econ140_end_ch03 - CHAPTER 3: Demand and Supply (Pg. 58-73...

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CHAPTER 3: Demand and Supply (Pg. 58-73 and 76-77) Answers to the Review Quizzes Review Quiz Page 58 1. The money price of a good is the dollar amount that must be paid for it. The relative price of a good is its money price expressed as a ratio to the money price of another good. Thus, the relative price is the amount of the other good that must be foregone to purchase a unit of the first good. 2. The relative price of a good is the opportunity cost of buying that good because it shows how much of the next best alternative good must be forgone in order to buy a unit of the first good. 3. There are many potential examples that students may give. Some examples of items where both the money price and the relative price have risen over time are college tuition; automobiles; movie theatre tickets. 4. As in the previous question, many examples may be given. Some examples of items where both the money price and the relative price have fallen over time are personal computers; televisions; calculators. Review Quiz Page 63 1. The quantity demanded of a good or service is the amount that consumers plan to buy during a particular period, and at a particular price. 2. The law of demand states: “Other things remaining the same, the higher the price of a good, the smaller is the quantity demanded.” The law of demand is illustrated by a downward- sloping demand curve drawn with the quantity demanded on the horizontal axis and the price on the vertical axis. The slope is negative to show that the higher the price of a good, the lower is the quantity demanded. 3. For any fixed quantity of a good available, the height of the demand curve shows the maximum price that consumers are willing to pay for that quantity of the good. The price on the demand curve at this quantity indicates the marginal benefit to consumers of the last unit consumed at that quantity. 4. Influences that change the demand for a product include: a. The prices of related goods. A rise (fall) in the price of a substitute good shifts the demand curve for the first good rightward (left). A rise (fall) in the price of a complement good shifts the demand curve for the first good leftward (right). b. The expected future price of the product. A rise (fall) in the expected future price of a good shifts the demand curve in the current period rightward (left).
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c. Consumer income. For a normal good, an increase (decrease) in income shifts the demand curve rightward (left). For an inferior good, an increase in income shifts the demand curve leftward (right). d. Expected future income. For a normal good, an increase (decrease) in expected future income shifts the demand curve rightward (left). For an inferior good, an increase in expected future income shifts the demand curve leftward (right). e.
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econ140_end_ch03 - CHAPTER 3: Demand and Supply (Pg. 58-73...

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