Question 1

Understand and describe what happens when a market is not in equilibrium.
-Use price elasticity to explain the following observations:
a. The price of gasoline is higher near the freeway than at a gas station two miles off the freeway.
b. Airline tickets are less expensive if purchased a month before you plan to fly than if purchased one day before you plan to fly.
c. Prices in grocery stores in low-income areas of town might actually be higher than in a more affluent area of town.

Accepted Answer

The answer of Understand and describe what happens when a...

Question 2

Calculate and explain the use of income elasticity.
-What is income elasticity? What is it used to measure?

Accepted Answer

The answer of Calculate and explain the use of income...

Question 3

Calculate and explain the use of income elasticity.
-Use income elasticity to explain the differences between normal, inferior, luxury, and necessity goods.

Accepted Answer

The answer of Calculate and explain the use of income...

Question 4

Calculate and explain the use of income elasticity.
-Look at each of the following pairs and discuss which component has a higher price and income elasticity. Briefly explain your answer.
a. movies/taxi cabs
b. tobacco/gasoline
c. electricity/water
d. mobile phone service/clothing
e. intercity busses/doctor's services
Both are necessity goods. Doctor's services are likely to be more inelastic in most cases.

Accepted Answer

The answer of Calculate and explain the use of income...

Question 5

Define cross-price elasticity and show how it is used to define necessity and luxury goods.
-What is a complement and what is a substitute good? Give examples of goods that are complements and goods that are substitutes.

Accepted Answer

The answer of Define cross-price elasticity and show how it...

Question 6

Define cross-price elasticity and show how it is used to define necessity and luxury goods.
-What is cross-price elasticity? What is the formula for calculating cross-price elasticity?

Accepted Answer

The answer of Define cross-price elasticity and show how it...

Question 7

Define cross-price elasticity and show how it is used to define necessity and luxury goods.
-Using cross-price elasticity, how is it determined whether a good is a complement or substitute?

Accepted Answer

The answer of Define cross-price elasticity and show how it...

Question 8

Explain the limitations of elasticity (demand, supply, income, and cross-price).
-What are some problems with measuring the various types of elasticities?

Accepted Answer

The answer of Explain the limitations of elasticity (demand, supply,...

Question 9

Explain the limitations of elasticity (demand, supply, income, and cross-price).
-Explain the "identification problem."

Accepted Answer

The answer of Explain the limitations of elasticity (demand, supply,...

Question 10

-In Diagram 27a, the demand curve represented by line D shows

Accepted Answer

The demand curve typically shows an inverse relationship between price and quantity demanded, meaning as price increases, quantity demanded decreases, and vice versa. This is a fundamental principle of economics.

Question 11

-In Diagram 27a, the supply curve represented by line S shows

Accepted Answer

The supply curve typically illustrates a positive relationship between price and quantity supplied, meaning as the price increases, the quantity supplied also increases. This is a fundamental principle in economics, reflecting producers' willingness to supply more of a good as its price rises.

Question 12

Which of the following factors may influence the demand for coffee sold in fast food restaurants?

Accepted Answer

The income of consumers shopping in fast food restaurants has a direct influence on the demand for coffee sold in those restaurants as consumers with higher income may have a greater willingness to purchase coffee. The cost of coffee beans and the wages of workers are internal factors that may affect the price, but not necessarily the demand. The weather during the growing season in Brazil may affect the supply of coffee beans, but not necessarily the demand for fast food coffee.

Question 13

In the simple supply and demand diagram, equilibrium prices are determined by

Accepted Answer

Equilibrium prices are determined by both supply and demand, as they intersect at the point where the quantity demanded and quantity supplied are equal. The government may intervene and affect supply and demand, but in the absence of government intervention, equilibrium prices are determined by the market forces of supply and demand.

Question 14

$\text { Table } 27 \text { a }$
$\begin{array}{ccc}
\hline\text {Price}&\text { Quantity Demanded}&\text { Quantity Demanded}\
&\text { in January}& \text {in February}\
\hline \$ 35,000 & 35,000 & 40,000 \
\hline \$ 30,000 & 40,000 & 45,000 \
\hline \$ 25,000 & 45,000 & 50,000 \
\hline \$ 20,000 & 50,000 & 55,000 \
\hline \$ 15,000 & 55,000 & 60,000 \
\hline
\end{array}$

-Assume Table 27a represents demand schedules for Ford Explorers. In January consumers would have been willing to purchase 45,000 cars at a price of $25,000. In February, they would have been willing to purchase 50,000 cars at a price of $25,000. This change represents

Accepted Answer

The change from wanting to purchase 45,000 cars at $25,000 in January to wanting to purchase 50,000 cars at the same price in February indicates an increase in demand, not just a change in the quantity demanded.

Question 15

$\text { Table } 27 \text { a }$
$\begin{array}{ccc}
\hline\text {Price}&\text { Quantity Demanded}&\text { Quantity Demanded}\
&\text { in January}& \text {in February}\
\hline \$ 35,000 & 35,000 & 40,000 \
\hline \$ 30,000 & 40,000 & 45,000 \
\hline \$ 25,000 & 45,000 & 50,000 \
\hline \$ 20,000 & 50,000 & 55,000 \
\hline \$ 15,000 & 55,000 & 60,000 \
\hline
\end{array}$

-Assume Table 27a represents demand schedules for Ford Explorers. What might account for the difference between the January demand schedule and the February demand schedule?

Accepted Answer

The difference between the January and February demand schedules, where more Ford Explorers are demanded in February at each price level, suggests that consumers are shifting their demand towards Ford Explorers. This could be due to an increase in the price of other Sport Utility Vehicles (SUVs), making Ford Explorers relatively more attractive.

Question 16

$\text { Table } 27 \text { a }$
$\begin{array}{ccc}
\hline\text {Price}&\text { Quantity Demanded}&\text { Quantity Demanded}\
&\text { in January}& \text {in February}\
\hline \$ 35,000 & 35,000 & 40,000 \
\hline \$ 30,000 & 40,000 & 45,000 \
\hline \$ 25,000 & 45,000 & 50,000 \
\hline \$ 20,000 & 50,000 & 55,000 \
\hline \$ 15,000 & 55,000 & 60,000 \
\hline
\end{array}$

-Assume Table 27b represents supply schedules for Ford Explorers. In January Ford Motor Company would have been willing to supply 55,000 cars at a price of $35,000 and 40,000 cars at a price of $20,000. This change from $35,000 to $20,000 represents

Accepted Answer

A decrease in quantity supplied occurs when the price of the product decreases, leading to a movement along the supply curve to a lower quantity.

Question 17

$\text { Table 27b }$
$\begin{array}{ccc}
\hline\text { Price } & \text { Quantity Supplied in } & \text { Quantity Supplied in } \
&\text { January } & \text { February }\
\hline \$ 35,000 & 55,000 & 60,000 \
\hline \$ 30,000 & 50,000 & 55,000 \
\hline \$ 25,000 & 45,000 & 50,000 \
\hline \$ 20,000 & 40,000 & 45,000 \
\hline \$ 15,000 & 35,000 & 40,000\
\hline
\end{array}$
-Assume Table 27a represents supply schedules for Ford Explorers. What might account for the difference between the January supply schedule and the February supply schedule?

Accepted Answer

The difference between the January and February supply schedules, where more Ford Explorers are supplied at each price point in February than in January, could be explained by a decrease in wages paid to Ford factory workers. Lower wages could reduce production costs, allowing Ford to supply more vehicles at each price level.

Question 18

A movement along the same demand curve is referred to as

Accepted Answer

A movement along the same demand curve is referred to as a change in quantity demanded. This means that there has been a change in the price of the good, causing a change in the quantity demanded but not a shift in the overall demand curve.

Question 19

$\text { Table } 27.1 \mathrm{a}$
$\begin{array}{ccc}
\hline \text {Price}& \text { Quantity Demanded }& \text {Quantity Supplied per}\
& \text {per month}&\text { month}\
\hline 35,000 & 35,000 & 55,000 \
\hline \$ 30,000 & 40,000 & 50,000 \
\hline \$ 25,000 & 45,000 & 45,000 \
\hline \$ 20,000 & 50,000 & 40,000 \
\hline 15,000 & 55,000 & 35,000 \
\hline
\end{array}$
-Assume Table 27.1a represents the supply and demand of Ford Explorers. If price is currently $30,000

Accepted Answer

At a price of $30,000, the quantity demanded is 40,000 units while the quantity supplied is 50,000 units, indicating excess supply.

Question 20

$\text { Table } 27.1 \mathrm{a}$ $\begin{array}{ccc} \hline \text {Price}& \text { Quantity Demanded }& \text {Quantity Supplied per}\ & \text {per month}&\text { month}\ \hline 35,000 & 35,000 & 55,000 \ \hline \$ 30,000 & 40,000 & 50,000 \ \hline \$ 25,000 & 45,000 & 45,000 \ \hline \$ 20,000 & 50,000 & 40,000 \ \hline 15,000 & 55,000 & 35,000 \ \hline \end{array}$ -Assume Diagram 27.1a represents the market for wheat bread. The shift in demand from D₁ to D₂ will

Accepted Answer

When demand increases (shifts right), it typically causes the equilibrium price and quantity to rise, as more people are willing to buy the product at higher prices, and producers are willing to supply more at higher prices.

Quiz 27: Simple Analytics of Supply and Demand

Calculate and explain the use of income elasticity. -What is income elasticity? What is it used to measure?

Calculate and explain the use of income elasticity. -Use income elasticity to explain the differences between normal, inferior, luxury, and necessity goods.

Define cross-price elasticity and show how it is used to define necessity and luxury goods. -What is a complement and what is a substitute good? Give examples of goods that are complements and goods that are substitutes.

Define cross-price elasticity and show how it is used to define necessity and luxury goods. -What is cross-price elasticity? What is the formula for calculating cross-price elasticity?

Define cross-price elasticity and show how it is used to define necessity and luxury goods. -Using cross-price elasticity, how is it determined whether a good is a complement or substitute?

Explain the limitations of elasticity (demand, supply, income, and cross-price). -What are some problems with measuring the various types of elasticities?

Explain the limitations of elasticity (demand, supply, income, and cross-price). -Explain the "identification problem."

-In Diagram 27a, the demand curve represented by line D shows

-In Diagram 27a, the supply curve represented by line S shows

Which of the following factors may influence the demand for coffee sold in fast food restaurants?

In the simple supply and demand diagram, equilibrium prices are determined by

A movement along the same demand curve is referred to as