Econ 201 Test 1

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The Law of Demand States

price and quantity demanded are inversely related

The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is _____.

direct, inverse

When the price of a product falls, the purchasing power of our money income rises and thus permits consumers to purchase more of the product. This statement describes

the income effect

When the price of a product rises, consumers shift their purchases to other products whose prices are now relatively lower. This statement describes:

the substitution effect

If the demand curve for product B shifts to the right as the price of product A declines, then:

A and B are complementary goods.

A shift to the right in the demand curve for product A can be most reasonably explained by saying that:

consumer preferences have changed in favor of A so that they now want to buy more at each possible price.

An increase in consumer incomes will

increase the demand for a normal good.

A decrease in the price of cameras will

shift the demand curve for film to the right

The law of supply

reflects the amounts that producers will want to offer at each price in a series of prices

A leftward shift of a product supply curve might be caused by

some firms leaving an industry

An improvement in technology will:

Shift the supply curve to the right

a market is in equilibrium if:

the amount producers want to sell is equal to the amount consumers want to buy

at equilibrium price

there are no pressures on price to either rise or fall

at the point where the demand and supply curves for a product intersect

the quantity that consumers want to purchase and the amount producers choose to sell are the same

if there is a shortage in product X:

the price of the product will rise

At the current price their is a shortage of product, we should expect the price to:

increase, quantity demanded to decrease, and quantity supplied to increase

a surplus of a product will arise when price is:

above equilibrium with the result that quantity supplied exceeds quantity demanded

If price is above the equilibrium level, competition among sellers to reduce the resulting

surplus will increase quantity demanded and decrease quantity supplied.

Assume in a competitive market that price is initially below the equilibrium level, we can predict that price will:

increase, quantity demanded will decrease, and quantity supplied will increase

If the supply of a product decreases and the demand for that product simultaneously increases, then equilibrium:

price must rise, but equilibrium quantity may either rise, fall, or remain unchanged

A reduction in the number of firms producing X will

decrease S, increase P, and decrease Q.

An improvement in the technology used to produce X will:

increase S, decrease P, and increase Q

If the supply and demand curves for a product both decrease, then equilibrium:
a. quantity must fall and equilibrium price must rise.

quantity must decline, but equilibrium price may either rise, fall, or remain unchanged

Consumer expectations that the price of X will rise sharply in the future will:

increase D, increase P, and increase Q

An effective price floor will:

result in a product surplus

Black markets are associated with:

ceiling prices and the resulting product shortages

Price ceilings and price floors:

interfere with the rationing function of prices

A price ceiling means:

government is imposing a legal price the is below the equilibrium price

An effective price floor on wheat will:

result in a surplus of wheat

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