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Exam 3: Demand, Supply, and Market Equilibrium

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Question 1

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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?

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The economic concept is the law of dimin...

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Question 2

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Explain how an increase in the price of leather brought about by shift in tastes may lead to an increase in the supply of beef.

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An increase in the price of leather will...

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Question 3

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

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

What relationship is shown by a demand curve?

Below are the demand curves for CDs for two individuals: Bob and Tom. Assume that Bob and Tom are the only two buyers in the market for CDs. Draw the market demand curve.

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

When the price of good X rises, the demand for good Y rises. Explain what this relationship implies about the two goods.

When the price of compact disc players decreases, the demand for compact discs rises while the demand for cassette tapes decreases. What does this imply about the relationship between compact disc players, compact discs, and cassette tapes?

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

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.

Show graphically the effect of an increase in the wage paid to autoworkers on the supply of new cars.

Explain how the market supply curve is derived. Does the law of supply apply to the market supply curve?

When the price of good X rises, the demand for good Y falls. Explain what this relationship implies about the two goods.

Each year Apple Computers produces a new line of IPods with greater storage capacity and more features. Sales continue to soar even though the prices each year rise as well. Is this a refutation of the law of demand or is there something else going on here that doesn't meet the eye?

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

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

Explain what an entrepreneur is and its function.

Explain the difference between a change in supply and a change in quantity supplied.

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?