Concepts of : Increase and decrease in demand |Increase and decrease in supply |Inferior goods |Normal goods |Joint products |Shift in demand and supply | Substitute products |Substitutes |Complements|
Why do we hold price constant when we talk about increasing or decreasing demand?
- We hold the price constant to avoid confusing an event that causes a shift in demand while holding price constant with the events resulting from price changes.
Is it the same when people are willing to (1) buy more at each price and (2) pay a higher price for each quantity?
- Yes. Both show an increase in demand.
If consumers buy fewer burner covers for their stoves when their income goes up, are burner covers a normal good, or an inferior good?
- An inferior good.
When the price of a good’s complement goes up, what happens to the demand for the good?
- It shifts to the left and down.
Is it the same thing when suppliers are willing to (1) supply more at each price and (2) charge a lower supply price at each quantity?
- Yes. Both show an increase in supply.
What is the sequence of events for describing how an event affects price and quantity?
- Equilibrium, event and shift, shortage or surplus at old equilibrium price, movement to new equilibrium price, new equilibrium.
Does an increase in both price and output violate the law of demand?
- No. This event occurs when demand shifts to the right.
If the cost of production goes up, does the supply curve shift to the left, or to the right?
- To the left.
What is the only factor that changes the quantity demanded (and supplied) but not demand (and supply)?
- Price.
If world demand for wheat goes up and at the same time farmers find a cheaper way to grow wheat, what will happen to wheat prices and output?
- Wheat prices: effect is uncertain. Wheat output: up.
In 1970, electronic calculators cost over $100. Today, calculator with the same capacity cost under $10. Yet more are sold to day than in 1970. Does this violate the law supply?
- No. The event describes the effects of an outward shift in the supply curve, not a movement along the supply curve.
There is currently a trend toward “natural clothing.” This trend has increased the demand for clothing made out of cotton. How will this trend affect the price of cotton sheets?
- Because of the increase in demand for cotton, the price of cotton will rise. This higher cost will reduce the supply of sheets, raising the price.
In Yorkville, rent controls have caused a shortage of apartments. If rent controls (which impose a price floor on rents) were removed, what would happen to the quantity of apartments demanded? To the quantity supplied. To the number of apartments rented?
- As rents rise, the quantity demanded will go down while the quantity supplied will go up. This will remove the shortage. The number of apartments rented will go up.
The third and fourth sentences of the following statement are wrong. Why? “Consumer demand for cars has increased because of higher consumer income. As a consequence, the price of cars has risen. We know that when the price of cars goes up, the demand will go down. So fewer cars will be bought when consumer income goes up.”
- What we “know” is that when the price goes up, the quantity demanded goes down, but “demand” and the demand curve remain unchanged. The price goes up because if it did not, there would be a shortage of cars. As the price goes up, the quantity demanded on the newnet the quantity demanded will go up because of the shift in demand. Also, the higher price causes the quantity supplied on the old supply curve to go up. This gets rid of the shortage.
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