NotesforFinal - 1) (TCO A) There is an increase in the cost...

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1) (TCO A) There is an increase in the cost of materials for producing bicycles. (4 pts.) What happens to bicycle supply? (6 pts.) What happens to bicycle demand? Since a change in costs to produce the product is a supply factor, an increase in costs would be expected  to decrease bicycle supply.  Remember that supply is a schedule of how many units suppliers are willing to offer at  different prices.  When costs rises in the supply curve decreases or shifts to the left.   Since there are changes in producer costs is not a demand factor, there would be no impact on demand.   2) (TCO A) Digital cameras and memory cards are complements in consumption. The price of digital cameras falls. (4 pts.) What happens to the demand for memory cards? (6 pts.) What happens to the demand for digital cameras? When the price of a complimentary good falls, then the affect on the demand for the other good rises.  Price of  digital cameras falls -- demand for memory cards rises.  This tests your ability to distinguish between a change in demand and a change in quantity demanded.  When the  price of digital cameras falls THERE IS NO EFFECT ON THE DEMAND for digital cameras.  Only the quantity  demanded would change -- rise in this case.  Remember that a change in demand means that THE WHOLE  CURVE SHIFTS.  3) SA 3. (TCO A)  The number of wheat producers  decreases.  (4 pts.) What happens to the supply of wheat?  (6 pts.) What happens to the demand for wheat? The supply of wheat would decrease, or shift to the left. The number of suppliers is obviously a supply factor, so  the less suppliers there are, the smaller would be the supply.  The demand for wheat remains the same as before because the number of suppliers is a supply factor, not a  demand factor. 4) (TCO A) A market is in equilibrium with equilibrium quantity Q* and equilibrium price P*. (2 pts.) What happens to P* if there is an increase in supply? (4 pts.) What happens to Q* if there is a decrease in supply and a decrease in demand? (4 pts.) What happens to P* if there is an increase in demand followed by a decrease in supply followed by another increase in demand? If the supply increases then there will be a decrease in the price and then equilibrium price will drop lower than  where it was. 2) If there is a decrease in the supply and the demand, the output is also affected. There is no way to  determine what the price will be as stated in our text on page 70 Figure 11. 3) If this were to happen where the  supply decreased in the middle of two increases in demand then the equilibrium price P* will sky-rocket. Instructors
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This note was uploaded on 03/26/2012 for the course ECON GM545 taught by Professor Gotches during the Summer '11 term at Keller Graduate School of Management.

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NotesforFinal - 1) (TCO A) There is an increase in the cost...

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