Chapter 3

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Chapter 3

Price Determination

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All else being equal, there's an inverse, or negative relationship between the price of a good and the quantity of that same good. This is known as:

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Law of Demand

Law of Supply

Opportunity Cost

Equilibrium

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In which case will the quantity demanded of a good increase?

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Number of buyers decreases

Consumers become less favorable

Price of a substitute decreases

Price of the good decreases

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In which case will a demand line shift to the left?

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Preferences shift toward the product

The price of a substitute good increases

Number of buyers in the market increases

Customers become less interested in the product

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Suppose Canada were to impose a tax on ride-sharing services. What would we expect to see in our model of supply and demand?

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A rightward shift of demand causes a decrease in price and increase in quantity of rides

A surplus occurs with the price out of equilibrium

A shortage occurs with the price out of equilibrium

A leftward shift of supply causes an increase in prices and decrease in quantity of rides

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What do economists mean by the phrase “all else being equal”?

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All variables are held constant except the ones we're currently working with

Rational consumers have no preference between equally valued products

Two goods having an equal opportunity cost

Every variable in the economic model is held constant

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Which of these is not a determinant of demand for laptop computers?

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The prices of related goods such as ipads and software

Population of people in the market for laptops

The cost of inputs for producing laptops

Income of buyers of laptop computers

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Suppose the market price is above the equilibrium price.

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A surplus will occur and consumers will be willing and able to pay more

A shortage will occur and producers will produce more and lower prices

Producers will make excessively high profits until markets correct

A surplus will occur and producers will produce less and lower prices

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Suppose a suburb imposes a price ceiling on residential rental rates. What is most likely to happen as a result?

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Poorer people will be able to find more adequate housing available

Those with the most need for housing will be able to obtain the space they want

Newcomers to the market will have difficulty finding available homes to rent

Homeowners will reduce their use of housing space, making more available to others

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What could have caused the following shift in our model?

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Changing consumer tastes and preferences

Decreasing prices of substitute products

Growing population

Rising cost of production

Increasing product price

What could have caused the following shift in our model?

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Changing consumer tastes and preferences

Lower costs of production materials

Higher rates of taxation in the market

Increased demand for the product

Decreasing wage rates for workers

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