Combining Supply And Demand Ch. 6

Complementary goods are goods or services that are purchased and used together in combination. They are often consumed together and are mutually beneficial to each other. For example, peanut butter and jelly are complementary goods because they are commonly used together to make a sandwich. When the price of one complementary good increases, the demand for the other complementary good decreases. This is because consumers are less likely to purchase one without the other. Therefore, the given answer, Complementary Good, correctly describes goods or services that are purchased and used in combination.

Equilibrium is the point at which the quantity demanded by consumers is equal to the quantity supplied by producers. It represents a state of balance in the market, where there is no shortage or surplus of goods. At equilibrium, the price is set at a level that both buyers and sellers agree on, ensuring that the market clears and there is no excess demand or supply.

When the price of a product is set below its equilibrium price, it means that the price is lower than what the market demands. This creates an imbalance between the quantity demanded by consumers and the quantity supplied by producers. As a result, there will be more consumers willing to buy the product at the lower price than there are products available. This leads to a shortage of the product, as the demand exceeds the supply. Therefore, the statement that a price below a product's equilibrium price will result in a shortage is true.

The cost of inputs refers to the expenses incurred by tomato farmers in producing their crops. If the cost of water, which is an essential input in tomato farming, increases, it will directly impact the farmers' production costs. To maintain profitability, the farmers would then decide to decrease the supply of their crop. This shift in supply is a rational response to the increased cost of inputs, as reducing the supply allows the farmers to offset the higher expenses and maintain their profit margins.

A surplus exists when the quantity supplied exceeds the quantity demanded. In this scenario, a surplus exists at points A, B, and C because the quantity supplied is greater than the quantity demanded at these price levels. At point A, the price is $2.00, and the quantity supplied is 175 while the quantity demanded is only 25. At point B, the price is $1.75, and the quantity supplied is 150 while the quantity demanded is 50. At point C, the price is $1.50, and the quantity supplied is 125 while the quantity demanded is 75. Therefore, a surplus exists at points A, B, and C.

The correct answer is Law of Supply. The Law of Supply states that as the price of a product increases, the quantity supplied by producers also increases. This is because higher prices incentivize producers to supply more of the product in order to maximize their profits. Conversely, if the price of a product decreases, the quantity supplied will decrease as well. The Law of Supply is a fundamental concept in economics that helps explain the relationship between price and quantity supplied in a market.

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At point D, the market reaches equilibrium. This is because at this price per slice of pizza ($1.25), the quantity demanded (100) is equal to the quantity supplied (100). There is no surplus or shortage of pizza slices at this price, indicating that the market is in balance.

An inferior good is a type of good for which demand decreases as income increases. This means that as a consumer's income rises, they are less likely to purchase this type of good. This could be due to the fact that as their income increases, they have more disposable income to spend on higher-quality goods or substitutes for the inferior good. Therefore, the given answer "Inferior Good" is correct in explaining that the consumer's demand for this type of good will decrease as their income increases.

A normal good is a type of product for which the demand increases as the consumer's income increases. This means that as the consumer earns more money, they are willing and able to purchase more of the normal good. This is because they have more disposable income to spend on goods and services. Therefore, the correct answer is normal good.

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A market is not always in a state of equilibrium. Equilibrium in a market occurs when the quantity demanded by consumers is equal to the quantity supplied by producers. However, markets are dynamic and constantly changing due to various factors such as changes in consumer preferences, technology, and government policies. These changes can disrupt the balance between supply and demand, leading to shifts in prices and quantities, and causing the market to be in a state of disequilibrium. Therefore, the statement that a market is always in a state of equilibrium is false.

The correct answer is minimum wage. The government sets a price floor on the earnings for workers through the establishment of a minimum wage. This minimum wage ensures that workers are paid a certain amount, which is typically higher than the market equilibrium wage. By setting a minimum wage, the government aims to protect workers from exploitation and ensure that they receive a fair and livable wage.

An increase in the number of people who are unemployed is not expected to cause the demand for butter to increase. When people are unemployed, they generally have less disposable income to spend on non-essential items like butter. Therefore, the demand for butter is unlikely to increase in this scenario.

Demand indicates the quantity of a product that a consumer is willing and able to purchase at a given price, assuming all other factors remain constant. It implies that the consumer has both the desire and the financial capability to buy the product.

Demand curves typically slope down from left to right because as the price of a good or service decreases, the quantity demanded tends to increase. This is known as the law of demand. However, demand curves can also slope up from right to left in certain situations, such as when there is a Giffen good, which is a type of inferior good where the quantity demanded increases as the price increases. In such cases, the income effect outweighs the substitution effect, leading to a positive slope. Therefore, the statement "They can slope down from the right to the left" is false.

A government payment that supports a business or market is called a subsidy. When a subsidy is provided, it reduces the cost of production for businesses, making it more affordable for them to produce goods or services. This, in turn, encourages businesses to increase their supply of goods or services, leading to an increase in supply in the market.

When the price of a product increases, the producer is likely to increase the quantity supplied. This is because a higher price incentivizes producers to supply more of the product in order to maximize their profits. As the price rises, producers can earn more revenue per unit sold, making it more profitable for them to increase their production and supply more of the product to the market. Therefore, increasing the quantity supplied is the logical response for producers when the price of a product increases.

When quantity supplied does not equal quantity demanded, it indicates a state of disequilibrium in the market. This means that there is either a shortage or a surplus of the product. In the case of a shortage, the quantity demanded exceeds the quantity supplied, leading to an imbalance in the market. On the other hand, a surplus occurs when the quantity supplied exceeds the quantity demanded. In both cases, the market is in a state of disequilibrium as the forces of supply and demand are not balanced.

A price ceiling is a government-imposed limit on the maximum price that can be charged for a good or service. It is usually set below the equilibrium price in order to protect consumers and ensure affordability. By preventing prices from rising too high, a price ceiling can help to alleviate potential market failures and promote fairness in the distribution of goods. In this context, the correct answer is price ceiling.

A change in the price of a good or service will not cause that product's demand curve to shift because the demand curve represents the relationship between the price of a product and the quantity demanded at each price point. A change in price will result in a movement along the demand curve, known as a change in quantity demanded, but it will not shift the entire curve. Shifts in the demand curve are caused by factors such as changes in consumer preferences, income levels, or the prices of related goods.

If China placed a tax on American made Levi's that are imported to their country, it would raise the price of Levi's jeans in China. This is because the tax would increase the cost of importing Levi's, which would be passed on to the consumers in the form of higher prices. Additionally, the tax would reduce the quantity of Levi's jeans available in China, as the higher price would decrease the demand for Levi's. Therefore, the correct answer is that it would raise price and reduce quantity.

Ceteris paribus means that all other factors remain constant. In this context, it means that when the price of a good changes, assuming all other factors are held constant, it will cause a movement along the supply curve rather than a shift in the supply curve. This is because the quantity supplied of a good is directly related to its price, according to the law of supply. As the price increases, suppliers are willing to produce and sell more of the good, resulting in a movement along the supply curve. Conversely, a decrease in price would lead to a decrease in quantity supplied and a movement along the supply curve. Therefore, the statement is true.

When the quantity demanded is more than the quantity supplied, it creates a shortage. This means that there is not enough supply to meet the demand, resulting in a situation where consumers are unable to purchase as much of the product as they would like. This imbalance in supply and demand can lead to higher prices and competition among consumers to obtain the limited supply available.

The reason for the shift in demand for helmets is due to the concept of complimentary goods. When the price of helmets decreased, it became more affordable for consumers to purchase bikes, which are complimentary goods to helmets. As more consumers bought bikes, the demand for helmets increased because people who bought bikes also needed helmets to ensure their safety while riding. Therefore, the decrease in helmet prices led to an increase in the demand for helmets due to their complimentary relationship with bikes.

Poor growing conditions for coffee beans would lead to a decrease in the supply of coffee. With demand remaining constant, this decrease in supply would create a shortage in the market, causing the equilibrium price to increase. As the supply decreases, the quantity of coffee available in the market would also decrease, but this is not mentioned in the question.

Variable costs are expenses that change in proportion to the level of production or output. These costs fluctuate depending on the quantity of goods or services produced. As output increases, variable costs also increase, and vice versa. Variable costs include expenses such as raw materials, direct labor, and utilities directly related to production. Unlike fixed costs, which remain constant regardless of the level of production, variable costs are directly tied to the volume of output. Therefore, the correct answer for this question is Variable Cost.

When the price is set above equilibrium, it means that the price is artificially higher than what the market would naturally determine. This leads to a surplus, as the quantity supplied by producers exceeds the quantity demanded by consumers at that higher price. In other words, there is an excess supply of the product, which can result in unsold goods or inventory buildup.

A government excise tax on that good will not cause the supply for the good to increase. In fact, it will have the opposite effect. An excise tax is a tax imposed on specific goods, and it increases the cost of production for the industry. As a result, the industry will have less incentive to produce and supply the good, leading to a decrease in supply.

A price ceiling is a maximum price that can be charged for a product. In this case, the government imposes a price ceiling of $2.00 a gallon for gasoline, which is lower than the current equilibrium price of $3.65 a gallon. This means that the price is artificially set below the market equilibrium. As a result, the quantity demanded for gasoline will increase because consumers will be willing to buy more at the lower price. However, the quantity supplied will decrease because producers will be less willing to supply gasoline at a lower price. Therefore, the correct answer is that the quantity demanded will increase and the quantity supplied will decrease.

When there is a voluntary exchange of a good, it is reasonable to believe that both the buyer and seller gained. This is because in a voluntary exchange, both parties enter into the transaction willingly, indicating that they perceive the exchange as beneficial. The buyer gains the good or service they desire, while the seller gains the monetary value or benefit from selling their product. Therefore, it can be concluded that both the buyer and seller benefited from the exchange.

The given answer "Elastic" is correct because when the price of haircuts increased by 33% (from $12 to $16), the quantity demanded decreased by 35% (from 20 to 13). This indicates a relatively large response in quantity demanded compared to the change in price, which is characteristic of elastic demand.

D2 shows a greater price elasticity of demand compared to D1. Price elasticity of demand measures the responsiveness of quantity demanded to changes in price. A more elastic demand curve indicates that a small change in price leads to a larger change in quantity demanded. In the case of D2, the curve is flatter, suggesting that consumers are more responsive to changes in price. This means that a small increase in price would result in a larger decrease in quantity demanded compared to D1, indicating a greater price elasticity of demand.

When the demand curve shifts to the right, it indicates an increase in demand for the product. This increase in demand, when combined with an upward sloping supply curve, leads to an increase in both equilibrium price and quantity. The increase in demand causes suppliers to increase their prices to capitalize on the higher demand, resulting in an increase in equilibrium price. Additionally, suppliers will produce more of the product to meet the increased demand, leading to an increase in equilibrium quantity. Thus, both equilibrium price and quantity increase when the demand curve shifts to the right with an upward sloping supply curve.

An increase in consumer demand for the product will not cause a shift of the product's supply curve. The supply curve represents the relationship between the price of a product and the quantity supplied by producers. It is determined by factors such as the cost of resources, technology, and the number of suppliers. An increase in consumer demand will only affect the demand curve, which represents the relationship between the price of a product and the quantity demanded by consumers. Therefore, it will not cause a shift in the supply curve.

A shift in the demand curve does not result from a change in price of the good. Instead, it is caused by factors such as changes in consumer income, tastes and preferences, prices of related goods, and expectations. When any of these factors change, it causes a shift in the entire demand curve, indicating a change in the quantity demanded at every price level. Changes in price, on the other hand, result in movements along the demand curve, known as changes in quantity demanded. Therefore, the statement that a shift in the demand curve results from a change in price of the good is false.

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When a firm's employees negotiate a 15% increase in their wages, it means that the firm's labor costs have increased. This increase in labor costs will lead to higher production costs for the firm. As a result, the firm's supply curve will shift to the left because the firm is now willing to supply fewer units of the product at each price level. This is because the firm's increased costs make it less profitable to produce and sell the product at the previous price levels.

If the U.S. imposes tariffs on Japanese car imports, it will make Japanese cars more expensive for consumers in the U.S. As a result, the demand for Japanese cars will decrease. On the other hand, the tariffs will make U.S. made cars relatively cheaper compared to Japanese cars. This will lead to an increase in the demand for U.S. made cars. Additionally, the tariffs may incentivize U.S. car manufacturers to increase their production to meet the higher demand, resulting in an increase in the quantity supplied of U.S. cars.

A surplus refers to the amount of a product that cannot be sold at a given price. It occurs when the quantity supplied exceeds the quantity demanded in the market. This means that there is an excess supply of the product, which leads to a surplus. In this situation, sellers may need to lower the price in order to sell the excess inventory.