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Exam 3: The Market Forces of Supply and Demand

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Question 1

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If Coke and Pepsi are substitutes, an increase in the price of Coke will cause an increase in the equilibrium price and quantity bought and sold in the market for Pepsi.

A) True
B) False

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Question 2

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List at least five of the seven assumptions upon which the model of supply and demand is based.

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1. There are many buyers and sellers in ...

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Question 3

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Which of the following shifts the demand for watches to the right?

Consider a market in equilibrium. Firms who advertise in this market are attempting to shift the

Because there are many buyers and sellers in a perfectly competitive market, neither has any power to influence price. They are said to be price takers.

Suppose that a large dairy farmer is able to raise the market price of milk by withholding milk supply from the market. In this instance,

What determines the degree of competitiveness in a market?

Suppose a frost destroys much of the Florida orange crop. At the same time, suppose consumer tastes shift toward orange juice. What would we expect to happen to the equilibrium price and quantity in the market for orange juice?

A perfectly competitive market has

Explain why the relationship between price and quantity demanded is known as the 'law of demand'.

Explain the difference between these two statements. a. A rise in price leads to a decrease in quantity demanded. b. A rise in price is caused by an increase in demand.

If a drought destroyed half of the French garlic crop at a time when the health benefits of garlic were being well publicized, economists would expect that in the market for garlic

If the price of a good is equal to the equilibrium price,

a) Given the table below, graph the demand and supply curves for flashlights. Make certain to label the equilibrium price and equilibrium quantity. $\begin{array}{|c|c|c|}\hline \text { Price } & \begin{array}{c}\text { Quantity Demanded } \\\text { Per Month }\end{array} & \begin{array}{c}\text { Quantity Supplied } \\\text { Per Month }\end{array} \\\hline € 5 & 6,000 & 10,000 \\\hline € 4 & 8,000 & 8,000 \\\hline € 3 & 10,000 & 6,000 \\\hline € 2 & 12,000 & 4,000 \\\hline € 1 & 14,000 & 2,000 \\\hline\end{array}$ b) What is the equilibrium price and the equilibrium quantity? c) Suppose the price is currently €5. What problem would exist in the market? What would you expect to happen to price? Show this on your graph. d) Suppose the price is currently €2. What problem would exist in the market? What would you expect to happen to price? Show this on your graph.

An increase in the number of tomato producers will

Which of the following are most likely to be an inferior good?

When the price of a good is below the equilibrium price, it causes a surplus.

Refer to Table 3-1. Given this data, the equilibrium price and quantity of CD players are ? $\begin{array}{l}\text { Table 3-1 }\\\begin{array}{|l|l|l|}\hline & \text { QUANTITY } & \text { QUANTITY } \\\hline & \text { DEMANDED } & \text { SUPPLIED } \\\hline\underline { \text { PRICE }} & \underline {\text { (units per week) }} & \underline {\text { (units per week) }} \\\hline € 100 & 1000 & 100 \\\hline € 150 & 900 & 300 \\\hline € 200 & 800 & 500 \\\hline € 250 & 600 & 600 \\\hline € 300 & 300 & 650 \\\hline\end{array}\end{array}$ ?

In a market economy, supply and demand determine

Fill in the table below, showing whether equilibrium price and equilibrium quantity go up, go down, stay the same, or change ambiguously. $\begin{array}{|l|l|l|l|}\hline & \text { No Change in Supply } & \text { An Increase in Supply } & \text { A Decrease in Supply } \\\hline \begin{array}{l}\text { No Change in } \\\text { Demand }\end{array} & & & \\\hline \begin{array}{l}\text { An Increase in } \\\text { Demand }\end{array} & & & \\\hline \begin{array}{l}\text { A Decrease in } \\\text { Demand }\end{array} & & & \\\hline\end{array}$