In following this handout, sketch appropriate graphs in the space provided.

Save this PDF as:
 WORD  PNG  TXT  JPG

Size: px
Start display at page:

Download "In following this handout, sketch appropriate graphs in the space provided."

Transcription

1 Dr. McGahagan Graphs and microeconomics You will see a remarkable number of graphs on the blackboard and in the text in this course. You will see a fair number on examinations as well, and many exam questions, even when not requiring you to use a graph, can best be answered by sketching one in your mind (or on the exam paper -- feel free to use the question sheets as scratch paper in any exam in this course). In following this handout, sketch appropriate graphs in the space provided. Graphs have several elements, and you will have to pay more careful attention to the details than you did in algebra, where the axes were always labeled "X" and "Y" and answers were always purely numerical. Axes - in economics, a graph is not complete without a label on each of its axes telling you what it measures. Production possibility frontier graphs have one possibility on the X-axis (for example, "Agricultural goods") and another on the Y-axis (e.g., "Industrial goods"). Supply and demand graphs have the quantity of the good produced on the X-axis and its price on the Y-axis. Sometimes one axis can stand for several variables at the same time -- the Y-axis can be used to measure price, cost of production, and the dollar value consumers place on a good, since all three are measured in dollars. Points - in economics, as in algebra, any point on the graph shows two things at once -- a single point on a production possibility graph may show 100 bushels of wheat and 20 automobiles. This point might be referred to as a production bundle. [sketch a straight-line production possibility frontier with the above production bundle. Remember to label your axes.]

2 A single point on a supply-demand graph can show price and quantity at the same time -- for example, the fact that 8 million shares of Amazon.com were traded today at an average price of 40 dollars a share. Illustrate that point below. Areas - Take the point mentioned above, showing that 8 million shares of Amazon.com were traded at $40 a share. What was the total amount spent on this stock? (8 x $ 40 = $320 million) How can we show this graphically? In measuring a room, width times length gives area; our graphical yardsticks (the axes of the supply-demand graph) are price and quantity, and price times quantity gives the total amount spent -- the revenue of the sellers, which is equal to the expenditure of the purchasers. We will find that other economically interesting quantities (including profit) show up as areas on graphs. [sketch the point showing the price-quantity combination for Amazon stock and shade in the area showing expenditure on the stock]

3 Lines - A line on a graph shows the relationship between the variables measured on the axis. As price goes up, the quantity demanded goes down -- this relation may be shown by a negatively sloped line on a graph. Lines show economic relationships in two ways: by their slope (how steep they are) and by their location. Slope shows how strongly two variables are located. A steeply sloped demand curve indicates that a big rise in price will only lead to a small decline in the quantity consumed; with a flat demand curve, there would be a big decline in the quantity consumed. Slope is measured by rise over run -- the change in the Y-axis variable divided by the change in the X-axis variable. It is closely related to the marginal concept previously mentioned -- if the Y-axis shows the quantity of output and the X-axis the quantity of labor input, then the slope of the line relating output and labor (the production function) shows the marginal product of labor. [draw a graph of the electric car market with P = $ 100,000 and Q = 8 thousand; don t add an area, but sketch in a steeply sloped demand curve, and then, with dashed lines, a flatter demand curve. What would happen to the quantity demanded if the price of the electric car dropped to $ 50,000 and the demand curve were steep? What if it were flat? Provide numbers so that you can calculate the exact change in quantity and compare it to the change in price].

4 Location. The location of lines on economic graphs can -- and very frequently does -- change. In fact, one of the main points in drawing graphs in economics is to enable one to think about the consequences of change. For example, the demand curve shows a negative relation between price and quantity demanded. But what happens if the incomes of consumers increase? The $ 100,000 for an electric automobile which looked prohibitively expensive may now be acceptable -- and in fact, people may wind up buying more even if the price is higher. Economists deal with this case by saying that the demand curve has shifted. Redraw your graph of the electric car market and show what will happen to the demand curve if incomes increase. (Use a dashed line for the new demand curve) It would even be possible for people to buy more at a higher price; for example, a price of $ 100,000 could correspond to a quantity of 10 thousand on the new demand curve.

5 Intersections. Often in economic graphs, two lines will cross, and the point of the crossing may be important economically. Supply curves cross demand curves at the point of equilibrium, where the quantity supplied equals the quantity demanded. Finding the intersection is just about the hardest bit of algebra we will encounter all term, and it is not really very hard. Suppose the supply curve is Qs = P This implies: 1. if price were zero, units would be supplied (at that price, people who were producers would turn into demanders) 2. the quantity supplied will increase by 2 for every dollar increase in price. Let the demand curve be Qd = P, which implies 1. If price were zero, 600 units would be demanded (it might be free, but storage could be a problem. Would you really take 600 cans of tuna fish even if they were free?) 2. The quantity demanded will decrease by 3 for every dollar increase in price. Where do the two curves cross? Obviously, at the point at which quantity supplied equals the quantity demanded: Qs = Qd at the intersection, so P = P substituting the right hand side of each equation. 5 P = 800 add 3 P to both sides, and add 200 to both sides. P = 160 is the equilibrium price To find the equilibrium quantity, substitute the equilibrium price into either the supply or the demand equation. Qs = (160) = 120. Qd = (160) = 120. Illustrate this supply-demand system below:

Law of Demand: Other things equal, price and the quantity demanded are inversely related.

Law of Demand: Other things equal, price and the quantity demanded are inversely related. SUPPLY AND DEMAND Law of Demand: Other things equal, price and the quantity demanded are inversely related. Every term is important -- 1. Other things equal means that other factors that affect demand

More information

Q D = 100 - (5)(5) = 75 Q S = 50 + (5)(5) = 75.

Q D = 100 - (5)(5) = 75 Q S = 50 + (5)(5) = 75. 4. The rent control agency of New York City has found that aggregate demand is Q D = 100-5P. Quantity is measured in tens of thousands of apartments. Price, the average monthly rental rate, is measured

More information

Table of Contents MICRO ECONOMICS

Table of Contents MICRO ECONOMICS economicsentrance.weebly.com Basic Exercises Micro Economics AKG 09 Table of Contents MICRO ECONOMICS Budget Constraint... 4 Practice problems... 4 Answers... 4 Supply and Demand... 7 Practice Problems...

More information

Economics 101 Fall 2011 Homework #3 Due 10/11/11

Economics 101 Fall 2011 Homework #3 Due 10/11/11 Economics 101 Fall 2011 Homework #3 Due 10/11/11 Directions: The homework will be collected in a box before the lecture. Please place your name, TA name and section number on top of the homework (legibly).

More information

ECONOMICS 1 Problem Set 1 Suggested Answers

ECONOMICS 1 Problem Set 1 Suggested Answers epartment of Economics rof. Kenneth Train University of California, Berkeley Fall 2011 1) a) ECONOMICS 1 roblem Set 1 Suggested Answers Grapes (thousands) 125 115 A B 95 C 70 40 E 0 0 200 400 600 800 1000

More information

Notes on indifference curve analysis of the choice between leisure and labor, and the deadweight loss of taxation. Jon Bakija

Notes on indifference curve analysis of the choice between leisure and labor, and the deadweight loss of taxation. Jon Bakija Notes on indifference curve analysis of the choice between leisure and labor, and the deadweight loss of taxation Jon Bakija This example shows how to use a budget constraint and indifference curve diagram

More information

LAW OF MARKET EQUILIBRIUM A free market, if out of equilibrium, tends toward equilibrium.

LAW OF MARKET EQUILIBRIUM A free market, if out of equilibrium, tends toward equilibrium. LAW OF MARKET EQUILIBRIUM A free market, if out of equilibrium, tends toward equilibrium. Free market = one in which prices and quantities are set by bargaining between fully informed buyers and sellers

More information

Example 1: Suppose the demand function is p = 50 2q, and the supply function is p = 10 + 3q. a) Find the equilibrium point b) Sketch a graph

Example 1: Suppose the demand function is p = 50 2q, and the supply function is p = 10 + 3q. a) Find the equilibrium point b) Sketch a graph The Effect of Taxes on Equilibrium Example 1: Suppose the demand function is p = 50 2q, and the supply function is p = 10 + 3q. a) Find the equilibrium point b) Sketch a graph Solution to part a: Set the

More information

AP Microeconomics Chapter 12 Outline

AP Microeconomics Chapter 12 Outline I. Learning Objectives In this chapter students will learn: A. The significance of resource pricing. B. How the marginal revenue productivity of a resource relates to a firm s demand for that resource.

More information

Chapter 27: Taxation. 27.1: Introduction. 27.2: The Two Prices with a Tax. 27.2: The Pre-Tax Position

Chapter 27: Taxation. 27.1: Introduction. 27.2: The Two Prices with a Tax. 27.2: The Pre-Tax Position Chapter 27: Taxation 27.1: Introduction We consider the effect of taxation on some good on the market for that good. We ask the questions: who pays the tax? what effect does it have on the equilibrium

More information

Demand, Supply and Elasticity

Demand, Supply and Elasticity Demand, Supply and Elasticity CHAPTER 2 OUTLINE 2.1 Demand and Supply Definitions, Determinants and Disturbances 2.2 The Market Mechanism 2.3 Changes in Market Equilibrium 2.4 Elasticities of Supply and

More information

Lab 17: Consumer and Producer Surplus

Lab 17: Consumer and Producer Surplus Lab 17: Consumer and Producer Surplus Who benefits from rent controls? Who loses with price controls? How do taxes and subsidies affect the economy? Some of these questions can be analyzed using the concepts

More information

Section 1.5 Linear Models

Section 1.5 Linear Models Section 1.5 Linear Models Some real-life problems can be modeled using linear equations. Now that we know how to find the slope of a line, the equation of a line, and the point of intersection of two lines,

More information

Answers to Text Questions and Problems. Chapter 22. Answers to Review Questions

Answers to Text Questions and Problems. Chapter 22. Answers to Review Questions Answers to Text Questions and Problems Chapter 22 Answers to Review Questions 3. In general, producers of durable goods are affected most by recessions while producers of nondurables (like food) and services

More information

Chapter 3 Key for homework questions

Chapter 3 Key for homework questions Chapter 3 Key for homework questions 3. (Key Question) What effect will each of the following have on the demand for small automobiles such as the Mini Cooper and Smart car? a. Small automobiles become

More information

False_ If there are no fixed costs, then average cost cannot be higher than marginal cost for all output levels.

False_ If there are no fixed costs, then average cost cannot be higher than marginal cost for all output levels. LECTURE 10: SINGLE INPUT COST FUNCTIONS ANSWERS AND SOLUTIONS True/False Questions False_ When a firm is using only one input, the cost function is simply the price of that input times how many units of

More information

Principles of Macroeconomics Prof. Yamin Ahmad ECON 202 Fall 2004

Principles of Macroeconomics Prof. Yamin Ahmad ECON 202 Fall 2004 Principles of Macroeconomics Prof. Yamin Ahmad ECON 202 Fall 2004 Sample Final Exam Name Id # Part B Instructions: Please answer in the space provided and circle your answer on the question paper as well.

More information

11 PERFECT COMPETITION. Chapter. Competition

11 PERFECT COMPETITION. Chapter. Competition Chapter 11 PERFECT COMPETITION Competition Topic: Perfect Competition 1) Perfect competition is an industry with A) a few firms producing identical goods B) a few firms producing goods that differ somewhat

More information

Midterm Exam #1 - Answers

Midterm Exam #1 - Answers Page 1 of 9 Midterm Exam #1 Answers Instructions: Answer all questions directly on these sheets. Points for each part of each question are indicated, and there are 1 points total. Budget your time. 1.

More information

Recitation #4 Week 02/02/2009 to 02/08/2009 Chapter 5: The Market Strikes Back

Recitation #4 Week 02/02/2009 to 02/08/2009 Chapter 5: The Market Strikes Back Recitation #4 Week 02/02/2009 to 02/08/2009 Chapter 5: The Market Strikes Back Problems and Exercises 1. A price ceiling is implemented in the market for housing in Metropolitan City, where all housing

More information

Microeconomics Topic 7: Contrast market outcomes under monopoly and competition.

Microeconomics Topic 7: Contrast market outcomes under monopoly and competition. Microeconomics Topic 7: Contrast market outcomes under monopoly and competition. Reference: N. Gregory Mankiw s rinciples of Microeconomics, 2 nd edition, Chapter 14 (p. 291-314) and Chapter 15 (p. 315-347).

More information

CHAPTER 1 Linear Equations

CHAPTER 1 Linear Equations CHAPTER 1 Linear Equations 1.1. Lines The rectangular coordinate system is also called the Cartesian plane. It is formed by two real number lines, the horizontal axis or x-axis, and the vertical axis or

More information

GRAPHING IN POLAR COORDINATES SYMMETRY

GRAPHING IN POLAR COORDINATES SYMMETRY GRAPHING IN POLAR COORDINATES SYMMETRY Recall from Algebra and Calculus I that the concept of symmetry was discussed using Cartesian equations. Also remember that there are three types of symmetry - y-axis,

More information

REVIEW OF MICROECONOMICS

REVIEW OF MICROECONOMICS ECO 352 Spring 2010 Precepts Weeks 1, 2 Feb. 1, 8 REVIEW OF MICROECONOMICS Concepts to be reviewed Budget constraint: graphical and algebraic representation Preferences, indifference curves. Utility function

More information

EC2105, Professor Laury EXAM 2, FORM A (3/13/02)

EC2105, Professor Laury EXAM 2, FORM A (3/13/02) EC2105, Professor Laury EXAM 2, FORM A (3/13/02) Print Your Name: ID Number: Multiple Choice (32 questions, 2.5 points each; 80 points total). Clearly indicate (by circling) the ONE BEST response to each

More information

d d Calculating Price Elasticity of Demand: The Midpoint or Arc Method

d d Calculating Price Elasticity of Demand: The Midpoint or Arc Method Microeconomics Topic 5: Discuss factors that determine demand and supply elasticity. Explain how demand and supply elasticity affect tax policy and the consequences of business decisions. Reference: Gregory

More information

Exercises Lecture 8: Trade policies

Exercises Lecture 8: Trade policies Exercises Lecture 8: Trade policies Exercise 1, from KOM 1. Home s demand and supply curves for wheat are: D = 100 0 S = 0 + 0 Derive and graph Home s import demand schedule. What would the price of wheat

More information

Microeconomic FRQ s. Scoring guidelines and answers

Microeconomic FRQ s. Scoring guidelines and answers Microeconomic FRQ s 2005 1. Bestmilk, a typical profit-maximizing dairy firm, is operating in a constant-cost, perfectly competitive industry that is in long-run equilibrium. a. Draw correctly-labeled

More information

Multiple Choice Questions for Self Study. (GZ der VWL / Introduction to Economics)

Multiple Choice Questions for Self Study. (GZ der VWL / Introduction to Economics) Multiple Choice Questions for Self Study (GZ der VWL / Introduction to Economics) ao. Prof. Dr. B. Yurtoglu) Economic Models 1) The purpose of making assumptions in economic model building is to (a) force

More information

Week 1: Functions and Equations

Week 1: Functions and Equations Week 1: Functions and Equations Goals: Review functions Introduce modeling using linear and quadratic functions Solving equations and systems Suggested Textbook Readings: Chapter 2: 2.1-2.2, and Chapter

More information

Problem Set #5-Key. Economics 305-Intermediate Microeconomic Theory

Problem Set #5-Key. Economics 305-Intermediate Microeconomic Theory Problem Set #5-Key Sonoma State University Economics 305-Intermediate Microeconomic Theory Dr Cuellar (1) Suppose that you are paying your for your own education and that your college tuition is $200 per

More information

Tennessee Department of Education. Task: Sally s Car Loan

Tennessee Department of Education. Task: Sally s Car Loan Tennessee Department of Education Task: Sally s Car Loan Sally bought a new car. Her total cost including all fees and taxes was $15,. She made a down payment of $43. She financed the remaining amount

More information

Exam 1. Corn (bushels)

Exam 1. Corn (bushels) ECONOMICS 10-008 Dr. John Stewart Feb. 13, 2001 Exam 1 Instructions: Mark the letter for your chosen answer for each question on the computer readable answer sheet using a No.2 pencil. Please note that

More information

Problem Set 9 (75 points)

Problem Set 9 (75 points) Problem Set 9 (75 points) 1. A student argues, "If a monopolist finds a way of producing a good at lower cost, he will not lower his price. Because he is a monopolist, he will keep the price and the quantity

More information

Where are we? To do today: finish the derivation of the demand curve using indifference curves. Go on then to chapter Production and Cost

Where are we? To do today: finish the derivation of the demand curve using indifference curves. Go on then to chapter Production and Cost Where are we? To do today: finish the derivation of the demand curve using indifference curves Go on then to chapter Production and Cost Utility and indifference curves The point is to find where on the

More information

Supply and Demand Fundamental tool of economic analysis Used to discuss unemployment, value of $, protection of the environment, etc.

Supply and Demand Fundamental tool of economic analysis Used to discuss unemployment, value of $, protection of the environment, etc. Supply and emand Fundamental tool of economic analysis Used to discuss unemployment, value of $, protection of the environment, etc. Chapter Outline: (a) emand is the consumer side of the market. (b) Supply

More information

Economics 181: International Trade Homework # 4 Solutions

Economics 181: International Trade Homework # 4 Solutions Economics 181: International Trade Homework # 4 Solutions Ricardo Cavazos and Robert Santillano University of California, Berkeley Due: November 1, 006 1. The nation of Bermuda is small and assumed to

More information

Slutsky Equation. M. Utku Ünver Micro Theory. Boston College. M. Utku Ünver Micro Theory (BC) Slutsky Equation 1 / 15

Slutsky Equation. M. Utku Ünver Micro Theory. Boston College. M. Utku Ünver Micro Theory (BC) Slutsky Equation 1 / 15 Slutsky Equation M. Utku Ünver Micro Theory Boston College M. Utku Ünver Micro Theory (BC) Slutsky Equation 1 / 15 Effects of a Price Change: What happens when the price of a commodity decreases? 1 The

More information

Math 1314 Lesson 8 Business Applications: Break Even Analysis, Equilibrium Quantity/Price

Math 1314 Lesson 8 Business Applications: Break Even Analysis, Equilibrium Quantity/Price Math 1314 Lesson 8 Business Applications: Break Even Analysis, Equilibrium Quantity/Price Three functions of importance in business are cost functions, revenue functions and profit functions. Cost functions

More information

Introduction to Quadratic Functions

Introduction to Quadratic Functions Introduction to Quadratic Functions The St. Louis Gateway Arch was constructed from 1963 to 1965. It cost 13 million dollars to build..1 Up and Down or Down and Up Exploring Quadratic Functions...617.2

More information

Econ 100B: Macroeconomic Analysis Fall Problem Set #3 ANSWERS (Due September 15-16, 2008)

Econ 100B: Macroeconomic Analysis Fall Problem Set #3 ANSWERS (Due September 15-16, 2008) Econ 100B: Macroeconomic Analysis Fall 2008 Problem Set #3 ANSWERS (Due September 15-16, 2008) A. On one side of a single sheet of paper: 1. Clearly and accurately draw and label a diagram of the Production

More information

03.05 Marginal Cost and Revenue Text Version

03.05 Marginal Cost and Revenue Text Version 1 of 6 11/21/2014 2:38 PM 03.05 Marginal Cost and Revenue Text Version Slide 1: Slide 2 Slide 3: Slide 4: Slide 5: Slide 6: Slide 7: Audio: Using marginal cost analysis, a business owner can determine

More information

13 EXPENDITURE MULTIPLIERS: THE KEYNESIAN MODEL* Chapter. Key Concepts

13 EXPENDITURE MULTIPLIERS: THE KEYNESIAN MODEL* Chapter. Key Concepts Chapter 3 EXPENDITURE MULTIPLIERS: THE KEYNESIAN MODEL* Key Concepts Fixed Prices and Expenditure Plans In the very short run, firms do not change their prices and they sell the amount that is demanded.

More information

Production Possibilities Frontier, Economic Growth, and Gains from Trade

Production Possibilities Frontier, Economic Growth, and Gains from Trade Chapter 2 Production Possibilities Frontier, Economic Growth, and Gains from Trade A simple but powerful model of the economy is the production possibilities frontier (PPF) model. Economic growth and the

More information

14.02 Principles of Macroeconomics Problem Set 1 *Solution* Fall 2004

14.02 Principles of Macroeconomics Problem Set 1 *Solution* Fall 2004 4.02 Principles of Macroeconomics Problem Set *Solution* Fall 2004 Part I. True/False/Uncertain Justify your answer with a short argument.. From 960 to 2000, the US, EU, and Japan all have experienced

More information

NAME: INTERMEDIATE MICROECONOMIC THEORY SPRING 2008 ECONOMICS 300/010 & 011 Midterm II April 30, 2008

NAME: INTERMEDIATE MICROECONOMIC THEORY SPRING 2008 ECONOMICS 300/010 & 011 Midterm II April 30, 2008 NAME: INTERMEDIATE MICROECONOMIC THEORY SPRING 2008 ECONOMICS 300/010 & 011 Section I: Multiple Choice (4 points each) Identify the choice that best completes the statement or answers the question. 1.

More information

0 100 200 300 Real income (Y)

0 100 200 300 Real income (Y) Lecture 11-1 6.1 The open economy, the multiplier, and the IS curve Assume that the economy is either closed (no foreign trade) or open. Assume that the exchange rates are either fixed or flexible. Assume

More information

Economics 101 Fall 2013 Answers to Homework 5 Due Tuesday, November 19, 2013

Economics 101 Fall 2013 Answers to Homework 5 Due Tuesday, November 19, 2013 Economics 101 Fall 2013 Answers to Homework 5 Due Tuesday, November 19, 2013 Directions: The homework will be collected in a box before the lecture. Please place your name, TA name and section number on

More information

Our development of economic theory has two main parts, consumers and producers. We will start with the consumers.

Our development of economic theory has two main parts, consumers and producers. We will start with the consumers. Lecture 1: Budget Constraints c 2008 Je rey A. Miron Outline 1. Introduction 2. Two Goods are Often Enough 3. Properties of the Budget Set 4. How the Budget Line Changes 5. The Numeraire 6. Taxes, Subsidies,

More information

1. The Price Elasticity of Demand

1. The Price Elasticity of Demand UNIVERSITY OF CALIFORNIA, LOS ANGELES Department of Economics Cameron Economics 1 Lecture 4 Last day, we pinned down what economists mean by competition in the context of markets. We then looked at demand

More information

Total Hours Revenue Open (dollars) 1 $35 2 60 3 80 4 92 5 100 6 105

Total Hours Revenue Open (dollars) 1 $35 2 60 3 80 4 92 5 100 6 105 ECON 202-505, FALL 2011 Principles of Microeconomics Homework 1 Instructor: Sung Ick Cho 1) In economics, choices must be made because we live in a world of A) unemployment. B) scarcity. C) greed. D) unlimited

More information

Problems: Table 1: Quilt Dress Quilts Dresses Helen 50 10 1.8 9 Carolyn 90 45 1 2

Problems: Table 1: Quilt Dress Quilts Dresses Helen 50 10 1.8 9 Carolyn 90 45 1 2 Problems: Table 1: Labor Hours needed to make one Amount produced in 90 hours: Quilt Dress Quilts Dresses Helen 50 10 1.8 9 Carolyn 90 45 1 2 1. Refer to Table 1. For Carolyn, the opportunity cost of 1

More information

Chapter 4. Specific Factors and Income Distribution

Chapter 4. Specific Factors and Income Distribution Chapter 4 Specific Factors and Income Distribution Introduction So far we learned that countries are overall better off under free trade. If trade is so good for the economy, why is there such opposition?

More information

N. Gregory Mankiw Principles of Economics. Chapter 13. THE COSTS OF PRODUCTION

N. Gregory Mankiw Principles of Economics. Chapter 13. THE COSTS OF PRODUCTION N. Gregory Mankiw Principles of Economics Chapter 13. THE COSTS OF PRODUCTION Solutions to Problems and Applications 1. a. opportunity cost; b. average total cost; c. fixed cost; d. variable cost; e. total

More information

Finance 30210 Problem Set #2

Finance 30210 Problem Set #2 Finance 30210 roblem et #2 1) uppose you are thinking about starting a lawn service in your area. The lawn service market can be considered perfectly competitive. You own a $200 lawnmower. You have a fixed

More information

13. If Y = AK 0.5 L 0.5 and A, K, and L are all 100, the marginal product of capital is: A) 50. B) 100. C) 200. D) 1,000.

13. If Y = AK 0.5 L 0.5 and A, K, and L are all 100, the marginal product of capital is: A) 50. B) 100. C) 200. D) 1,000. Name: Date: 1. In the long run, the level of national income in an economy is determined by its: A) factors of production and production function. B) real and nominal interest rate. C) government budget

More information

SUPPLY AND DEMAND : HOW MARKETS WORK

SUPPLY AND DEMAND : HOW MARKETS WORK SUPPLY AND DEMAND : HOW MARKETS WORK Chapter 4 : The Market Forces of and and demand are the two words that economists use most often. and demand are the forces that make market economies work. Modern

More information

chapter >> Making Decisions Section 2: Making How Much Decisions: The Role of Marginal Analysis

chapter >> Making Decisions Section 2: Making How Much Decisions: The Role of Marginal Analysis chapter 7 >> Making Decisions Section : Making How Much Decisions: The Role of Marginal Analysis As the story of the two wars at the beginning of this chapter demonstrated, there are two types of decisions:

More information

An increase in the number of students attending college. shifts to the left. An increase in the wage rate of refinery workers.

An increase in the number of students attending college. shifts to the left. An increase in the wage rate of refinery workers. 1. Which of the following would shift the demand curve for new textbooks to the right? a. A fall in the price of paper used in publishing texts. b. A fall in the price of equivalent used text books. c.

More information

STUDY GUIDE SUPPLY AND DEMAND

STUDY GUIDE SUPPLY AND DEMAND STUDY GUIDE SUPPLY AND DEMAND 1. The Role of Prices: The Forces of Supply and Demand Categorize all forces affecting the prices of individual commodities as operating through either the demand for the

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Multiple choice review questions for Midterm 2 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) A consumption point inside the budget line A) is

More information

AP MICROECONOMICS 2015 SCORING GUIDELINES

AP MICROECONOMICS 2015 SCORING GUIDELINES AP MICROECONOMICS 2015 SCORING GUIDELINES Question 1 10 points (1+5+1+3) (a) 1 point: One point is earned for stating that the firm s price is equal to the market price because the firm is a price taker.

More information

Demanded per year a. Graph this demand curve in Figure 1. Label the axes. Figure 1

Demanded per year a. Graph this demand curve in Figure 1. Label the axes. Figure 1 Practice Homework Supply & Demand Economics 101 The Economic Way of Thinking 1. MULTI-PART QUESTION: Suppose the demand curve for MSU sweatshirts is given by: Price Quantity Demanded per year 10 4000 20

More information

Practice Questions Week 6 Day 1

Practice Questions Week 6 Day 1 Practice Questions Week 6 Day 1 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. Economists assume that the goal of the firm is to a. maximize total revenue

More information

11.3 BREAK-EVEN ANALYSIS. Fixed and Variable Costs

11.3 BREAK-EVEN ANALYSIS. Fixed and Variable Costs 385 356 PART FOUR Capital Budgeting a large number of NPV estimates that we summarize by calculating the average value and some measure of how spread out the different possibilities are. For example, it

More information

INTRODUCTORY MICROECONOMICS

INTRODUCTORY MICROECONOMICS INTRODUCTORY MICROECONOMICS UNIT-I PRODUCTION POSSIBILITIES CURVE The production possibilities (PP) curve is a graphical medium of highlighting the central problem of 'what to produce'. To decide what

More information

7.5 SYSTEMS OF INEQUALITIES. Copyright Cengage Learning. All rights reserved.

7.5 SYSTEMS OF INEQUALITIES. Copyright Cengage Learning. All rights reserved. 7.5 SYSTEMS OF INEQUALITIES Copyright Cengage Learning. All rights reserved. What You Should Learn Sketch the graphs of inequalities in two variables. Solve systems of inequalities. Use systems of inequalities

More information

Lines, Lines, Lines!!! Slope-Intercept Form ~ Lesson Plan

Lines, Lines, Lines!!! Slope-Intercept Form ~ Lesson Plan Lines, Lines, Lines!!! Slope-Intercept Form ~ Lesson Plan I. Topic: Slope-Intercept Form II. III. Goals and Objectives: A. The student will write an equation of a line given information about its graph.

More information

17. If a good is normal, then the Engel curve A. Slopes upward B. Slopes downward C. Is vertical D. Is horizontal

17. If a good is normal, then the Engel curve A. Slopes upward B. Slopes downward C. Is vertical D. Is horizontal Sample Exam 1 1. Suppose that when the price of hot dogs is $2 per package, there is a demand for 10,000 bags of hot dog buns. When the price of hot dogs is $3 per package, the demand for hot dog buns

More information

CASE FAIR OSTER 2012 Pearson Education, Inc. Publishing as Prentice Hall Prepared by: Fernando Quijano & Shelly Tefft

CASE FAIR OSTER 2012 Pearson Education, Inc. Publishing as Prentice Hall Prepared by: Fernando Quijano & Shelly Tefft P R I N C I P L E S O F ECONOMICS T E N T H E D I T I O N CASE FAIR OSTER Prepared by: Fernando Quijano & Shelly Tefft of 3 Elasticity 5 CHAPTER OUTLINE Price Elasticity of Demand Slope and Elasticity

More information

Return on Investment (ROI)

Return on Investment (ROI) ROI 1 Return on Investment (ROI) Prepared by Sarah Major What is ROI? Return on investment (ROI) is a measure that investigates the amount of additional profits produced due to a certain investment. Businesses

More information

Market for cream: P 1 P 2 D 1 D 2 Q 2 Q 1. Individual firm: W Market for labor: W, S MRP w 1 w 2 D 1 D 1 D 2 D 2

Market for cream: P 1 P 2 D 1 D 2 Q 2 Q 1. Individual firm: W Market for labor: W, S MRP w 1 w 2 D 1 D 1 D 2 D 2 Factor Markets Problem 1 (APT 93, P2) Two goods, coffee and cream, are complements. Due to a natural disaster in Brazil that drastically reduces the supply of coffee in the world market the price of coffee

More information

Short-Run Production and Costs

Short-Run Production and Costs Short-Run Production and Costs The purpose of this section is to discuss the underlying work of firms in the short-run the production of goods and services. Why is understanding production important to

More information

Cosumnes River College Principles of Macroeconomics Problem Set 11 Will Not Be Collected

Cosumnes River College Principles of Macroeconomics Problem Set 11 Will Not Be Collected Name: Solutions Cosumnes River College Principles of Macroeconomics Problem Set 11 Will Not Be Collected Fall 2015 Prof. Dowell Instructions: This problem set will not be collected. You should still work

More information

CEVAPLAR. Solution: a. Given the competitive nature of the industry, Conigan should equate P to MC.

CEVAPLAR. Solution: a. Given the competitive nature of the industry, Conigan should equate P to MC. 1 I S L 8 0 5 U Y G U L A M A L I İ K T İ S A T _ U Y G U L A M A ( 4 ) _ 9 K a s ı m 2 0 1 2 CEVAPLAR 1. Conigan Box Company produces cardboard boxes that are sold in bundles of 1000 boxes. The market

More information

Examples on Monopoly and Third Degree Price Discrimination

Examples on Monopoly and Third Degree Price Discrimination 1 Examples on Monopoly and Third Degree Price Discrimination This hand out contains two different parts. In the first, there are examples concerning the profit maximizing strategy for a firm with market

More information

(First 6 problems from Caves, Frankel and Jones, 1990)

(First 6 problems from Caves, Frankel and Jones, 1990) Professor Robert Staiger Economics 39F Problem Set 1 (First 6 problems from Caves, Frankel and Jones, 1990) 1. With reference to the home country s trade triangle illustrated in Figure 2.3, suppose that

More information

Breakeven, Leverage, and Elasticity

Breakeven, Leverage, and Elasticity Breakeven, Leverage, and Elasticity Dallas Brozik, Marshall University Breakeven Analysis Breakeven analysis is what management is all about. The idea is to compare where you are now to where you might

More information

Their point of intersection is the break-even point. The graph. Loss at right represents a break-even situation.

Their point of intersection is the break-even point. The graph. Loss at right represents a break-even situation. Chapter Financial arithmetic 17 Break-even analysis The success or failure of any business enterprise can be expressed mathematically as follows: P = R C or L = C R where: P = profit made by a business

More information

CONSUMER PREFERENCES THE THEORY OF THE CONSUMER

CONSUMER PREFERENCES THE THEORY OF THE CONSUMER CONSUMER PREFERENCES The underlying foundation of demand, therefore, is a model of how consumers behave. The individual consumer has a set of preferences and values whose determination are outside the

More information

Chapter 3. The Concept of Elasticity and Consumer and Producer Surplus. Chapter Objectives. Chapter Outline

Chapter 3. The Concept of Elasticity and Consumer and Producer Surplus. Chapter Objectives. Chapter Outline Chapter 3 The Concept of Elasticity and Consumer and roducer Surplus Chapter Objectives After reading this chapter you should be able to Understand that elasticity, the responsiveness of quantity to changes

More information

MARKETS WITHOUT POWER Microeconomics in Context (Goodwin, et al.), 3 rd Edition

MARKETS WITHOUT POWER Microeconomics in Context (Goodwin, et al.), 3 rd Edition Chapter 16 MARKETS WITHOUT POWER Microeconomics in Context (Goodwin, et al.), 3 rd Edition Chapter Summary This chapter presents the traditional, idealized model of perfect competition. In it, you will

More information

Unit 7. Firm behaviour and market structure: monopoly

Unit 7. Firm behaviour and market structure: monopoly Unit 7. Firm behaviour and market structure: monopoly Learning objectives: to identify and examine the sources of monopoly power; to understand the relationship between a monopolist s demand curve and

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Firms that survive in the long run are usually those that A) remain small. B) strive for the largest

More information

2 Applications to Business and Economics

2 Applications to Business and Economics 2 Applications to Business and Economics APPLYING THE DEFINITE INTEGRAL 442 Chapter 6 Further Topics in Integration In Section 6.1, you saw that area can be expressed as the limit of a sum, then evaluated

More information

6.2 Solving Nonlinear Equations

6.2 Solving Nonlinear Equations 6.2. SOLVING NONLINEAR EQUATIONS 399 6.2 Solving Nonlinear Equations We begin by introducing a property that will be used extensively in this and future sections. The zero product property. If the product

More information

3. George W. Bush is the current U.S. President. This is an example of a: A. Normative statement B. Positive statement

3. George W. Bush is the current U.S. President. This is an example of a: A. Normative statement B. Positive statement Econ 3144 Fall 2006 Test 1 Dr. Rupp Name Sign Pledge I have neither given nor received aid on this exam Multiple Choice Questions (3 points each) 1. What you give up to obtain an item is called your A.

More information

Taxes and Subsidies PRINCIPLES OF ECONOMICS (ECON 210) BEN VAN KAMMEN, PHD

Taxes and Subsidies PRINCIPLES OF ECONOMICS (ECON 210) BEN VAN KAMMEN, PHD Taxes and Subsidies PRINCIPLES OF ECONOMICS (ECON 210) BEN VAN KAMMEN, PHD Introduction We have already established that taxes are one of the reasons that supply decreases. Subsidies, which could be called

More information

CONCEPT OF MACROECONOMICS

CONCEPT OF MACROECONOMICS CONCEPT OF MACROECONOMICS Macroeconomics is the branch of economics that studies economic aggregates (grand totals):e.g. the overall level of prices, output and employment in the economy. If you want to

More information

KEELE UNIVERSITY MID-TERM TEST, 2007 BA BUSINESS ECONOMICS BA FINANCE AND ECONOMICS BA MANAGEMENT SCIENCE ECO 20015 MANAGERIAL ECONOMICS II

KEELE UNIVERSITY MID-TERM TEST, 2007 BA BUSINESS ECONOMICS BA FINANCE AND ECONOMICS BA MANAGEMENT SCIENCE ECO 20015 MANAGERIAL ECONOMICS II KEELE UNIVERSITY MID-TERM TEST, 2007 Thursday 22nd NOVEMBER, 12.05-12.55 BA BUSINESS ECONOMICS BA FINANCE AND ECONOMICS BA MANAGEMENT SCIENCE ECO 20015 MANAGERIAL ECONOMICS II Candidates should attempt

More information

Production Possibilities Curve, Absolute and Comparative Advantage, Opportunity Cost, and Marginal Analysis

Production Possibilities Curve, Absolute and Comparative Advantage, Opportunity Cost, and Marginal Analysis AP Macroeconomics Unit 1 Review Session Production Possibilities Curve, Absolute and Comparative Advantage, Opportunity Cost, and Marginal Analysis 1. Draw a PPC with linear opportunity cost. 2. Draw a

More information

Economics 165 Winter 2002 Problem Set #2

Economics 165 Winter 2002 Problem Set #2 Economics 165 Winter 2002 Problem Set #2 Problem 1: Consider the monopolistic competition model. Say we are looking at sailboat producers. Each producer has fixed costs of 10 million and marginal costs

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Chapter 3 - Demand and Supply - Sample Questions Answers are at the end fo this file MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) A relative

More information

Midterm I. 1 Multiple-choice Questions (30 points) Economics 110 Spring 2005 Tanya Rosenblat. Name: Section:

Midterm I. 1 Multiple-choice Questions (30 points) Economics 110 Spring 2005 Tanya Rosenblat. Name: Section: Economics 110 Spring 2005 Tanya Rosenblat Name: Section: Before you proceed, write down your name and section number above. Please read all questions carefully. You will get full credit only if you provide

More information

Managerial Economics Prof. Trupti Mishra S.J.M School of Management Indian Institute of Technology, Bombay. Lecture - 14 Elasticity of Supply

Managerial Economics Prof. Trupti Mishra S.J.M School of Management Indian Institute of Technology, Bombay. Lecture - 14 Elasticity of Supply Managerial Economics Prof. Trupti Mishra S.J.M School of Management Indian Institute of Technology, Bombay Lecture - 14 Elasticity of Supply We will continue our discussion today, on few more concept of

More information

Temperature Scales. The metric system that we are now using includes a unit that is specific for the representation of measured temperatures.

Temperature Scales. The metric system that we are now using includes a unit that is specific for the representation of measured temperatures. Temperature Scales INTRODUCTION The metric system that we are now using includes a unit that is specific for the representation of measured temperatures. The unit of temperature in the metric system is

More information

Marginal cost. Average cost. Marginal revenue 10 20 40

Marginal cost. Average cost. Marginal revenue 10 20 40 Economics 101 Fall 2011 Homework #6 Due: 12/13/2010 in lecture Directions: The homework will be collected in a box before the lecture. Please place your name, TA name and section number on top of the homework

More information

Problem Set- Chapter 2 Solutions

Problem Set- Chapter 2 Solutions roblem Set- Chapter 2 Solutions 1. Ch 2, roblem 2.1 The demand for beer in Japan is given by the following equation: d 700 2 N + 0.1I, where is the price of beer, N is the price of nuts, and I is average

More information

Agenda. The IS LM Model, Part 2. The Demand for Money. The Demand for Money. The Demand for Money. Asset Market Equilibrium.

Agenda. The IS LM Model, Part 2. The Demand for Money. The Demand for Money. The Demand for Money. Asset Market Equilibrium. Agenda The IS LM Model, Part 2 Asset Market Equilibrium The LM Curve 13-1 13-2 The demand for money is the quantity of money people want to hold in their portfolios. The demand for money depends on expected

More information