EC140 Lecture Notes - Lecture 3: Economic Equilibrium, Demand Curve, Perfect Competition

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4 Oct 2020

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Groups of buyers and sellers of a good or service. Organized (international oil company) or disorganized (local babysitting) size of a market depends on the nature of the good. Competitive markets require that there are many buyers with free choice o homogeneous products- no brand differentiation: numerous buyers and sellers. Perfect competition is rare- but a useful starting point. Quantity demanded- amount of a good buyers are willing and able to purchase at a given price law of. Demand- as a price rises, quantity demanded falls. Demand schedule- table showing the relationship between price and quantity demand demand curve- graph of the demand schedule. Market demand vs individual demand- market demand adds up individual demand// summing individual demand curves horizontally. Key difference: change in demand or in quantity demanded. When a price of good changes- quantity demanded changes (not demand)

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1 Other things remaining the same, a left shift in the supply curve will lead to:

A. a decrease in the equilibrium price and the equilibrium quantity.

B. an increase in the equilibrium price and the equilibrium quantity.

C. an increase in the equilibrium price and a decrease in the equilibrium quantity.

D. a decrease in the equilibrium price and an increase in the equilibrium quantity.

2 Two goods are said to be complements when a fall in the price of one good:

A. leads to a fall in price of the other good.

B. leads to a left shift in the demand for the other good.

C. leads to a right shift in the demand for the other good.

D. doesn't affect the demand for the other good.

3 In a competitive free market:

A. all exchanges take place involuntarily.

B. there is no provision for the protection of property rights.

C. there is only one seller and many buyers.

D. the government does not impose price controls.

4 Which of the following correctly explains the role of economic agents in a free market?

A. Economic agents allocate goods to those buyers who value the goods the most.

B. Economic agents allocate goods to those buyers who need the goods the most.

C. Economic agents set production quotas for sellers in the market.

D. Economic agents set prices according to the production cost of each good.

5 Which of the following was an effect of the price ceiling placed on gasoline in the U.S. in the 1970s?

A. Gas stations ran out of gas as the quantity of gas demanded exceeded the quantity supplied.

B. Car owners started buying luxury cars that were less fuel-efficient as the price of gas was very low.

C. Those who valued gas the most were able to buy gas under the price ceiling.

D. The inventory of unsold gas increased and gas stations incurred losses.

6 Willingness to accept is:

A. the highest price that a producer is willing to receive to sell an extra unit of a good.

B. always higher than the marginal cost of production.

C. always lower than the marginal cost of production.

D. the lowest price that a producer is willing to receive to sell an extra unit of a good.

7 Assume that the economy is in a recession and consumers are expecting a fall in their income levels. This will cause a(n):

A. right shift in the market demand for all goods.

B. left shift in the market demand for all goods.

C. an increase in the total quantity demanded of all goods.

D. decrease in the total quantity demanded of all goods.

8 Which of the following factors is expected to cause the demand curve for coffee to shift to the right?

A. A higher personal tax on the income of all consumers

B. An increase in the supply of coffee due to better weather

C. A higher tax on the sale of tea, a substitute for coffee

D. A fall in the manufacturing cost of coffee

9 If the demand and supply curves for a commodity shift to the right and the shift in demand is greater than the shift in supply, then in comparison to the initial equilibrium, the new equilibrium will be characterized by:

A. the same price and quantity.

B. a lower price and quantity.

C. a higher price and a lower quantity.

D. a higher price and quantity.

10 Which of the following statements correctly describes a perfectly competitive market?

A. Haggling and bargaining are commonly observed in a perfectly competitive market.

B. Buyers in a perfectly competitive market pay different prices according to their individual demand.

C. In a perfectly competitive market, individual sellers and buyers can influence the market price.

D. All participants in a perfectly competitive market are price-takers.

limecrow885

1. Other things remaining the same, a left shift in the supply curve will lead to:

A. a decrease in the equilibrium price and the equilibrium quantity.

B. an increase in the equilibrium price and the equilibrium quantity.

C. an increase in the equilibrium price and a decrease in the equilibrium quantity.

D. a decrease in the equilibrium price and an increase in the equilibrium quantity.

2. Two goods are said to be complements when a fall in the price of one good:

A. leads to a fall in the price of the other good.

B. leads to a left shift in the demand for the other good.

C. leads to a right shift in the demand for the other good.

D. doesn't affect the demand for the other good.

3. In a competitive free market:

A. all exchanges take place involuntarily.

B. there is no provision for the protection of property rights.

C. there is only one seller and many buyers.

D. the government does not impose price controls.

4. Which of the following correctly explains the role of economic agents in a free market?

A. Economic agents allocate goods to those buyers who value the goods the most.

B. Economic agents allocate goods to those buyers who need the goods the most.

C. Economic agents set production quotas for sellers in the market.

D. Economic agents set prices according to the production cost of each good.

5. Which of the following was an effect of the price ceiling placed on gasoline in the U.S. in the 1970s?

A. Gas stations ran out of gas as the quantity of gas demanded exceeded the quantity supplied.

B. Car owners started buying luxury cars that were less fuel-efficient as the price of gas was very low.

C. Those who valued gas the most were able to buy gas under the price ceiling.

D. The inventory of unsold gas increased and gas stations incurred losses.

6. Willingness to accept is:

A. the highest price that a producer is willing to receive to sell an extra unit of a good.

B. always higher than the marginal cost of production.

C. always lower than the marginal cost of production.

D. the lowest price that a producer is willing to receive to sell an extra unit of a good.

7. Assume that the economy is in a recession and consumers are expecting a fall in their income levels. This will cause a(n):

A. right shift in the market demand for all goods.

B. left shift in the market demand for all goods.

C. increase in the total quantity demanded of all goods.

D. decrease in the total quantity demanded of all goods.

8. Which of the following factors is expected to cause the demand curve for coffee to shift to the right?

A. A higher personal tax on the income of all consumers

B. An increase in the supply of coffee due to better weather

C. A higher tax on the sale of tea, a substitute for coffee

D. A fall in the manufacturing cost of coffee

9. If the demand and supply curves for a commodity shift to the right and the shift in demand is greater than the shift in supply, then in comparison to the initial equilibrium, the new equilibrium will be characterized by:

A. the same price and quantity.

B. a lower price and quantity.

C. a higher price and a lower quantity.

D. a higher price and quantity.

10. Which of the following statements correctly describes a perfectly competitive market?

A. Haggling and bargaining are commonly observed in a perfectly competitive market.

B. Buyers in a perfectly competitive market pay different prices according to their individual demand.

C. In a perfectly competitive market, individual sellers and buyers can influence the market price.

D.All participants in a perfectly competitive market are price-takers.

viridianhare505

The following table shows the market demand schedule and supply schedule for notebooks.

Price ($/unit)	Quantity Demanded (units)	Quantity Supplied (units)
1	20	4
2	16	6
3	14	10
4	12	12
5	10	14
6	7	17
7	4	20
8	2	22
9	1	25

Refer to the table above. Assume that the market for notebooks is in equilibrium.

1. Which of the following is likely to happen if there is an increase in the school enrollment rate, everything else remaining unchanged?

A. Both the equilibrium price and quantity of notebooks decrease.

B. The equilibrium price and quantity remain unchanged.

C. Both the equilibrium price and quantity of notebooks increase.

D. The equilibrium price increases, but the equilibrium quantity of notebooks decreases.

2. A shortage occurs in a market when:

A.price is lower than the equilibrium price.

B. price is higher than the equilibrium price.

C. supply exceeds demand.

D. the marginal utility of consumption is negligible.

3. A change in the quantity demanded of a good is:

A. the outcome of a change in income.

B. the outcome of a change in tastes and preferences.

C. represented by a shift to a new demand curve.

D. represented by a movement along the demand curve.

4. The following table shows the demand schedules of three consumers of wine. Assume that these three buyers constitute the entire market.

PRICE ($/Bottle)	Sandra's Demand (Bottles)	David's Demand (Bottles)	Mary's Demand (Bottles)
â$8	2		10
â$6	14	15	18
â$4		23	24
â$2	24	27	28

Refer to the table above. If the market price of wine is $8/bottle, and the market demand for wine is 19 bottles, David's consumption of wine is:

A. 12 bottles.

B. 9 bottles.

C. 4 bottles.

D. 7 bottles.

5. Which of the following factors will NOT cause a shift in the demand for a good?

A. A change in the number of consumers

B. A change in the market price of the good

C. A change in tastes and preferences

D. A change in consumer incomes

6. Are all markets perfectly competitive?

A. No, there are other market types where firms have considerable power to control the price.

B. Yes, any economic system with a market structure is by definition perfectly competitive.

C. No, there are also command and control markets that are run by a central government.

D. No, in other types of markets, sellers offer identical goods and simply accept the market price.

7. Assume that a seller in a perfectly competitive market charges more than the equilibrium price. It is likely that this seller will:

A. increase his profit.

B. lose only a few buyers.

C. increase his sales.

D. lose almost all of his buyers.

8. The willingness to pay for a commodity:

A. increases as the consumption of the commodity increases.

B. is always less than the market price of the commodity.

C. decreases as the consumption of the commodity increases.

D. is always greater than the market price of the commodity.

9. Which of the following is likely to lead to a right shift in the supply curve of cotton?

A. An increase in labor productivity due to training programs

B. A rise in labor costs due to wage demands by labor unions

C. An increase in the price of cotton

D. A decrease in the price of cotton

10. The buyers of a good will want to purchase it as long as their willingness to pay for the good is:

A. equal to zero.

B. greater than or equal to the price.

C. greater than zero.

D. less than the price.

redmammoth450

EC140 Lecture Notes - Lecture 3: Economic Equilibrium, Demand Curve, Perfect Competition

EC140 Full Course Notes

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