Liberty University ECON 213 InQuizitive chapter 3 complete solutions correct answers updated

Liberty University ECON 213 InQuizitive ch. 3 complete solutions correct answers updated

Chapter 3: The Market at Work: Supply and Demand

Consider the following demand and supply schedules for coffee. What is the price when the market is in equilibrium?

“Shortage” and “scarcity” mean the same thing.

Suppose that a factory’s supply curve is shown by the yellow line labeled S₁. The workers threaten to go on strike, and the factory owner agrees to increase their wages. Show the impact on supply after the wages go up by clicking on the appropriate curve. If there is no shift, select S₁.

Which items represent examples of Adam Smith’s “invisible hand” at work?

A tailor who makes suits for clients by hand buys his own suits off the rack.

An auto manufacturer uses imported leather for the seats in its vehicles.

A cafe owner discards expired food, to avoid a fine from the health department.

A gas station owner closes on certain days of the year, for religious reasons.

Consider the demand schedule for salmon in a market with two consumers, Derek and Meredith: What is the quantity demanded by the market at a price of $12.50 per pound?

1.

Apply the correct label to each situation:

1. Pumpkins: an early frost destroyed much of the pumpkin crop. A newspaper reports zucchini is better for pie than pumpkin.
2. Corn: news media run stories about people with corn allergies. The corn crop is unusually large.
3. Taxis: public transit workers at a popular tourist attraction go on strike as a holiday weekend approaches
4. Gasoline: a new housing development goes up. Several new gas stations are built nearby

2.

Consider the market for caramel and butterscotch ice cream toppings. For each price change, identify the likely effect on the demand curve for caramel topping.
1. The price of caramel topping decreases
2. The price of ice cream increases
3. The price of butterscotch topping increases

3.

Consider the market for tablet (like iPads and Android tablets). Suppose the average price of an iPad goes up by $20 when a major online retailer changes its sale policies. Which of the following will occur?
a) the supply curve for iPads will shift
b) the price of Android tablets will increase
c) the demand for Android tablets will increase
d) the supply curve for Android tablets will shift
e) the demand curve for iPads will shift

4.

For a Honda Accord, some factors shift demand left and others shift it right, as shown. Classify each factor by how it shifts the current demand curve to a new position.

1. Big sale coming in three months
2. Consumers' income increases by 10%
3. Free brake inspections
4. 2% rebate on a Toyota Camry, a substitute good

5.

How do you find what the price for something is when the market is in equilibrium?

6.

Fill in the blanks to illustrate how the market corrects itself when it is out of equilibrium. If there is currently a shortage of coffee in the economy, then the       is greater than the      . According to the        , in order for the market to reach equilibrium, the price must       .

8.

Match each inventory situation to the market condition with which it is associated.
Shortage, surplus, inventory depletion, inventory buildup

9.

Place in order the stages of a market experiencing a shortage and then regaining equilibrium.

10.

Fill in the blanks to complete the statement contrasting competitive and imperfect markets. Rural Internet access, with one dominant provider that faces very little competition, is a good example of         market. It functions as       . By contrast, a flea market or swap meet, where        buyers and sellers get together to conduct transactions, is an example of        market. No single         exerts          control over prices.

11.

Fill in the blanks to complete the statement comparing used cars and new cars. Since used cars are         goods compared with new cars, we should expect that as income increases, the demand for used cars should      . On the other hand, new cars are        goods. We should expect an increase in income to         the demand for new cars.

12.

Suppose that both the number of buyers and the number of sellers increase. Which of the following will occur?

13.

Fill in the blanks to complete the following sentence. Suppose that Seattle’s city government decides to increase the minimum wage for coffee shop baristas. This would         the supply of coffee by altering the        

14.

Suppose that the supply of automobiles is given by the equation P= -5000 + 2000Q where P is the price in dollars and Q is the quantity of cars. At a price of $23,000 each, how many cars will be supplied?

15.

Suppose the government believes that there are too many cigarettes in the market. Which of the following policies could the government implement to decrease the supply of cigarettes?
a) tax the tobacco crop
b) tax consumers on the purchase of cigarettes
c) subsidize tobacco farmers, thus lowering the price of tobacco
d) tax the manufacturing of cigarettes

16.

Fill in the blanks to complete the statement about the demand for eggs. Suppose the price of eggs decreases from $5 per dozen to $4 per dozen. According to the law of       , we should expect the           to increase.

17.

Suppose there are seven coffee shops located on the same busy street. If two of the coffee shops close, which of the following will occur, holding all else fixed?
a) the price of coffee will increase
b) the supply of coffee will decrease
c) the demand for coffee will decrease
d) the supply of coffee will increase, since the remaining shops will sell more than before

18.

Fill in the blanks to complete the following statement regarding the relationship between price and supply. Suppose there is a 10% rise in the price of gasoline. Then, according to the law of       , we expect the quantity of gasoline supplied to        . Conversely, if the price goes         , quantity supplied will       , as well

19.

If Zoe believes that the price of apples is going to increase by 50% in four weeks, then her current demand for apples should increase.

20.

In a scenario where we expect a shift in both supply and demand, if the demand for a product increases, the price will always increase.

21.

Sellers set the demand for a product, while the buyers set the supply

22.

What is the most likely effect on the demand for apples if the price of pears rises?

23.

Which of the following are true regarding competitive markets?
a) removing a buyer will significantly alter the demand
b) individual buyers do not have significant influence on the price
c) forces of supply and demand significantly affect consumer and producer behavior
d) individual sellers do not have significant influence on the price
e) removing a seller will significantly alter the supply

24.

Which of the following could change the equilibrium price of gas?
a) Summer weather encourages people to drive more
b) A hurricane destroys an oil refinery
c) A newspaper runs a story on the history of the petroleum industry
d) A gas station does a week-long "free car wash with 10-gallon purchase" promotion

25.

Which of the following goods or services can be allocated in a market economy

1.

Fill in the blanks to complete the statement about Adam Smith’s description of a market economy. According to Adam Smith, people are motivated to be as productive as possible based on their own        . In a market economy,         respond to both         . Goods and services are then exchanged, and resources are allocated to their highest-valued use as if guided by        .

2.

According to Adam Smith, resources are allocated through a market economy to their highest-valued use as if guided by an invisible hand. Put the market for gold in order as prescribed by this concept.

3.

Consider the market for gasoline. Suppose that a new oil-pump technology is developed, making gasoline production less costly. At the same time, war breaks out and several oil fields are destroyed. What will be the effect on supply?

5.

Consider two goods that are substitutes. A price increase for one good will cause the quantity demanded of that good to . The quantity demanded of the substitute good will . When two goods are complements of each other, a price  for either product will cause  of both goods to decline.

6.

The formula for price elasticity of supply is:

7.

How does an increase of income affect spending on necessities and luxuries?

8.

How does the existence of substitutes affect the price elasticity of demand?

9.

If a business sees that demand for its product is , it makes sense to lower the price in order to  revenue. However, if demand is , lowering the price will not increase revenue.

10.

If demand for oil increases, what can we assume about the price elasticity of supply and demand?

11.

If the price of oceanfront property increases, the quantity for land will stay the same. As a result, the price elasticity of will be .

13.

In the run, a producer may have difficulty increasing its , which makes supply . However, in the run the producer may be able to increase the quantity supplied to make its supply more. As time moves from the immediate run onward, suppliers become more .

14.

Jenna is looking to buy a new computer. When would the price elasticity of demand be more elastic for her computer? Order the situations from most inelastic to most elastic.

15.

Fill in the blanks to complete the statement describing market equilibrium. The market-clearing price for cantaloupes is the price at which the quantity supplied equals the       . If the market price is too high, then there is a      . If the market price is too low, then there is a         .

16.

The price elasticity of equals the percentage change in divided by the percentage change in . When the percentage change in the quantity demanded is larger than the percentage change in price, the demand is .

18.

A simple calculation of the price elasticity of demand will yield results depending on whether one considers the change as going from (Q1, P1) to (Q2, P2) or in the reverse direction. The midpoint method gives the same answer either way, because it uses price and  quantity as the basis for the change calculations.

21.

Suppose that due to unfavorable growing conditions, this year's global coffee crop was unusually small. What can we assume about the short-run price elasticity of supply and demand for coffee?

25.

Suppose there are five buyers in a market. Which of the following represents the market demand?

28.

If the holiday season is coming up in a couple of weeks, an electronics manufacturer is likely to hire more workers to help increase the supply today.

31.

Individuals purchase inferior goods out of necessity, rather than choice.

33.

"Shortage" and "scarcity" mean the same thing.

34.

The cross-price elasticity of demand for jeans and textbooks is zero, because the two products have no particular relationship.

35.

The law of supply applies to normal goods, but not inferior goods.

36.

Total revenue is calculated by subtracting the total costs from the price.

37.

You can expect the price elasticity of demand to be more elastic for a car than for a restaurant meal.

38.

What are some strategies producers can use to maintain an elastic supply?

39.

What are the determinants of the price elasticity of supply?

40.

What correctly describes the income elasticities of necessities?

41.

What does the price elasticity of supply measure?

42.

What is the most likely effect on the price of apples if the price of pears increases?

43.

When consumers are unresponsive, what does that mean?

44.

When consumers have more money, they are likely to purchase inferior goods. This means that elasticity of demand is : as income goes up, quantity demanded goes.

45.

When the price of a necessity increases, demand is likely to be because consumers that product to survive. However, when the price of a luxury good increases, consumers may because the good is not crucial to survival. Thus, the demand would be .

46.

When you are using the price elasticity of demand equation, what does it mean when you obtain a zero in the numerator?

47.

Which determinants influence whether demand is elastic or inelastic?

49.

Which of the following are true regarding imperfect markets?

50.

Which of the following could be expected to cause a shift in the demand curve for men’s jeans, assuming jeans are a normal good?

53.

Which products would you expect to have a higher price elasticity of demand? Order them from most inelastic to most elastic.

54.

Why might a producer price its product at a price point far lower than its competitors?

2.

According to Adam Smith, resources are allocated through a market economy to their highest-valued use as if guided by an invisible hand. Put the market for gold in order as prescribed by this concept.

3.

An approaching snowstorm prompts many consumers to want to buy shovels. Unfortunately, the local shovel factory recently burned, so supplies of shovels are running low. Click on the area of the graph most likely to contain the new equilibrium price and quantity.

4.

Consider the demand schedule for salmon in a market with two consumers, Derek and Meredith:

6.

Consider the market for gasoline. Suppose that a new oil-pump technology is developed, making gasoline production less costly. At the same time, war breaks out and several oil fields are destroyed. What will be the effect on supply?

8.

Consider the supply curve for bottles of soda. Identify each event as causing either a shift in supply or a movement along the supply curve.

10.

Drag the items to classify each event as movement along the demand curve or a demand curve shift. The good is fertilizer for flowering plants.

13.

Identify each good as being either a normal good or an inferior good.

20.

Match each shifter of demand with an example. Jack is fired from his management job and takes a job as a clerk. Rumors circulate about coming price cuts on a popular electronic device. Lowered price on a smartphone drives up demand on accessories for that phone. A stylish new electric car with impressive performance changes consumer perceptions about electric vehicles.

21.

One autumn, the weather is perfect for growing pumpkins, and the pumpkin crop is much larger than usual. Meanwhile, when Halloween approaches, jack-o'-lanterns turn out to be less popular than in prior years. Instead, consumers spend more on costumes. What will happen to the price of pumpkins around Halloween, compared with last year?

26.

"Shortage" and "scarcity" mean the same thing.

35.

What is the most likely effect on the price of apples if the price of pears increases?

39.

Which of the following could change the equilibrium price of gas?