Review Questions

Review Questions

12 . What determines the level of prices in a market? 13 . What does a downward-sloping demand curve mean about how buyers in a market will react to a higher price? 14 . Will demand curves have the same exact shape in all markets? If not, how will they differ? 15 . Will supply curves have the same shape in all markets? If not, how will they differ? 16 . What is the relationship between quantity demanded and quantity supplied at equilibrium? What is the relationship when there is a shortage? What is the relationship when there is a surplus? 17 . How can you locate the equilibrium point on a demand and supply graph? 18 . If the price is above the equilibrium level, would you predict a surplus or a shortage? If the price is below the equilibrium level, would you predict a surplus or a shortage? Why? 19 . When the price is above the equilibrium, explain how market forces move the market price to equilibrium. Do the same when the price is below the equilibrium. 20 . What is the difference between the demand and the quantity demanded of a product, say milk? Explain in words and show the difference on a graph with a demand curve for milk. 21 . What is the difference between the supply and the quantity supplied of a product, say milk? Explain in words and show the difference on a graph with the supply curve for milk. 22 . When analyzing a market, how do economists deal with the problem that many factors that affect the market are changing at the same time? 23 . Name some factors that can cause a shift in the demand curve in markets for goods and services. 24 . Name some factors that can cause a shift in the supply curve in markets for goods and services. 25 . How does one analyze a market where both demand and supply shift? 26 . What causes a movement along the demand curve? What causes a movement along the supply curve? 27 . Does a price ceiling attempt to make a price higher or lower? 28 . How does a price ceiling set below the equilibrium level affect quantity demanded and quantity supplied? 29 . Does a price floor attempt to make a price higher or lower? 30 . How does a price floor set above the equilibrium level affect quantity demanded and quantity supplied? 31 . What is consumer surplus? How is it illustrated on a demand and supply diagram? 32 . What is producer surplus? How is it illustrated on a demand and supply diagram? 33 . What is total surplus? How is it illustrated on a demand and supply diagram? 34 . What is the relationship between total surplus and economic efficiency? 35 . What is deadweight loss?

Critical Thinking Questions

36 . Review Figure 3.4. Suppose the government decided that, since gasoline is a necessity, its price should be legally capped at $1.30 per gallon. What do you anticipate would be the outcome in the gasoline market? 37 . Explain why the following statement is false: “In the goods market, no buyer would be willing to pay more than the equilibrium price.”