1 1. Question: (TCO Quiz 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?
What happens to bicycle supply? When prices of materials required for unit production increase we will see a shift in the entire supply curve because costs of resources is one of the six detriments of supply. In this case as prices of materials increase the entire supply curve will shift to the left indicating that it will now cost more than it did before to achieve the same number of outputs. As this happens average costs of production increase as does marginal cost.
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So in this case as the price of digital cameras falls the demand for digital cameras will likely increase and thus the demand for memory cards will increase along with the increase for digital cameras. What happens to the demand for digital cameras? Depending on the elasticity for digital cameras as prices for this product falls there will be a change in quantity demanded corresponding to the change in price. The law of demand states that all other factors being held equal when the price for a good falls the demand for that good will increase. This inverse relationship indicates that in this case the lower price of digital cameras will result in an increase in demand for digital cameras.
Instructor Explanation: When the price of a complimentary good falls, 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. Points Received: 5 of 10
3. Question: (TCO A) The number of corn producers increases. (4 pts.) What happens to the supply of corn? (6 pts.) What happens to the demand for corn?
What happens to the supply of corn? The number of sellers in a given market represents one of the six detriments of supply. In the case of the corn market if everything is held constant and the number of supplier's increases then the supply of corn on the market will also increase. This is represented graphically as the supply curve shifts to the right meaning that more corn will be offered for sale at every price. If demand remains constant than the increase in supply will likely lower prices and depending on the willingness of the suppliers to produce and sell at a lower price it might create a new equilibrium or clearing price.
What happens to the demand for corn? Since supply and demand together determine the prices and quantities of goods bought and sold demand will likely change as supply changes. There is usually some sort of time lag from changes in supply resulting in changes in demand. If demand remains the same and there is more supply on the market then this will result in a surplus. Thus overtime producers will react to this surplus by reducing supply.
Instructor Explanation: The supply of corn would increase, or shift to the right. The number of suppliers is obviously a supply factor, so the more suppliers there are, the larger would be the supply. The demand for corn remains the same as before because the number of suppliers is a supply factor, not a demand factor. Points Received: 10 of 10 Comments: Sound argument... but watch out for QD vs. D
4. Question: (TCO A) A market is in equilibrium with equilibrium quantity Q* and equilibrium price P*. (2...