Question 1

Explain the law of demand. What does it imply about the shape of the demand curve?

Accepted Answer

The law of demand describes the inverse relationship between price and quantity demanded. All else equal, as the price of a good rises, the quantity demanded of the good will fall. As the price of a good falls, the quantity demanded rises. This implies that the demand curve will be downward sloping.

Question 2

Newspaper machines and soda vending machines operate very differently. The newspaper machine is a mechanical box. You place your four quarters in the machine and you open the door and low and behold there is a stack of newspapers at your disposal. Most people take one and close the door for the next patron to purchase his own copy. But notice that soda vending machines don't operate the same way. They are also mechanical but when the four quarters are inserted and a selection is made only one can of soda is available for the consumer to purchase. Explain in terms of marginal utility why these two machines are designed so differently?

Accepted Answer

The marginal utility of a second newspaper is most likely to be zero for most people. That is, the extra added satisfaction of acquiring a second newspaper is probably negligible. After all, it contains all of the same news as the first copy. However, the cans of cold beverage that remain in the soda machine still have positive marginal utility even though it may be less than the marginal utility of the first can. It pays for the vendor to design a machine that keeps the rest of the cans of soda away from those who might not be inclined to pay for the second can of soda.

Question 3

List and describe three different input markets.

Accepted Answer

The labor market is where household members sell their labor services in exchange for wages. In capital markets, households supply funds for firms to purchase capital equipment. Land and other real property are exchanged in the land market.

Question 4

Explain how the input and output markets are connected.

Accepted Answer

The answer of Explain how the input and output markets...

Question 5

Explain the law of diminishing marginal utility. How does it relate to the shape of
the demand curve?

Accepted Answer

The answer of Explain the law of diminishing marginal utility....

Question 6

Suppose the U.S. economy enters a recession and incomes fall. What will happen to
the equilibrium prices and quantities of normal goods? Would your answer be the same if you were discussing inferior goods? Why or why not?

Accepted Answer

The answer of Suppose the U.S. economy enters a recession...

Question 7

What types of things are sold in input or factor markets? Who are the buyers and
sellers in these markets?

Accepted Answer

The answer of What types of things are sold in...

Question 8

What is the difference between a demand schedule and a demand curve?

Accepted Answer

The answer of What is the difference between a demand...

Question 9

List three things that can cause an increase in demand. Be specific.

Accepted Answer

The answer of List three things that can cause an...

Question 10

Explain the difference between a change in demand and a change in quantity
demanded.

Accepted Answer

The answer of Explain the difference between a change in...

Question 11

Draw a hypothetical example of the demand curve for gasoline and explain it.

Accepted Answer

The answer of Draw a hypothetical example of the demand...

Question 12

What is a demand schedule? Provide an example and explain it.
It is a table showing how much of a given product a household would be willing to buy at different prices. Below is an example of a demand schedule. As the price falls the quantity demanded rises.

Accepted Answer

The answer of What is a demand schedule? Provide an...

Question 13

Explain what an entrepreneur is and its function.

Accepted Answer

The answer of Explain what an entrepreneur is and its...

Question 14

List three characteristics of demand curves. Make sure to explain the shape of the
curve and the meaning of the vertical and horizontal intercepts.

Accepted Answer

The answer of List three characteristics of demand curves. Make...

Question 15

Define what a firm is and its role in the market.

Accepted Answer

The answer of Define what a firm is and its...

Question 16

Even though household have wide-ranging preferences, discuss some of the things
that all households have in common including their constraints.

Accepted Answer

The answer of Even though household have wide-ranging preferences, discuss...

Question 17

Some baseball parks have a "7th Inning Stretch" where beer, hotdogs and other food
items are offered for sale at a lower price. What economic concept is being used by the baseball park to justify this practice? If it is successful at selling more food and
drink with this practice why don't they lower prices at the beginning of the game?

Accepted Answer

The answer of Some baseball parks have a "7th Inning...

Question 18

What relationship is shown by a demand curve?

Accepted Answer

The answer of What relationship is shown by a demand...

Question 19

A free good is a good whose existence requires no opportunity cost to produce. How
is this different from a good that is offered for a price of zero?

Accepted Answer

The answer of A free good is a good whose...

Question 20

A video rental store rents old movies for $1.50 per day. On average, 300 movies are
rented each day. The store receives several copies of a new smash movie just released in video and decides to rent these movies at $3.50 per day. Now, 400 movies are rented each day. Thus, though the average rental price of a movie increased, the quantity rented increased. Does this mean that the law of demand does not hold for this market?

Accepted Answer

The answer of A video rental store rents old movies...

Quiz 3: Demand, Supply, and Market Equilibrium

Explain the law of demand. What does it imply about the shape of the demand curve?

List and describe three different input markets.

Explain how the input and output markets are connected.

Explain the law of diminishing marginal utility. How does it relate to the shape of the demand curve?

Suppose the U.S. economy enters a recession and incomes fall. What will happen to the equilibrium prices and quantities of normal goods? Would your answer be the same if you were discussing inferior goods? Why or why not?

What types of things are sold in input or factor markets? Who are the buyers and sellers in these markets?

What is the difference between a demand schedule and a demand curve?

List three things that can cause an increase in demand. Be specific.

Explain the difference between a change in demand and a change in quantity demanded.

Draw a hypothetical example of the demand curve for gasoline and explain it.

What is a demand schedule? Provide an example and explain it. It is a table showing how much of a given product a household would be willing to buy at different prices. Below is an example of a demand schedule. As the price falls the quantity demanded rises.

Explain what an entrepreneur is and its function.

List three characteristics of demand curves. Make sure to explain the shape of the curve and the meaning of the vertical and horizontal intercepts.

Define what a firm is and its role in the market.

Even though household have wide-ranging preferences, discuss some of the things that all households have in common including their constraints.

What relationship is shown by a demand curve?

A free good is a good whose existence requires no opportunity cost to produce. How is this different from a good that is offered for a price of zero?