increase in the price of peanut butter will cause the demand curve for jelly to shift to theleft, since as fewer units of peanut butter are demanded due to the higher price of peanutbutter, fewer units of jelly will also be demanded at any given price for jelly.8.Answer a.Since ham and turkey are substitutes, when the price of ham decreases, thiscauses the quantity of ham demanded to increase. As more units of ham are demanded,fewer units of turkey are demanded at every price. The demand for turkey therefore shiftsto the left.9.Answer a.As the price of good Y increases, this results in a decrease in the quantitydemanded of good Y. Since the demand for good X decreases, this implies that good Yand good X are consumed together; thus good X and good Y are complements.10.Answer b.As the price of good Y decreases, this results in an increase in the quantitydemanded of good Y. Since the demand for good X increases when the quantity demand-ed of good Y decreases, this implies that good X is a substitute for good Y.11.Answer a.When Jon’s income increases, the quantity of good X he demands at anygiven price falls, which implies that good X is an inferior good.12.Answer b.Both Jon’s income and the quantity of steak he demands increases; thereforesteak is a normal good.13. Answer a.An increase in population shifts the demand curve to the right, as theincrease in population implies a larger number of consumers of the product.14.Answer c.An increase in the number of buyers causes the quantity demanded of thegood to increase at every price, and the demand curve shifts to the right.15. Answer d.To find the market demand curve, hold price constant and then add thequantity of the good demanded by each of the consumers. Thus, if the price of the goodis $10, then the total of Peter’s, Anya’s, and Pablo’s demand must add up to 100 unitsaccording to the table provided in the question.16.Answer b.This question is asking you to recall that a change in the price of the good, hold-ing everything else constant, results in a movement along the curve. This movement alongthe curve causes a change in the quantity supplied and not a change in the supply curve.17.Answer a.Ground beef is an input in the production of Fast Wally’s hamburgers. Whenground beef gets more expensive, this increases the cost of producing hamburgers, whichcauses the supply curve to shift to the left.18.Answer b.When the cost of raw materials decreases, more batteries can be produced atany given price. This decrease in the cost of raw materials causes the supply curve for bat-teries to shift to the right.19.Answer a.When input prices decrease, producers are willing to supply more units of thegood at every price.20.Answer b.Since an increase in the production of one of the goods results in a decreasein the production of the other good, these two goods must be substitutes in production. Show due to factors that increase demand due to factors that decrease demand due to factors that decrease supply due to factors that increase Why can't you just ask what happens to a price in a market? You need to know WHY it shifted. Reasons for demand curve shifts Changes in... 1. Consumer income 2. Price of subtitute goods 3. Price of complementary goods 4. Tastes and preferences 5. Number of consumers 6. In expectations Reasons for supply curve shifts 1. Input costs 2. Technology costs The graph below shows the supply and demand curves for Pepsi. A new medical study is released showing that drinking soda every day leads to worse health. Which of the following is most likely to occur as a result?  The equilibrium price of Pepsi will decrease. The new health study is likely to shift the demand curve down, as consumers react to the news that drinking soda every day leads to worse health. A downward shift in the demand curve, with the supply curve staying the same, results in a lower equilibrium price and a lower equilibrium quantity. Again, refer to the supply and demand curves for Pepsi in Question 1A. If Pepsi develops a new assembly line that allows it to produce bottles of Pepsi much more efficiently, which of the following is most likely to occur as a result? The equilibrium quantity of Pepsi will increase. The new assembly line will allow Pepsi to produce its product at a lower cost, shifting the supply curve to the right. At any given price, Pepsi will now be able to produce more bottles of its product. A rightward shift in the supply curve, with the demand curve staying the same, results in a lower equilibrium price and a higher equilibrium quantity. Consider the market for a good shown in the graph below. If the price of the good is set at $4, there will be ____________. A surplus and the price will eventually fall. At a price of $4, which is above the market equilibrium price of $3, suppliers will choose to produce more than consumers want to buy. Therefore, there will be a surplus of this good that gets produced but not purchased. This surplus will put downward pressure on the price as suppliers need to lower their prices to compete for consumers and sell their surplus, so prices will eventually fall. All of the following could cause the demand curve for peanut butter to shift this year EXCEPT: A change in consumer income A change in the price of jelly, which is commonly eaten with peanut butter The invention of a new style of peanut butter sandwich that becomes wildly popular A rumor sweeping across social media that peanut butter will be in low supply next year A new technology that allows for cheaper production of peanut butt A new technology that allows for cheaper production of peanut butter. This new technology may cause a shift in the supply curve, but not the demand curve. A rise in consumer income will shift the demand curve up (if peanut butter is a normal good) or down (if it is an inferior good). Peanut butter and jelly are complementary goods, so a change in the price of one can affect the demand curve of the other. A newly popular peanut butter sandwich increases preferences for peanut butter, leading to an upward shift of the demand curve. And fears of a low supply of peanut butter next year may lead to consumers stocking up on peanut butter this year, again shifting the demand curve up. Which of the following could cause the supply curve for cars to shift? Both a drop in the price of steel and the invention of a new type of factory. The two main reasons the supply curve shifts is (1) the price of an input – such as steel – has changed, and (2) the production technology – such as new, faster factory – has changed. Both the price drop for steel and the new factor will lower the marginal cost of car production, shifting the supply curve to the right. Suppose that electric cars (which, unlike traditional cars, do not use gasoline) become enormously popular, and at the same time, gasoline suppliers develop a new technology that allows for cheaper extraction of gasoline. As a result, the equilibrium price and quantity of gasoline will most likely change in which of the following ways? Price decreases; Effect on quantity is uncertain. The surging popularity of electric cars will shift the demand curve for gasoline downward, as consumers’ taste for gasoline changes – especially the tastes of those consumers now driving electric cars. The new technology, meanwhile, will shift the supply curve to the right, as the marginal cost of producing gasoline is lowered by the technology. With the demand curve shifting down and the supply curve shifting to the right, the equilibrium price will certainly fall. But the effect of the changes on the equilibrium quantity is unclear. Consumers’ taste shifting away from gasoline suggests a lower quantity, but cheaper extraction of gasoline suggests a higher quantity. Describes the world the way it is. Includes the calculation of the value of the goods and services produced and available to satisfy our needs and wants. is the activity of evaluating, and making, arguments pertaining to questions of right and wrong. is a branch of economics that uses microeconomic techniques to evaluate well-being (welfare) at the aggregate (economy-wide) level. The amount by which the willingness to pay for a good exceeds the price paid for that good The amount by which the price of a good exceeds the firm's willingness to supply that good Total revenue minus total cost The difference between the price a consumer would be willing to pay for a slice of pizza and the actual market price that she pays gives a measure of her _____________. Consumer surplus. Consumer surplus is the difference between how much a consumer would be willing to pay for some good and what she actually pays for that good. Maria enters a convenience store and is very hungry. She is willing to pay a lot for one candy bar but not as much for the second candy bar. This phenomenon is explained by ____________ and leads to a smaller rise in ____________ for each additional candy bar she purchases. Diminishing marginal utility; Total consumer surplus. The first candy bar satisfies Maria's hunger, and while she still might want a second, she won't be as hungry for that one. Therefore, her utility from the next candy bar will be lower than the previous one and she won’t be willing to pay as much for it, an example of diminishing marginal utility. As her willingness to pay for each candy bar drops, the price stays the same, so the difference between her willingness to pay and the price gets smaller. This means the consumer surplus she receives from each candy bar she buys is dropping as she buys more candy bars. Which area of the graph below best represents consumer surplus? A. Consumer surplus is the area below the demand curve and above the equilibrium price. Surplus and shortage: If the market price is above the equilibrium price, quantity supplied is greater than quantity demanded, creating a surplus. Market price will fall. Example: if you are the producer, you have a lot of excess inventory that cannot sell. That is, people continue to buy until they're willingness to pay equals the price. This is the point of 0 consumer surplus. So the consumer who values gas at exactly $3 a gallon, and pays $3 for that gallon get 0 surplus. This consumer's pretty much indifferent between buying the gas or not. In the two graphs below, the equilibrium price and quantity are the same: $10 and 50 units, respectively. Compared to Graph B, Graph A shows a consumer surplus that is ___________ and a producer surplus that is ____________. Smaller; The same. The only difference between the two graphs is the demand curve. The supply curve, along with the equilibrium price and quantity, are the same in both graphs. As a result, the producer surplus, which is the area above the supply curve but below the price line, is the same in both graphs. The demand curve in Graph A is less steep than that in Graph B, since it intersects the vertical axis at a price of $20 compared to a price of $40 in Graph B. Since the market price is $10 in both cases, the consumer surplus that accrues to the first customers with a willingness to pay of $20 in the case of Graph A (consumer surplus of 20 – 10 = $10) is less than that which accrues to the first customers with a willingness to pay of $40 in the case of Graph B (consumer surplus of 40 – 10 = $30). Mathematically, we can also compute the area of the triangle that represents the consumer surplus in Graph A (0.5 x 50 x $10 = $250) and compare it to the area of the triangle that represents the consumer surplus in Graph B (0.5 x 50 x $30 = $750). In the supply and demand graph below, the equilibrium price is $10 and the equilibrium quantity is 500 units. Calculate the consumer and producer surplus. onsumer surplus is the area of the triangle below the demand curve and above the price line. The height of this triangle is $20 - $10 = $10, and the base of this triangle is 500. The area of a triangle is 0.5 x base x height, or 0.5 x 500 x $10 = $2500. Producer surplus is the area of the triangle above the supply curve and below the price line. The height of this triangle is $10 - $0 = $10, and the base of this triangle is 500. The area is 0.5 x 500 x $10 = $2500. The difference between the price at which a firm can sell their good in a marketplace and the cost of producing that good is a measure of ______________. Producer surplus. Producer surplus is the difference between how much a producer receives for a good (its price) and how much it actually costs to produce that good. Total well-being of society, equal to consumer surplus + firm surplus, + government revenue (if any) minus any deadweight loss. Transfers from producer/consumer surplus Loss of surplus when transfers and trades are not made Any limitation on trades are inefficient Which of the following will occur if the government imposes a price ceiling above the equilibrium price of a good? None of the above. A price ceiling above the equilibrium price of a good will have no effect on the market. A price ceiling dictates that a price cannot be higher than a certain level, but if that price ceiling is higher than the current equilibrium price, it is not binding and has no effect. The graph below shows the supply and demand curves for milk. Which of the following will occur if the government establishes a price ceiling of $1.60 per gallon? A shortage of 1,600,000 gallons. If the government establishes a price ceiling of $1.60, the new quantity demanded will rise to 2,400,000 gallons, and the quantity supplied will drop to 800,000 gallons. That means demand is 1,600,000 gallons higher than supply, leading to a shortage. Social welfare is typically calculated as the sum of _____________. Producer surplus and consumer surplus.Social welfare is the sum of producer and consumer surplus. Consider the graph below, which shows the market for milk. Suppose that the equilibrium price and quantity in the market start out at P3 and Q2, but then the government imposed a price floor at price = P4. Q1 demanded; Q3 supplied. At a price of P4, the quantity demanded is Q1 (where the price = P4 line intersects the demand curve) and the quantity supplied is Q3 (where the price = P4 line intersects the supply curve). Refer to the graph in Question 2A. Which areas represent consumer surplus before and after the price floor went into effect? Q1 demanded; Q3 supplied. At a price of P4, the quantity demanded is Q1 (where the price = P4 line intersects the demand curve) and the quantity supplied is Q3 (where the price = P4 line intersects the supply curve). Refer to the graph in Question 2A. Which areas represent producer surplus before and after the price floor went into effect? D + E + F before; B + D + F after. Producer surplus is the area above the supply curve and below the price line for all units sold. Before the price floor, the price was P3. The area above the supply curve and below the price = P3 line is D + E + F. After the price floor, the price is P4. Remember that producers only earn surplus on the units that are sold. If a unit is produced but not sold, no surplus is earned. We know that after the price floor, Q1 units are sold (since consumers only demand Q1 units). Producer surplus is the area above the supply curve and below the price = P4 line for all the units up to quantity = Q1, or B + D + F. Refer to the graph in Question 2A. Which area(s) represent the deadweight loss created by the price floor? C + E. Before the price floor, consumer surplus was A + B + C and producer surplus was D + E + F. After the price floor, consumer surplus was A and producer surplus was B + D + F. Total surplus has fallen from A + B + C + D + E + F to only A + B + D + F. The difference in total surplus is C + E, which is the deadweight loss from transactions that would have happened at the original equilibrium price of $3, but don’t happen at the price floor of $4. Which of the following will occur if the government imposes a price ceiling above the equilibrium price of a good? None of the above. A price ceiling above the equilibrium price of a good will have no effect on the market. A price ceiling dictates that a price cannot be higher than a certain level, but if that price ceiling is higher than the current equilibrium price, it is not binding and has no effect. The graph below shows the supply and demand curves for milk. Which of the following will occur if the government establishes a price ceiling of $1.60 per gallon? A shortage of 1,600,000 gallons. If the government establishes a price ceiling of $1.60, the new quantity demanded will rise to 2,400,000 gallons, and the quantity supplied will drop to 800,000 gallons. That means demand is 1,600,000 gallons higher than supply, leading to a shortage. Submit Revenue raised by governments Marginal cost by tax (supply curve) Measure of who bears the economic burden of the tax The more elastic the supply the greater the social deand welfare caused by taxes loss Resources distributed more equally throughout society Assume that both supply and demand for a good are relatively price elastic. A per-unit sales tax on the good would cause the equilibrium price and quantity to change in which of the following ways? Price increases; Quantity decreases Suppose the price elasticity of demand for butter is relatively inelastic and the price elasticity of demand for salt is relatively more elastic. Suppose further that both butter and salt have identical supply curves, both with unit elasticity. If a per-unit tax of the same amount is levied on both goods, which of the following must be true? The share of the tax borne by consumers will be higher for butter than for salt. We know the supply curve looks the same for both butter and salt, and the tax imposed is the same, so the only difference is the price elasticity of demand. For butter, price elasticity of demand is relatively more inelastic. When demand is more inelastic, consumers bear a higher burden of the tax since they have less desire to substitute towards other goods as the price rises. Submit Refer to the graph in Question 4A. Suppose the government imposes a $2 per unit tax on bottled water. Place the following values in order, from smallest to largest: A) The price producers receive B) The original equilibrium price C) The price consumers pay A, B, C. First, we know that the price consumers pay is exactly $2 more than the price producers receive, since the producers lose $2 of the sale price to the government. We also know that producers will receive a lower price than before the tax since they bear some of the tax burden (A is less than B). Consumers will pay a higher price than before the tax since they bear most of the tax burden (C is greater than B). So the order from smallest to largest must be A, B, C. Who bears more burden when demand is elastic Who bears more burden when demand is inelastic Consumers bear more burden Which of the following would cause the demand for peanut butter to shift to the right?Answer and Explanation: Answer A. When there is an increase in popularity of organic peanut butter, the demand curve shifts to the right. This represents an increase in demand by consumers.
What will cause a demand curve to shift to the right?Demand Curve Shifts Right
The curve shifts to the right if the determinant causes demand to increase. This means more of the good or service are demanded even though there's no change in price. When the economy is booming, buyers' incomes will rise.
Which of the following could cause a shift left in the demand for peanut butter?When income increases, the consumer will demand to buy more peanut butter due to the consumer's purchasing power. In case the goods (peanut butter) were inferior, the demand would decrease. Inferior goods are the type of goods whose demand decreases due to an increase in consumer income.
Which of the following is likely to increase the demand for peanut butter?Answer and Explanation: b. News that insects have destroyed much of the peanut crop and that there will be less peanut butter on the shelves in three months will lead to an increase in demand as people will keep peanut butter for the future. This will shift the demand curve in the rightward direction.
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Which of the following could cause the demand curve for peanut butter to shift to the right peanut butter is a normal good?
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