been a significant decrease in the amount of beef produced. Which of the following best explains the decrease in production?
|
Individual consumers, concerned about their own health, decreased their demand for beef, which lowered the
relative price of beef, making it less attractive to produce |
|
What will happen to the equilibrium price and quantity of traditional camera film if traditional cameras become more expensive, digital cameras become cheaper, the cost of the resources needed to manufacture traditional film falls and more firms decide to manufacture traditional film?
|
Price will fall and the effect on quantity is ambiguous
|
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Which of the following events would result in an increase in equilibrium price and an ambiguous change in equilibrium quantity?
|
a decrease in supply and an increase in demand
|
|
Good X and good Y are substitutes. If the price of good Y increases, then the
|
demand for good X will increase
|
|
Suppose that a decrease in the price of good X results in fewer units of good Y being sold. This implies that X and Y are
|
substitute goods
|
|
When supply and demand both increase, equilibrium
|
price may increase, decrease, or remain unchanged
|
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If there is a shortage of farm laborers, we would expect
|
he wages of farm laborers to increase
|
|
Which of the following events would cause both the equilibrium price and equilibrium quantity of number two grade potatoes (an inferior good) to increase?
|
a decrease in consumer income
|
|
Which of the following events would unambiguously cause a decrease in the equilibrium price of cotton shirts?
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a decrease in the price of wool shirts and a decrease in the price of raw cotton
|
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What would happen to the equilibrium price and quantity of coffee if the wages of coffee-bean pickers fell and the price of tea fell?
|
Price will fall and the effect on quantity is ambiguous
|
|
New oak tables are normal goods. What would happen to the equilibrium price and quantity in the market for oak tables if the price of maple tables rises, the price of oak wood rises, more buyers enter the market for oak tables and the price of wood saws increased?
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Price will rise and the effect on quantity is ambiguous
|
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What will happen to the equilibrium price and quantity of new cars if the price of gasoline rises, the price of steel rises, public transportation becomes cheaper and more comfortable, and auto-workers negotiate higher wages?
|
Quantity will fall and the effect on price is ambiguous
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Music compact discs are normal goods. What will happen to the equilibrium price and quantity of music compact discs if musicians accept lower royalties, compact disc players become cheaper, more firms start producing music compact discs and music lovers experience an increase in income?
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Quantity will rise and the effect on price is ambiguous
|
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New cars are normal goods. What will happen to the equilibrium price of new cars if the price of gasoline rises, the price of steel falls, public transportation becomes cheaper and more comfortable, auto-workers accept lower wages and automobile insurance becomes more expensive?
|
Price will fall
|
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What will happen to the equilibrium price of new textbooks if more students attend college, paper becomes cheaper, textbook authors accept lower royalties and fewer used textbooks are sold?
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The price change will be ambiguous
|
|
Consider the market for new DVDs. If DVD players became cheaper, buyers expected DVD prices to fall next year, used DVDs became more expensive, and DVD production technology improved, then we could safely conclude that the equilibrium price of a new DVD would
|
We couldn't be sure what it might do
|
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What would happen to the equilibrium price and quantity of peanut butter if the price of peanuts went up, the price of jelly (a complementary good) fell, fewer firms decided to produce peanut butter, and health officials announced
that eating peanut butter was good for you? |
Price will rise and the effect on quantity is ambiguous
|
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Pens are normal goods. What will happen to the equilibrium price of pens if the price of pencils rises, consumers
experience an increase in income, writing in ink becomes fashionable, people expect the price of pens to rise in the near future, the population increases, fewer firms manufacture pens, and the wages of pen-makers increase? |
Price will rise
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Pens are normal goods. What will happen to the equilibrium price of pens if the price of pencils rises, consumers experience an increase in income, writing in ink becomes fashionable, people expect the price of pens to fall in the near future, the population increases, fewer firms manufacture pens, and the wages of pen-makers decrease?
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The price change will be ambiguous
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Beef is a normal good. You observe that both the equilibrium price and quantity of beef have fallen over time.
Which of the following explanations would be most consistent with this observation? |
New medical evidence has been released that indicates a negative correlation between a person’s beef consumption and his or her longevity
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Which of the following sets of events would most likely cause an increase in the price of a new house?
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higher wages for carpenters, higher wood prices, increases in consumer incomes, higher apartment rents, increases in population and expectations of higher house prices in the future
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Suppose that demand for a good increases and, at the same time, supply of the good decreases. What would happen in the market for the good?
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Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous
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Suppose the incomes of buyers in a market for a particular normal good decrease and there is also a reduction in input prices. What would we expect to occur in this market?
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The equilibrium price would decrease, but the impact on the amount sold in the market would be ambiguous
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Which of the following events would definitely result in a higher price in the market for Snickers?
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Demand for Snickers increases and supply of Snickers decreases
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An early frost in the vineyards of Napa Valley would cause
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a decrease in the supply of wine, increasing price
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The signals that guide the allocation of resources in a market economy are
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prices
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Which of these statements does not apply to market economies?
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Prices ensure that anyone who wants a product can get it
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