Week 3 Questions

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Feb 20, 2024

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1. What is wrong with the following statement? Demand refers to the willingness of buyers to purchase different quantities of a good at different prices during a specific period. Demand refers to the willingness and ability of buyers, not just willingness. Instead of "demand," it should be "quantity demanded." Instead of "willingness," it should be "ability." Instead of "demand," it should be "demand and supply." Demand refers to the willingness and ability of buyers, not just willingness. 2. What is the difference between demand and quantity demanded? Demand is the willingness and ability of buyers to purchase different quantities of a good at different prices during a specific period. Quantity demanded is how many things a consumer will purchase at a specific price . 3. True or false? As the price of oranges rises, the demand for oranges falls, ceteris paribus. Explain your answer. False, the orange demand curve stays the same, but we shift to a lower quantity demanded as the price goes up. Quantity demanded is inversely proportional to price, but demand as a whole insensitive to changes in price. 4. “The price of a bushel of wheat, which was $3.00 last month, is $3.70 today. The demand curve for wheat must have shifted rightward between last month and today.” Discuss. The demand curve must have shifted to the right because for the same quantity the price will be higher. 5. Some goods are bought largely because they have “snob appeal.” For example, the residents of Beverly Hills gain prestige by buying expensive items. In fact, they won’t buy some items unless they are expensive. The law of demand, which holds that people buy more at lower prices than higher prices, obviously doesn’t hold for the residents of Beverly Hills. The following rules apply in Beverly Hills: high prices, buy; low prices, don’t buy. Discuss. Taste factor because they can obviously afford more- as their income rises so does their demand. So, if they have a bigger income, they are going to demand nicer, better-quality items simply because they can. It's a normal good. 6. “The price of T-shirts keeps rising and rising, and people keep buying more and more. T-shirts must have an upward sloping demand curve.” Identify the error. If the demand for T-shirts keeps on increasing, the price of T-shirts keeps rising and rising, which means the supply by the producer will increase and people will keep buying more and more. T- shirts must have an upward-sloping demand curve.

7. With respect to each of the following changes, identify whether the demand curve will shift rightward or leftward:  a. An increase in income (the good under consideration is a normal good)  b. A rise in the price of a substitute good (caused by a decline in supply)  c. A rise in expected future price  d.A fall in the number of buyers A. The demand curve will shift to the right. B. The demand curve will shift to the right. C. The demand curve will shift to the left. D. The demand curve will shift to the left. 8. What does a sale on shirts have to do with the law of demand (as applied to shirts)? The sale will decrease the price which in turn will increase the quantity demanded for that product. 9. What is wrong with this statement: As the price of a good falls, the supply of that good falls, ceteris paribus . Supply" should be "quantity supplied. 10. In the previous chapter, you learned about the law of increasing opportunity costs . What does this law have to do with an upward-sloping supply curve? The higher the price, the more firms are willing to produce and sell because any higher opportunity costs can be covered by the higher price . This means more products are supplied . References: Microeconomics by Roger Arnold Quizlet

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