Chapter 3: Demand and Supply Parkin © 2010 Pearson Addison-Wesley. All rights reserved. Macroeconomics, Ninth Edition

All of the following statements are true EXCEPT: Relative prices are determined in markets. A relative price is an opportunity cost. The relative price of a good can be calculated by multiplying its money price by a price index. The theory of demand and supply is concerned with adjustments in relative prices. C. The relative price of a good can be calculated by multiplying its money price by a price index. Parkin © 2010 Pearson Addison-Wesley. All rights reserved. Macroeconomics, Ninth Edition

1/2 can of soda, the opportunity cost of an ice cream cone. An ice cream cone costs $1.50. A can of soda costs $0.75. The relative price of an ice cream cone is 1/2 can of soda, the opportunity cost of an ice cream cone. $1.50, the opportunity cost of a can of soda. 2 cans of soda, the opportunity cost of an ice cream cone. $0.75, the opportunity cost of a can of soda. C. 2 cans of soda, the opportunity cost of an ice cream cone. Parkin © 2010 Pearson Addison-Wesley. All rights reserved. Macroeconomics, Ninth Edition

The “law of demand” is illustrated by a rightward shift of the demand curve. leftward shift of the demand curve. movement along the demand curve. Both answers A and B are correct. C. movement along the demand curve. Parkin © 2010 Pearson Addison-Wesley. All rights reserved. Macroeconomics, Ninth Edition

the demand for Nike shoes to increase. In 2007 Nike reduced the price of its running shoes by 20 percent. As a result, the substitution effect caused the demand for Nike shoes to increase. people to switch from Adidas shoes and buy more Nikes. the relative price of Nikes to increase. the demand curve for Nikes to shift rightward. B. people to switch from Adidas shoes and buy more Nikes. Parkin © 2010 Pearson Addison-Wesley. All rights reserved. Macroeconomics, Ninth Edition

the supply curve shifts leftward. the supply curve shifts rightward. The “law of supply” refers to the fact that, all other things remaining the same, when the price of a good rises the supply curve shifts leftward. the supply curve shifts rightward. there is a movement up along the supply curve to a larger quantity supplied. there is a movement down along the supply curve to a smaller quantity supplied. C. there is a movement up along the supply curve to a larger quantity supplied. Parkin © 2010 Pearson Addison-Wesley. All rights reserved. Macroeconomics, Ninth Edition

The Miami Dolphins play football in Joe Robbie Stadium which holds 76,500 seats. In 2007, attendance averaged about 70,000 fans per game. This means that the quantity supplied of seats is 76,500. 70,000. 6,500. 126,500. A. 76,500. Parkin © 2010 Pearson Addison-Wesley. All rights reserved. Macroeconomics, Ninth Edition

When a market is in equilibrium, everyone has all they want of the commodity in question. there is no shortage and no surplus at the equilibrium price. the number of buyers is exactly equal to the number of sellers. the supply curve has the same slope as the demand curve. B. there is no shortage and no surplus at the equilibrium price. Parkin © 2010 Pearson Addison-Wesley. All rights reserved. Macroeconomics, Ninth Edition

is less than the quantity supplied and a surplus results. Suppose a market begins in equilibrium. If supply increases, then at the original equilibrium price the quantity demanded is is less than the quantity supplied and a surplus results. is less than the quantity supplied and a shortage results. exceeds the quantity supplied and a surplus results. exceeds the quantity supplied and a shortage results. A. is less than the quantity supplied and a surplus results. Parkin © 2010 Pearson Addison-Wesley. All rights reserved. Macroeconomics, Ninth Edition

supply curve of pork rightward. supply curve of pork leftward. Assume that beef and pork are substitutes for consumers. There is a drought in the cattle grazing areas. The drought will shift the supply curve of pork rightward. supply curve of pork leftward. demand curve for pork rightward. demand curve for pork leftward. C. demand curve for pork rightward. Parkin © 2010 Pearson Addison-Wesley. All rights reserved. Macroeconomics, Ninth Edition

remain the same; either rise or fall remain the same; rise In the market for oranges, the demand and supply of oranges decrease by the same amount. The equilibrium quantity will ________ and the equilibrium price will ________. decrease; not change decrease; fall remain the same; either rise or fall remain the same; rise A. decrease; not change Parkin © 2010 Pearson Addison-Wesley. All rights reserved. Macroeconomics, Ninth Edition