Ch003_4e - Answers to Text Questions and Problems Answers...

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Answers to Text Questions and Problems Answers to Review Questions 1. The equilibrium price of a good is determined by the intersection of its supply and demand curves. We can know everything about a good’s cost of production (that is we can know its supply curve exactly) but without the demand curve we will not know the quantity people will want to purchase and therefore what the cost at the margin is for the good. LO: 3 AACSB: Analytical Skills Bloom’s: Application 2. A change in demand means a shift of the entire demand curve, whereas a change in the quantity demanded means a movement along the demand curve in response to a change in price. LO: 4 AACSB: Analytical Skills Bloom’s: Analysis 3. If the price of gasoline were prevented by regulations from rising to its equilibrium level, we would expect to see symptoms of excess demand for gasoline, such as lines of cars waiting at the pumps to buy gas. LO: 3 AACSB: Analytical Skills Bloom’s: Application 4. Under the horizontal interpretation, we begin with a price for the good and then use the demand curve to read the quantity demanded at that price on the horizontal axis. Under the vertical interpretation, we start with a quantity produced and use the demand curve to read the marginal buyer’s reservation price for the product on the vertical axis. LO: 1 AACSB: Analytical Skills Bloom’s: Understanding 5. It is smart for each individual at a sporting event to stand up in order to get a better view of the game. However, it is dumb for all to stand up since no one sees any better than if all had remained seated. LO: 6 AACSB: Analytical Skills Bloom’s: Understanding Answers to Problems 1. Complements and substitutes:
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a. Substitutes b. Complements c. Probably substitutes for most people, but complements for some others who like to eat ice cream and chocolate together.
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