quiz 1 econ 545

Pages: 10 (2168 words) Published: December 4, 2013
1.Question :
(TCO A) There is a decrease in the cost of labor for producing bicycles. (4 pts.) What happens to bicycle supply?
(6 pts.) What happens to bicycle demand?

Student Answer: a)The decrease in the cost of labor for producing bicycles will increase the supply in bicycles meaning that their will be a decrease in price. b) Demand stays the same Instructor Explanation:Since a change in costs to produce the product is a supply factor, a decrease in costs would be expected to increase bicycle supply. Remember that supply is a schedule of how many units suppliers are willing to offer at different prices. When costs fall, the supply curve increases or shifts to the right. Since changes in producer costs is not a demand factor, there would be no impact on demand.

Question 2.Question :
(TCO A) Ceteris paribus, Brand A Plain potato chips and Brand B Plain potato chips are substitutes in consumption. The price of Brand A Plain potato chips increases. (4 pts.) a. What happens to the demand for Brand B Plain potato chips? (6 pts.) b. What happens to the demand for Brand A Plain potato chips?

Student Answer: a) As price of A rises demand for A falls so that demand for B rises. The demand curve for B shifts to the right b)As price of A rises, demand for A falls due to law of demand. The demand curve moves along the upward direction. Instructor Explanation:a. When the price of a substitute good rises, the demand for the other good increases. Price of Brand A rises -- demand for Brand B increases. b. This tests your ability to distinguish between a change in demand and a change in quantity demanded. When the price of Brand A rises THERE IS NO EFFECT ON THE DEMAND for Brand A potato chips. Remember that the Price of the good itself is NOT a Determinant of Demand for that good. Points Received: 6 of 10

Comments: In (b) when the price of a good changes that only affects quantity demanded. The demand for Brand A remains unchanged (no shift of the demand curve). See instructor explanation, Chapter 3, and the tutorial in week 1 on the difference between a change in demand and a change in quantity demanded. When you say there is a change in demand you are saying that something other than price has SHIFTED the demand curve.

Question 3.Question :
SA 3. (TCO A) The number of wheat producers decreases.
(4 pts.) What happens to the supply of wheat?
(6 pts.) What happens to the demand for wheat?

Student Answer: a) If the number of wheat producers decrease supply for wheat will decrease and prices might go up. b) The demand for wheat will stay the same. Instructor Explanation:Instructor Explanation: The supply of wheat would decrease, or shift to the left. The number of suppliers is obviously a supply factor, so the less suppliers thare are, the smaller would be the supply. The demand for wheat remains the same as before because the number of suppliers is a supply factor, not a demand factor. Points Received: 10 of 10

Question 4.Question :
(TCO A) A market is in equilibrium with equilibrium Quantity of MEQ and equilibrium Price of MEP.

(2 pts.) a. What happens to Market Equilibrium Quantity (MEQ) if there is an increase in Demand?

(4 pts.) b. What happens to Market Equilibrium Price (MEP) if Supply decreases as Demand increases?

(4 pts.) c. What happens to Market Equilibrium Quantity (MEQ) after there has been an increase in Supply followed by a decrease in Demand which is followed by another increase in Supply?

Student Answer: a) If their is an increase in demand then the price will rise because their is a move from D1 to D2 b)When supply decreases prices go down and demand increases until their is a new equilibrium. c)an increase in supply will lower prices and move s1 to s2, a decrease in demand will lower prices, following an increase in supply will lower prices, overall the price will...