Chapter Questions

Movement along the supply curve The result of a change in the quantity supplied of a good or service. Price ceiling The maximum price that firms in an industry can charge for a good or service.Typically imposed by governments to achieve an objective perceived as socially desirable,price ceilings often result in inefficient economic,and social,outcomes. Price floor A legally imposed minimum price that may be charged for a good or service. Queuing A non–price rationing mechanism that involves waiting in line. Ration coupons Coupons or tickets that entitle the holder to purchase a given amount of a particular good or service during a given time period.

Ration coupons are sometimes used when the price rationing mechanism of the market is not permitted to operate,as when,say,the government has imposed a price ceiling. Rationing function of price The increase or a decrease in the market price to eliminate a surplus or a shortage of a good or service.The rationing function is considered to operate in the short run because other demand determinants are assumed to be constant. Shift of the demand curve The result of a change in the demand for a good or a service. Shift of the supply curve The result of a change in the supply of a good or a service. Shortage The result that occurs when the quantity demanded of a good or a service exceeds the quantity supplied of that same good or service.

Shortages exist when the market price is below the equilibrium (market clearing) price. Supply curve A diagrammatic illustration of the quantities of a good or service firms are willing and able to supply at various prices,assuming that the influence of other supply determinants remains unchanged. Surplus The result that occurs the quantity supplied of a good or a service exceeds the quantity demanded of that same good or service.Surpluses exist when the market price is above the equilibrium (market clearing) price. Waiting list A version of queuing.

CHAPTER QUESTIONS

3.1Define and give an example of each of the following demand terms and concepts.Illustrate diagrammatically a change in each. a.Quantity demanded b.Demand c. Market demand curve

d.Normal good e.Inferior good f. Substitute good g.Complementary good h.Price expectation i. Income expectation j. Advertising k.Population 3.2Define and give an example of each of the following supply terms and concepts.Illustrate diagrammatically a change in each. a.Quantity supplied b.Supply c. Market supply curve d.Factor price e.Technology f. Price expectation g.Advertising h.Substitute good i. Complementary good j. Taxes k.Subsidies l. Number of firms 3.3Does the following statement violate the law of demand? The quantity demanded of diamonds declines as the price of diamonds declines because the prestige associated with owning diamonds also declines. 3.4In recent years there has been a sharp increase in commercial and recreational fishing in the waters around Long Island.Illustrate the effect of “overfishing”on inflation-adjusted seafood prices at restaurants in the Long Island area. 3.5New York City is a global financial center.In the late 1990s the financial and residential real estate markets reached record high price levels.Are these markets related? Explain. 3.6Large labor unions always support higher minimum wage legislation even though no union member earns just the minimum wage.Explain. 3.7Discuss the effect of a frost in Florida,which damaged a significant portion of the orange crop,on each of the following a.The price of Florida oranges b.The price of California oranges c. The price of tangerines d.The price of orange juice e.The price of apple juice 3.8Discuss the effect of an imposition of a wine import tariff on the price of California wine. 3.9Explain and illustrate diagrammatically how the rent controls that