# Econ 201 Test 1

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### The Law of Demand States

price and quantity demanded are inversely related

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

Example: