A demand schedule is a table that shows the relationship between the price of a between the price of a good and the quantity demanded (Manama, p. 67). Consumers always demand more of a good at lower cost which results in greater quantity demanded. Curve slopes downward because a lower price increase the quantity demanded (Manama, p. 68). 3. Does a change in consumers’ taste lead to a movement along the demand curve or a shift in the demand curve? Does a change in price lead to a movement along the demand curve? Explain your answer.
A change in consumers taste leads to a shift in he demand curve.
Yes a change in price leads to movement along the demand curve. Any change that increase quantity demanded leads to shift in the demand curve which is an increase in demand (Manama, p. 69). 5. What are the supply schedule and the supply curve and how are they related? Why does the supply curve slope upward? The supply schedule is a table that shows the relationship between the price of a good and the quantity supplied.
The supply curve is a graph of the relationship between the price of a good and quantity supplied Manama, p. 74). . Define the equilibrium of a market.
Describe the forces that move a market toward its equilibrium. Market equilibrium is the point at which the supply and demand curves interests. Market equilibrium can also be described as a situation in which various forces balance (p. 77). The actions of buyers and sellers naturally move markets towards the equilibrium of supply and demand (p.
77). 9. Describe the role of prices in the market. Prices bring markets into equilibrium. Price acts as a signal for shortages and surpluses which help firms respond to hanging market conditions.
When price is different from its equilibrium level, quantity supplied and quantity demanded are not equal. The results leads suppliers to adjust the price until equilibrium is restored. Prices are guidelines for economic decisions (Manama, p. 83). CHAPTER 5 1. Define the price of elasticity of demand and the income elasticity of demand. Price elasticity is a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded by the percentage change in price.
Income elasticity of demand is used to describe how the quantity demanded responds to a change income (Manama, p. 90). 2. List and explain the four determinants of the price elasticity of demand discussed in the chapter. The availability of substitutes: if there are good substitutes they tend to have more elastic demand (Manama, p. 90). Necessities verses luxuries: Necessities Definition of the Market: The elastic of demand in any market depends on how we draw the boundaries of the market.
Narrowly defined markets tends to have more elastic demand than broadly defined markets because it is easier to find close substitutes for narrowly defined goods. (Manama, p. 91). Time: if the price of gasoline goes up, you might buy a lot of gasoline or buy a smaller vehicle. Goods tend to have more elastic demand over longer time (Manama, p. 91). 3. If the elasticity is greater than 1, is demand elastic or inelastic? If the elasticity equals zero, is demand perfectly elastic or perfectly inelastic? 6. What do we call a good with an income elasticity less than zero?
Zero elasticity is refectory inelastic (Manama, p. 92). 7How is the price elasticity of supply calculated? Explain what it measures. Economist compute the price elasticity of supply as the percentage change in the quantity supplied divided by the percentage change in price (Manama, p. 99). CHAPTER 6 1. Give an example off price ceiling and an example off price floor. Rent control is an example of price ceiling. Minimum wage is an example of price floor. What mechanisms allocate resources when the price of a good is not allowed to bring supply and demand into equilibrium?
When the price off good is not allowed to bring supply and demand into equilibrium, some alternative mechanism must allocate resources. If quantity supplied exceeds quantity demanded, so that there is a surplus of a good as in the case of a binding price floor, sellers may try to appeal to buyers. If quantity demanded exceeds quantity supplied, there is a shortage of a good (Manama,p. 112). 4. Explain why economists usually oppose controls on prices. Prices aid in coordinating economic activity by balancing demand and supply.
Price controls interfere with the allocation of resources and cause more harm than good (Manama, p. 112). 5. Suppose the government removes a tax on buyers of a good and levies a tax of the same size on sellers of the good. How does this changes in tax policy affect the price that buyers pay sellers for this good, the amount buyers are out of pocket (including any tax payments they make), the amount sellers receive (net of any payments they make), and the quantity of the good sold? Effect on the price that buyers pay, the price that sellers receive, and the quantity of the good sold (Manama, p. 122).