MAXIMIZING BEHAVIOR SUPPLY AND DEMAND THE CIRCULAR FLOW THE TWO MARKETS THE TWO MARKETS

Save this PDF as:
 WORD  PNG  TXT  JPG

Size: px
Start display at page:

Download "MAXIMIZING BEHAVIOR SUPPLY AND DEMAND THE CIRCULAR FLOW THE TWO MARKETS THE TWO MARKETS"

Transcription

1 Chapter 3 SUPPLY AND DEMAND MAXIMIZING BEHAVIOR Consumers maximize their utility (satisfaction) given limited resources. Businesses try to maximize profits by using resources efficiently in producing goods. Government maximizes general welfare of society. The basic goals of utility maximization, profit maximization, and welfare maximization explain most market activity. 2 ECONOMIC INTERACTIONS WITH OTHERS OCCUR BECAUSE: We can t produce all of the goods we need or desire. Even if we could produce all our own goods and service, it still makes sense to specialize. We have limited time, energy, and resources to produce things we could make for ourselves. THE CIRCULAR FLOW Four different groups participate in our economy: Consumers Business firms Government Foreigners 3 4 THE TWO MARKETS Factor markets are any place where factors of production (e.g., land, labor, capital) are bought and sold. Product Markets are any place where finished goods and services (products) are bought and sold. THE TWO MARKETS Foreigners both buy and sell in both product and factor markets. Governments buy resources from factor markets and provides services to businesses and consumers. The consumer is the final recipient of all goods and services produced. 5 6

2 THE CIRCULAR FLOW Goods and services ed Product markets International participants Goods and services supplied SUPPLY AND DEMAND There must be a buyer and a seller in every market transaction. The seller is on the supply side of the market. The buyer is on the side of the market. Consumers Factors of production supplied International participants Governments Factor markets Business Firms Factors of production ed 7 Supply is the ability and willingness to sell (produce) specific quantities of a good at alternative prices in a given time period, ceteris paribus. Demand is the ability and willingness to buy specific quantities of a good at alternative prices in a given time period, ceteris paribus. 8 INDIVIDUAL DEMAND DEMAND SCHEDULE AND CURVE A exists only if someone is willing and able to pay for a good. A schedule is a table showing the quantities of a good a consumer is willing and able to buy at alternative prices in a given time period, ceteris paribus. A curve is a curve describing the quantities of a good a consumer is willing and able to buy at alternative prices in a given time period, ceteris paribus. 9 Demand Schedule Quantity Demanded $ PRICE $ A B C D E F Quantity Of Typing Demanded G H I INDIVIDUAL DEMAND Demand is an expression of consumer buying intentions of a willingness to buy not a statement of actual purchases. According to law of, the quantity of a good ed in a given time period increases as its price falls, ceteris paribus. DETERMINANTS OF DEMAND Determinants of market include: Tastes desire for this and other goods. Income of the consumer. Other goods their availability and price. Expectations for income, prices, tastes. Number of buyers

3 OTHER GOODS Substitute goods substitute for each other. When the price of good x rises, the for good y increases, ceteris paribus. Complementary goods are frequently consumed in combination. When the price of good x rises, the for good y falls, ceteris paribus. SHIFTS IN DEMAND A curve (schedule) is valid only so long as the underlying determinants of remain constant. A shift in is a change in the quantity ed at any (every) given price. The entire curve shifts to the right when income goes up. An increase in taste (desire) also shifts the curve to the right MOVEMENTS VS. SHIFTS MOVEMENTS VS. SHIFTS Changes in quantity ed movements along a curve, in response to price changes for that good. Changes in shifts of the curve due to changes in tastes, income, other goods, or expectations. PRICE $ d 1 Shift in Movement along curve d 2 g 1 D2 increased D 1 initial Quantity MARKET DEMAND Market is the total quantities of a good or service people are willing and able to buy at alternative prices in a given time period. The separate s of individual consumers is added up to determine the total quantity ed at any given price. CONSTRUCTION OF THE MARKET DEMAND CURVE $ Tom s curve George s curve Lisa s curve My curve = See Page 54 18

4 CONSTRUCTION OF THE MARKET DEMAND CURVE = $ A B C The market curve D E F G H Quantity Demanded I SUPPLY is the total quantities of a good that sellers are willing and able to sell at alternative prices in a given time period, ceteris paribus. The determinants of market supply include: Factor costs Taxes and subsidies Technology Expectations Other goods Number of sellers 19 LAW OF SUPPLY According to the law of supply, the quantity of a good supplied in a given time period increases as its price increases, ceteris paribus. is an expression of sellers intentions an offer to sell not a statement of actual sales. MARKET SUPPLY Quantity Supplied By: (per page) Ann Bob Cory Market j $ i h g f e d c 1.5 b MARKET SUPPLY SHIFTS OF SUPPLY $ b Quantity supplied increases as price rises c d e f g h i j Changes in the quantity supplied movements along the supply curve. Changes in supply shifts in the supply curve Quantity Supplied 23 24

5 EQUILIBRIUM The equilibrium price is the price at which the quantity of a good ed in a given time period equals the quantity supplied. Only one price and quantity are compatible with the existing intentions of both the buyers and the sellers. MARKET CLEARING An equilibrium doesn t imply that everyone is happy with the prevailing price or quantity. Although not everyone gets full satisfaction from the market equilibrium, that unique outcome is efficient EQUILIBRIUM PRICE Quantity Supplied Quantity Demanded $ surplus surplus surplus surplus surplus surplus equilibrium shortage shortage 57 EQUILIBRIUM PRICE $ Market At equilibrium price, quantity ed equals quantity supplied Equilibrium price Quantity THE INVISIBLE HAND The market mechanism is the use of market prices and sales to signal desired outputs (or resource allocations). Adam Smith characterized this market mechanism as the invisible hand. MARKET SURPLUS A market surplus is the amount by which the quantity supplied exceeds the quantity ed at a given price excess supply. A market surplus is created when the seller s s asking prices are too high. 29

6 MARKET SHORTAGE SURPLUS AND SHORTAGE A market shortage is the amount by which the quantity ed exceeds the quantity supplied at a given price excess. A market shortage is created when the seller s s asking prices are too low. $ Market Surplus x Shortage y Quantity SELF-ADJUSTING PRICES A market surplus will emerge when the market price is above the equilibrium price. A market shortage will emerge when the market price is below the equilibrium price. SELF-ADJUSTING PRICES To overcome a surplus or shortage, buyers and sellers will change their behavior. Only at the equilibrium price will no further adjustments be required SURPLUS AND SHORTAGE $ Market Surplus 25 x y 15 Equilibrium price Shortage Quantity CHANGES IN EQUILIBRIUM No equilibrium price is permanent. The equilibrium price will change whenever the supply or curve shifts. Changes in supply and d occur when the determinants of supply and change. Should the curve shift, the result will be a change in equilibrium price and quantity. Should the supply curve shift, the result will be a change in equilibrium price and quantity

7 CHANGES IN EQUILIBRIUM CHANGES IN EQUILIBRIUM $5 $5 E 2 New E 3 E 1 E 1 Initial Initial Quantity Quantity MARKET OUTCOMES The market mechanism resolves the basic economic questions: WHAT we produce is determined by the equilibrium of the markets. HOW we produce is determined by profit seeking behavior and using resources efficiently. FOR WHOM we produce is determined by those willing and able to pay the equilibrium price. ELECTRIC SHOCK: ENERGY-PRICE SPIKES People are often upset with the market outcome. In a market-driven economy, electricity prices are set by the forces of supply and. Electricity prices increased in California because of an increase in and a decrease in supply. The curve shifted rightward. The supply curve shifted leftward. 39 DISEQUILIBRIUM PRICING The California legislature put a price ceiling on retail electricity prices. A price ceiling is the upper limit imposed on the price of a good. ceilings have three predictable effects: Increase the quantity ed. Decrease the quantity supplied. Create a market shortage. PRICE CEILINGS CREATE SHORTAGES > 1 ectricity watt-hour) Of Ele (cent per kilow D 1 Old D 2 New shift in shortage S 2 New supply E 2 shift in supply E 1 qs c qe 2 qd c Quantity Of Electricity (megawatts per hour) S 1 Old supply ceiling 41 42

8 PRICE CEILINGS CREATE SHORTAGES Letting prices rise would have: Reduced the quantity ed. Increased the quantity supplied. Alleviated the market shortage. PRICE FLOOR Setting a price below which prices cannot go is called a price floor. floors have three predictable effects, opposite of price ceilings: Decrease the quantity ed. Increase the quantity supplied. Create a market surplus End of Chapter 3 SUPPLY AND DEMAND

Gov t Intervention: Price Floors & Price Ceilings / Taxes & Subsidies

Gov t Intervention: Price Floors & Price Ceilings / Taxes & Subsidies Gov t Intervention: Price Floors & Price Ceilings / Taxes & Subsidies Price Floor: Regulated price, cannot charge below this price. A price floor will be binding if it is set above the true equilibrium

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. Survey of Microeconomics, Quiz #3 Fall 2006 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) In the absence of a rent ceiling, the long run

More information

4. Which of the following are available in limited quantity and contribute to the problem of scarcity?

4. Which of the following are available in limited quantity and contribute to the problem of scarcity? 1. Given that resources are scarce: A) A "free lunch" is possible but only for a limited number of people B) Poor countries must make choices but rich countries do not have to make choices C) Opportunity

More information

Consumer and Producer Surplus. Consumer and Producer Surplus. Consumer Surplus. Consumer Surplus. Consumer Surplus Individual consumer surplus

Consumer and Producer Surplus. Consumer and Producer Surplus. Consumer Surplus. Consumer Surplus. Consumer Surplus Individual consumer surplus Consumer and Consumer and February 6, 2007 Reading: Chapter 6 Introduction Consumer surplus Producer surplus Efficiency and the gains from trade s 2 Introduction Connections to: Opportunity costs to consumers

More information

as a function of E D and E S can be looked as follows:

as a function of E D and E S can be looked as follows: TOPIC IV: MARKETS IN ACTION - Applications of S&D and E D &E S A. Using E D and E S to increase our understanding of the impact of a change in S or D. B. Price ceilings and price floors C. Trade quotas

More information

chapter >> Consumer and Producer Surplus Section 3: Consumer Surplus, Producer Surplus, and the Gains from Trade

chapter >> Consumer and Producer Surplus Section 3: Consumer Surplus, Producer Surplus, and the Gains from Trade chapter 6 >> Consumer and Producer Surplus Section 3: Consumer Surplus, Producer Surplus, and the Gains from Trade One of the nine core principles of economics we introduced in Chapter 1 is that markets

More information

Demand, Supply, and Market Equilibrium

Demand, Supply, and Market Equilibrium 3 Demand, Supply, and Market Equilibrium The price of vanilla is bouncing. A kilogram (2.2 pounds) of vanilla beans sold for $50 in 2000, but by 2003 the price had risen to $500 per kilogram. The price

More information

Chapter 3 Market Demand, Supply, and Elasticity

Chapter 3 Market Demand, Supply, and Elasticity Chapter 3 Market Demand, Supply, and Elasticity After reading chapter 3, MARKET DEMAND, SUPPLY, AND ELASTICITY, you should be able to: Discuss the Law of Demand and draw a Demand Curve. Distinguish between

More information

The Economics Department, UMR Presents: Supply and Demand: Price and Quantity Determination in Competitive Markets

The Economics Department, UMR Presents: Supply and Demand: Price and Quantity Determination in Competitive Markets The Economics Department, UMR Presents: Supply and Demand: Price and Quantity Determination in Competitive Markets Starring Demand Supply Equilibrium and Disequilibrium Featuring The Law of Demand D D

More information

Demand, Supply, and Market Equilibrium

Demand, Supply, and Market Equilibrium Chapter Summary 4 Demand, Supply, and Market Equilibrium In this chapter, we ve seen how demand and supply determine prices. We also learned how to predict the effects of changes in demand or supply on

More information

Market Equilibrium and Applications

Market Equilibrium and Applications Market Equilibrium and Applications I. Market Equilibrium In the previous chapter, we discussed demand and supply, both for individual consumers and firms and for markets. In this chapter, we will combine

More information

4 THE MARKET FORCES OF SUPPLY AND DEMAND

4 THE MARKET FORCES OF SUPPLY AND DEMAND 4 THE MARKET FORCES OF SUPPLY AND DEMAND IN THIS CHAPTER YOU WILL Learn what a competitive market is Examine what determines the demand for a good in a competitive market Chapter Overview Examine what

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

Microeconomics Topic 3: Understand how various factors shift supply or demand and understand the consequences for equilibrium price and quantity.

Microeconomics Topic 3: Understand how various factors shift supply or demand and understand the consequences for equilibrium price and quantity. Microeconomics Topic 3: Understand how various factors shift supply or demand and understand the consequences for equilibrium price and quantity. Reference: Gregory Mankiw s rinciples of Microeconomics,

More information

Demand. See the Practical #4A Help Sheet for instructions and examples on graphing a demand schedule.

Demand. See the Practical #4A Help Sheet for instructions and examples on graphing a demand schedule. Demand Definition of Demand: Demand is a relation that shows the quantities that buyers are willing and able to purchase at alternative prices during a given time period, all other things remaining the

More information

Chapter 5 Applications of Supply and Demand

Chapter 5 Applications of Supply and Demand 1. Elasticity of Demand (E d ) Chapter 5 Applications of Supply and Demand Measures the responsiveness of Q d to a change in price. How much does Q d change (%) when P changes (%)? We can use a formula

More information

1. According to Figure 1.1, what is the opportunity cost of increasing consumer output from OF to OD?

1. According to Figure 1.1, what is the opportunity cost of increasing consumer output from OF to OD? Solutions to Problem set 1 (chp 1 Q1-7 / chp 3 Q3-7) 28 possible points Chapter 1 1. According to Figure 1.1, what is the opportunity cost of increasing consumer output from OF to OD? In figure 1.1, the

More information

Non Sequitur by Wiley Miller

Non Sequitur by Wiley Miller SUPPLY & DEMAND Non Sequitur by Wiley Miller MARKETS Institution that brings together buyers (DEMAND) and sellers (SUPPLY) of resources, goods and services DEMAND is Amount of a good or service consumers

More information

AS Economics Unit 1: Markets and Market Failure Syllabus, Key Terms & Charts

AS Economics Unit 1: Markets and Market Failure Syllabus, Key Terms & Charts AS Economics Unit 1: Markets and Market Failure Syllabus, Key Terms & Charts 10.1 The Economic Problem The Nature and Purpose of Economic Activity The central purpose of economic activity is the production

More information

Economic Efficiency. Chapter 6 CHAPTER SUMMARY

Economic Efficiency. Chapter 6 CHAPTER SUMMARY Chapter 6 Economic Efficiency CHAPTER SUMMARY The central idea in this chapter is Adam Smith s invisible hand. Free-market competition will ensure that the allocation of resources is economically efficient.

More information

LECTURE NOTES ON MACROECONOMIC PRINCIPLES

LECTURE NOTES ON MACROECONOMIC PRINCIPLES LECTURE NOTES ON MACROECONOMIC PRINCIPLES Peter Ireland Department of Economics Boston College peter.ireland@bc.edu http://www2.bc.edu/peter-ireland/ec132.html Copyright (c) 2013 by Peter Ireland. Redistribution

More information

Non Sequitur by Wiley Miller

Non Sequitur by Wiley Miller SUPPLY & DEMAND Non Sequitur by Wiley Miller Graph Basics Movement change along the curve Shift the curve moves Increase to the right Decrease to the left Intersection of curves Price Label: both axis,

More information

ECON 101 MIDTERM 1 REVIEW SESSION (WINTER 2015) BY BENJI HUANG

ECON 101 MIDTERM 1 REVIEW SESSION (WINTER 2015) BY BENJI HUANG ECON 101 MIDTERM 1 REVIEW SESSION (WINTER 2015) BY BENJI HUANG TABLE OF CONTENT I. CHAPTER 1: WHAT IS ECONOMICS II. CHAPTER 2: THE ECONOMIC PROBLEM III. CHAPTER 3: DEMAND AND SUPPLY IV. CHAPTER 4: ELASTICITY

More information

Basic Microeconomics. P related = the price or prices of relevant related goods. The goods considered are compliments and substitutes of good X.

Basic Microeconomics. P related = the price or prices of relevant related goods. The goods considered are compliments and substitutes of good X. Basic Microeconomics Demand is a term that represents models that eplain how a set of variables influence buyer or consumer behavior. There are two ways to perceive demand: 1) Demand is a schedule of quantities

More information

ECF1100 Microeconomics

ECF1100 Microeconomics ECF1100 Microeconomics Semester 2, 2015 Notes Textbook: Gans, King, Byford and Mankiw, Principles of Microeconomics 6th Edition, Cengage Learning, Copyright 2015 (ISBN 9780170248525). Contents Week 1 Introduction

More information

Economic Efficiency, Government Price Setting, and Taxes

Economic Efficiency, Government Price Setting, and Taxes CHAPTER 4 Economic Efficiency, Government Price Setting, and Taxes Modified by: Changwoo Nam 1 Economic Efficiency, Government Price Setting, and Taxes A legally determined maximum price that sellers may

More information

Student Name: Date: Teacher Name: Heather Creamer. Score:

Student Name: Date: Teacher Name: Heather Creamer. Score: Economics EOC Quiz Answer Key Microeconomic Concepts - (SSEMI1) Flow Of Goods, (SSEMI2) Law Of Demand, (SSEMI3) Economic Behavior, (SSEMI4) Organization And Role Of Business Student Name: Teacher Name:

More information

Market equilibrium, the price mechanism, and market efficiency

Market equilibrium, the price mechanism, and market efficiency 23 Market equilibrium, the price mechanism, and market efficiency By the end of this chapter, you should be able to: l l l explain the concept of equilibrium explain the effect of changes in demand and

More information

Price Theory Lecture 2: Supply & Demand

Price Theory Lecture 2: Supply & Demand Price Theory Lecture 2: Supply & emand I. The Basic Notion of Supply & emand Supply-and-demand is a model for understanding the determination of the price of quantity of a good sold on the market. The

More information

Introduction to Agricultural Economics

Introduction to Agricultural Economics Introduction to Agricultural Economics Economics examines: how scarce resources are allocated. how firms maximize profits. how market competition affects firms and consumers. the limitations of markets.

More information

C H A P T E R 4: The Price System, Demand and Supply, and Elas ticity. The Price System: Rationing and Allocating Resources

C H A P T E R 4: The Price System, Demand and Supply, and Elas ticity. The Price System: Rationing and Allocating Resources C H A P T E R 4 The Price System, Demand and Supply, and Elasticity Prepared by: Fernando Quijano and Yvonn Quijano Karl Case, Ray Fair The Price System: Rationing and Allocating Resources The market system,

More information

Micro Self-Test - Ch. 8 Price Ceilings and Floors

Micro Self-Test - Ch. 8 Price Ceilings and Floors Micro Self-Test - Ch. 8 Price Ceilings and Floors 1. A price ceiling is a: A. legally established minimum price that can be charged for a good. B. legally established maximum price that can be charged

More information

The Efficiency of Markets. What is the best quantity to be produced from society s standpoint, in the sense of maximizing the net benefit to society?

The Efficiency of Markets. What is the best quantity to be produced from society s standpoint, in the sense of maximizing the net benefit to society? The Efficiency of Markets What is the best quantity to be produced from society s standpoint, in the sense of maximizing the net benefit to society? We need to look at the benefits to consumers and producers.

More information

Supplement Unit 1. Demand, Supply, and Adjustments to Dynamic Change

Supplement Unit 1. Demand, Supply, and Adjustments to Dynamic Change 1 Supplement Unit 1. Demand, Supply, and Adjustments to Dynamic Change Introduction This supplemental highlights how markets work and their impact on the allocation of resources. This feature will investigate

More information

1. Supply and demand are the most important concepts in economics.

1. Supply and demand are the most important concepts in economics. Page 1 1. Supply and demand are the most important concepts in economics. 2. Markets and Competition a. Market is a group of buyers and sellers of a particular good or service. P. 66. b. These individuals

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 6 - Markets in Action - Sample Questions MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The short-run impact of the San Francisco earthquake

More information

Pre Test Chapter 3. 8.. DVD players and DVDs are: A. complementary goods. B. substitute goods. C. independent goods. D. inferior goods.

Pre Test Chapter 3. 8.. DVD players and DVDs are: A. complementary goods. B. substitute goods. C. independent goods. D. inferior goods. 1. Graphically, the market demand curve is: A. steeper than any individual demand curve that is part of it. B. greater than the sum of the individual demand curves. C. the horizontal sum of individual

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) The law of demand states that, other things remaining the same, the lower the price of a good,

More information

Midterm Exam #2. ECON 101, Section 2 summer 2004 Ying Gao. 1. Print your name and student ID number at the top of this cover sheet.

Midterm Exam #2. ECON 101, Section 2 summer 2004 Ying Gao. 1. Print your name and student ID number at the top of this cover sheet. NAME: STUDENT ID: Midterm Exam #2 ECON 101, Section 2 summer 2004 Ying Gao Instructions Please read carefully! 1. Print your name and student ID number at the top of this cover sheet. 2. Check that your

More information

BASIC MARKET ELEMENTS. Supply Demand Price Competition

BASIC MARKET ELEMENTS. Supply Demand Price Competition BASIC MARKET ELEMENTS Supply Demand Price Competition Supply Supply is the quantity of goods that firms are willing to produce and sale with respect to the market price when all other conditions (like

More information

Supply and Demand CHAPTER 4. Thomas Carlyle. Teach a parrot the terms supply and demand and you ve got an economist. Supply and Demand 4

Supply and Demand CHAPTER 4. Thomas Carlyle. Teach a parrot the terms supply and demand and you ve got an economist. Supply and Demand 4 CHAPTER 4 Supply and Demand Teach a parrot the terms supply and demand and you ve got an economist. Thomas Carlyle McGraw-Hill/Irwin Copyright 2010 by the McGraw-Hill Companies, Inc. All rights reserved.

More information

Chapter 4 The Market Forces of Supply and Demand

Chapter 4 The Market Forces of Supply and Demand Chapter 4 The Market Forces of Supply and Demand Review Questions What characteristics or requirements must be met for a market to be considered as each of the following? 1. perfectly competitive 2. a

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

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

Supply and Demand, and Market Failure. Economics looks at the world from a perspective of choices we make given our limited resources.

Supply and Demand, and Market Failure. Economics looks at the world from a perspective of choices we make given our limited resources. and Demand, and Market Failure Economics looks at the world from a perspective of choices we make given our limited resources. Economics - the study of how society manages its scarce resources Or the study

More information

Econ 201 Exam 1 F2002 Professor Phil Miller Name: Student Number:

Econ 201 Exam 1 F2002 Professor Phil Miller Name: Student Number: Econ 201 Exam 1 F2002 Professor Phil Miller Name: Student Number: Multiple Choice (3 points each) Directions: Identify the letter of the choice that best completes the statement or answers the question.

More information

INTRODUCTION THE LABOR MARKET LABOR SUPPLY INCOME VS. LEISURE THE SUPPLY OF LABOR

INTRODUCTION THE LABOR MARKET LABOR SUPPLY INCOME VS. LEISURE THE SUPPLY OF LABOR INTRODUCTION Chapter 15 THE LBOR MRKET This chapter covers why there are differences in wages: How do people decide how much time to spend working? What determines the wage rate an employer is willing

More information

ECON 103, 2008-2 ANSWERS TO HOME WORK ASSIGNMENTS

ECON 103, 2008-2 ANSWERS TO HOME WORK ASSIGNMENTS ECON 103, 2008-2 ANSWERS TO HOME WORK ASSIGNMENTS Due the Week of June 23 Chapter 8 WRITE [4] Use the demand schedule that follows to calculate total revenue and marginal revenue at each quantity. Plot

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

CH 7. Name: Class: Date: Multiple Choice Identify the choice that best completes the statement or answers the question.

CH 7. Name: Class: Date: Multiple Choice Identify the choice that best completes the statement or answers the question. Class: Date: CH 7 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. A price ceiling a. is an illegal price. b. is the price that exists in a black market.

More information

Supply and Demand. A market is a group of buyers and sellers of a particular good or service.

Supply and Demand. A market is a group of buyers and sellers of a particular good or service. Supply and Demand A market is a group of buyers and sellers of a particular good or service. The definition of the good is a matter of judgement: Should different locations entail different goods (and

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

The Demand Curve. Supply and Demand. Shifts in Demand. The Law of Demand. Lecture 3 outline (note, this is Chapter 4 in the text).

The Demand Curve. Supply and Demand. Shifts in Demand. The Law of Demand. Lecture 3 outline (note, this is Chapter 4 in the text). upply and emand Lecture 3 outline (note, this is Chapter 4 in the text). The demand d curve The supply curve Factors causing shifts of the demand curve and shifts of the supply curve. Market equilibrium

More information

Assignment 3. 1. Which of the following statements is true of any market?

Assignment 3. 1. Which of the following statements is true of any market? Assignment 3 1. Which of the following statements is true of any market? a) There must be a supply of the item but not necessarily a demand for the item. b) Demand and supply are always equal for an item.

More information

132 Chapter 7/Consumers, Producers, and the Efficiency of Markets. Figure 15

132 Chapter 7/Consumers, Producers, and the Efficiency of Markets. Figure 15 8. a. The effect of falling production costs in the market for computers results in a shift to the right in the supply curve, as shown in Figure 14. As a result, the equilibrium price of computers declines

More information

Chapter 3 Market Demand, Supply and Elasticity

Chapter 3 Market Demand, Supply and Elasticity Chapter 3 Market Demand, Supply and Elasticity Multiple Choice Questions Choose the one alternative that best completes the statement or answers the question. 1. Ceteris paribus means (a) other things

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

The Free Market Approach. The Health Care Market. Sellers of Health Care. The Free Market Approach. Real Income

The Free Market Approach. The Health Care Market. Sellers of Health Care. The Free Market Approach. Real Income The Health Care Market Who are the buyers and sellers? Everyone is a potential buyer (consumer) of health care At any moment a buyer would be anybody who is ill or wanted preventive treatment such as a

More information

Government Intervention. Section 1.3

Government Intervention. Section 1.3 Government Intervention Section 1.3 Indirect taxes Learning Objectives Specific (fixed amount) taxes and ad valorem (percentage) taxes and their impact on markets Explain why governments impose indirect

More information

PAGE 1. Econ 2113 - Test 2 Fall 2003 Dr. Rupp. Multiple Choice. 1. The price elasticity of demand measures

PAGE 1. Econ 2113 - Test 2 Fall 2003 Dr. Rupp. Multiple Choice. 1. The price elasticity of demand measures PAGE 1 Econ 2113 - Test 2 Fall 2003 Dr. Rupp Multiple Choice 1. The price elasticity of demand measures a. how responsive buyers are to a change in income. b. how responsive sellers are to a change in

More information

Miami Dade College. ECO 2013.005 Principles of Macroeconomics Spring 2014. Midterm #1 2/12/14

Miami Dade College. ECO 2013.005 Principles of Macroeconomics Spring 2014. Midterm #1 2/12/14 Miami Dade College ECO 2013.005 Principles of Macroeconomics Spring 2014 Midterm #1 2/12/14 1. A point on a nation s production possibilities curve represents a) An undesirable combination of goods and

More information

Market Failure versus Government Failure

Market Failure versus Government Failure CHAPTER 21 Market Failure versus Government Failure The business of government is to keep the government out of business that is unless business needs government aid. Will Rogers McGraw-Hill/Irwin Copyright

More information

PROBLEM SET#3 PART I: MULTIPLE CHOICE

PROBLEM SET#3 PART I: MULTIPLE CHOICE 1 PROBLEM SET#3 PART I: MULTIPLE CHOICE 1. In general, elasticity is a measure of a. the extent to which advances in technology are adopted by producers. b. the extent to which a market is competitive.

More information

ECON 103, 2008-2 ANSWERS TO HOME WORK ASSIGNMENTS

ECON 103, 2008-2 ANSWERS TO HOME WORK ASSIGNMENTS ECON 103, 2008-2 ANSWERS TO HOME WORK ASSIGNMENTS Due the Week of July 14 Chapter 11 WRITE: [2] Complete the following labour demand table for a firm that is hiring labour competitively and selling its

More information

A. a change in demand. B. a change in quantity demanded. C. a change in quantity supplied. D. unit elasticity. E. a change in average variable cost.

A. a change in demand. B. a change in quantity demanded. C. a change in quantity supplied. D. unit elasticity. E. a change in average variable cost. 1. The supply of gasoline changes, causing the price of gasoline to change. The resulting movement from one point to another along the demand curve for gasoline is called A. a change in demand. B. a change

More information

Market Failure. presented by: Dr. Ellen Sewell esewell@uncc.edu

Market Failure. presented by: Dr. Ellen Sewell esewell@uncc.edu Market Failure presented by: Dr. Ellen Sewell esewell@uncc.edu In general, a system of competitive markets will produce a socially optimal allocation of resources. What does this mean? When does a market

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 11 Monopoly practice Davidson spring2007 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) A monopoly industry is characterized by 1) A)

More information

14 : Elasticity of Supply

14 : Elasticity of Supply 14 : Elasticity of Supply 1 Recap from Session Budget line and Consumer equilibrium Law of Equi Marginal utility Price, income and substitution effect Consumer Surplus Session Outline Elasticity of Supply

More information

Economic Freedom. Market Failure. Market Failure. Market Failures. Externalities. Externalities. Chapter 14 Externalities

Economic Freedom. Market Failure. Market Failure. Market Failures. Externalities. Externalities. Chapter 14 Externalities Market Failure Chapter 14 Externalities Economic Freedom Economic freedom refers to the degree to which private individuals are able to carry out voluntary exchange without government involvement. The

More information

CHAPTER 5: MEASURING GDP AND ECONOMIC GROWTH

CHAPTER 5: MEASURING GDP AND ECONOMIC GROWTH CHAPTER 5: MEASURING GDP AND ECONOMIC GROWTH Learning Goals for this Chapter: To know what we mean by GDP and to use the circular flow model to explain why GDP equals aggregate expenditure and aggregate

More information

CHAPTER 3: DEMAND, SUPPLY, AND MARKET EQUILIBRIUM

CHAPTER 3: DEMAND, SUPPLY, AND MARKET EQUILIBRIUM CHAPTER 3: DEMAND, SUPPLY, AND MARKET EQUILIBRIUM Introduction Supply and demand are mechanisms by which our market economy functions. Changes in supply and demand affect prices and quantities produced,

More information

Business Economics Demand, Supply, and Market Equilibrium Thomas & Maurice, Chapter 2. Demand and Supply on Perfectly Competitive Markets.

Business Economics Demand, Supply, and Market Equilibrium Thomas & Maurice, Chapter 2. Demand and Supply on Perfectly Competitive Markets. Business Economics Demand, Supply, and Market Equilibrium Thomas & Maurice, Chapter 2 Demand and Supply on erfectly Competitive Markets Herbert Stocker IIS, Ramkhamhaeng University & Department of Economics,

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

MICROECONOMIC PRINCIPLES SPRING 2001 MIDTERM ONE -- Answers. February 16, 2001. Table One Labor Hours Needed to Make 1 Pounds Produced in 20 Hours

MICROECONOMIC PRINCIPLES SPRING 2001 MIDTERM ONE -- Answers. February 16, 2001. Table One Labor Hours Needed to Make 1 Pounds Produced in 20 Hours MICROECONOMIC PRINCIPLES SPRING 1 MIDTERM ONE -- Answers February 1, 1 Multiple Choice. ( points each) Circle the correct response and write one or two sentences to explain your choice. Use graphs as appropriate.

More information

UNIT 6 cont PRICING UNDER DIFFERENT MARKET STRUCTURES. Monopolistic Competition

UNIT 6 cont PRICING UNDER DIFFERENT MARKET STRUCTURES. Monopolistic Competition UNIT 6 cont PRICING UNDER DIFFERENT MARKET STRUCTURES Monopolistic Competition Market Structure Perfect Competition Pure Monopoly Monopolistic Competition Oligopoly Duopoly Monopoly The further right on

More information

Test 1 10 October 2008. 1. Assume that tea and lemons are complements and that coffee and tea are substitutes.

Test 1 10 October 2008. 1. Assume that tea and lemons are complements and that coffee and tea are substitutes. Eco 301 Name Test 1 10 October 2008 100 points. Please write all answers in ink. Please use pencil and a straight edge to draw graphs. Allocate your time efficiently. 1. Assume that tea and lemons are

More information

Principle of Microeconomics Econ 202-506 chapter 6

Principle of Microeconomics Econ 202-506 chapter 6 Principle of Microeconomics Econ 202-506 chapter 6 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The buyers pay the entire sales tax levied on

More information

INTRODUCTORY MICROECONOMICS Instructor: Filip Vesely 12

INTRODUCTORY MICROECONOMICS Instructor: Filip Vesely 12 INTRODUCTORY MICROECONOMICS Instructor: Filip Vesely 12 MIDTERM EXAM will be on March 29 Everything you earn and many things you buy are taxed. Who really pays these taxes? Tax Incidence is the division

More information

MFP SET. Lecture 3 Surplus: Consumer & producer Elasticity & its applications MFP SET 2000 1

MFP SET. Lecture 3 Surplus: Consumer & producer Elasticity & its applications MFP SET 2000 1 MFP SET Lecture 3 Surplus: Consumer & producer Elasticity & its applications MFP SET 1 Consumer surplus! Willingness to pay: the maximum amount that a consumer will pay for a good! Consumer surplus: the

More information

Market Failure. EC4004 Lecture 9

Market Failure. EC4004 Lecture 9 Market Failure EC4004 Lecture 9 Today. Online Exam. Quantity Demanded, Quantity Supplied at each price 10 9 8 7 6 5 4 3 2 1 Supply at each Price, S(p) t Demand at each Price, D(p) 1 2 3 4 5 6 7 8 9 10

More information

Section B. Some Basic Economic Concepts

Section B. Some Basic Economic Concepts This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike License. Your use of this material constitutes acceptance of that license and the conditions of use of materials on this

More information

Module 49 Consumer and Producer Surplus

Module 49 Consumer and Producer Surplus What you will learn in this Module: The meaning of consumer surplus and its relationship to the demand curve The meaning of producer surplus and its relationship to the supply curve Module 49 Consumer

More information

ECON 1100 Global Economics (Fall 2013) Surplus, Efficiency, and Deadweight Loss

ECON 1100 Global Economics (Fall 2013) Surplus, Efficiency, and Deadweight Loss ECON 11 Global Economics (Fall 213) Surplus, Efficiency, and Deadweight Loss Relevant Readings from the Required Textbooks: Economics Chapter 5, Surplus, Efficiency, and Deadweight Loss Definitions and

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

Monopolistic Competition

Monopolistic Competition In this chapter, look for the answers to these questions: How is similar to perfect? How is it similar to monopoly? How do ally competitive firms choose price and? Do they earn economic profit? In what

More information

Test 2 8 November 2006

Test 2 8 November 2006 Eco 301 Name Test 2 8 November 2006 100 points. Please write all answers in ink. You may use pencil and a straight edge to draw graphs. Allocate your time efficiently. 1. A fast-food restaurant currently

More information

The Basics of Supply and Demand

The Basics of Supply and Demand 1 Demand and Supply Curves 1 14.01 Principles of Microeconomics, Fall 2007 Chia-Hui Chen September 7, 2007 Lecture 2 The Basics of Supply and Demand BUYERS = DEMAND MARKET EQUILIBRIUM SELLERS = SUPPLY

More information

Econ 202 Exam 2 Practice Problems

Econ 202 Exam 2 Practice Problems Econ 202 Exam 2 Practice Problems Principles of Microeconomics Dr. Phillip Miller Multiple Choice Identify the choice that best completes the statement or answers the question. Chapter 6 1. If a binding

More information

Chapter 13 Perfect Competition

Chapter 13 Perfect Competition Chapter 13 Perfect Competition 13.1 A Firm's Profit-Maximizing Choices 1) What is the difference between perfect competition and monopolistic competition? A) Perfect competition has a large number of small

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. MBA 640 Survey of Microeconomics Fall 2006, Quiz 6 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) A monopoly is best defined as a firm that

More information

SAMPLE COURSE OUTLINE ECONOMICS ATAR YEAR 11

SAMPLE COURSE OUTLINE ECONOMICS ATAR YEAR 11 SAMPLE COURSE OUTLINE ECONOMICS ATAR YEAR 11 Copyright School Curriculum and Standards Authority, 2014 This document apart from any third party copyright material contained in it may be freely copied,

More information

Chapter 6:Economies in Transition Economic systems: is a set of institutions for allocating resources and making choices to satisfy human wants.

Chapter 6:Economies in Transition Economic systems: is a set of institutions for allocating resources and making choices to satisfy human wants. Chapter 6:Economies in Transition Economic systems: is a set of institutions for allocating resources and making choices to satisfy human wants. Resource allocation is the assignment of resources to specific

More information

There are 10 Internal Credits AS 91401 V1 (3.3) 5 credits: Elasticity & micro-economic concepts Literacy

There are 10 Internal Credits AS 91401 V1 (3.3) 5 credits: Elasticity & micro-economic concepts Literacy Year 13 Economics Course Outline This course will cover the micro-economic issues of Market efficiency, Elasticity, Government intervention, Market failure and macroeconomic Influences on NZ economy. There

More information

The Circular Flow of Income and Expenditure

The Circular Flow of Income and Expenditure The Circular Flow of Income and Expenditure Imports HOUSEHOLDS Savings Taxation Govt Exp OTHER ECONOMIES GOVERNMENT FINANCIAL INSTITUTIONS Factor Incomes Taxation Govt Exp Consumer Exp Exports FIRMS Capital

More information

AP MICRO Week 4 Practice Quiz: M, 20

AP MICRO Week 4 Practice Quiz: M, 20 1 1. A marketing survey shows that gate receipts would increase if the price of tickets to a summer rock concert increased, even though the number of tickets sold would fall. What does this imply about

More information

Chapter 6 Supply, Demand, and Government Policies

Chapter 6 Supply, Demand, and Government Policies Chapter 6 Supply, Demand, and Government Policies Review Questions Using supply-demand diagrams, show the difference between a non-binding price ceiling and a binding price ceiling in the wheat market.

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

PART 3 Market failure THE LIMITATIONS OF MARKETS. Sources of Market Failure. Private and Social Costs 29/02/2016. 1 of 38

PART 3 Market failure THE LIMITATIONS OF MARKETS. Sources of Market Failure. Private and Social Costs 29/02/2016. 1 of 38 PART 3 Market failure THE LIMITATIONS OF MARKETS ISBN: 978-1-4080-6981-3 1 of 38 Sources of Market Failure Imperfect knowledge of and between buyers & sellers Can be distorted by advertising and poor technical

More information

Selected Homework Answers from Chapter 3

Selected Homework Answers from Chapter 3 elected Homework Answers from Chapter 3 NOTE: To save on space, I have not given specific labels to my axis, but rather stuck with just and. Ideally, you should put specific labels. For example, the vertical

More information

DEMAND AND SUPPLY. Chapter. Markets and Prices. Demand. C) the price of a hot dog minus the price of a hamburger.

DEMAND AND SUPPLY. Chapter. Markets and Prices. Demand. C) the price of a hot dog minus the price of a hamburger. Chapter 3 DEMAND AND SUPPLY Markets and Prices Topic: Price and Opportunity Cost 1) A relative price is A) the slope of the demand curve B) the difference between one price and another C) the slope of

More information