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Exam 3: Demand, Supply, and Market Equilibrium

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Question 1

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Suppose the U.S. Congress is considering passing an excise tax that would increase the price of a pack of cigarettes by $1.00. What would be the likely effect of this change on the demand and supply of cigarettes? What is likely to happen to cigarette prices and the quantity consumed if the tax bill is enacted?

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If the excise tax passes, the supply of ...

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Question 2

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A normal good is one

A) whose amount demanded will increase as its price decreases.
B) whose amount demanded will increase as its price increases.
C) whose demand curve will shift leftward as incomes rise.
D) for which its consumption varies directly with income.

E) A) and D)
F) B) and C)

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Question 3

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Use supply and demand analysis to explain what is most likely to happen to the price and quantity of pink salmon when there is a large increase in the supply of pink salmon due to technological improvements in fishing boats that make them larger and more efficient and at the same time there is a small decrease in demand for pink salmon as consumers' tastes change to preferring other kinds of fish.

Describe in words how one can recognize the market equilibrium point in a graph of a demand schedule and a supply schedule.

If the decrease in supply is less than the decrease in demand, then the equilibrium price will decrease.

If we observe that the price of gold is rising and the quantity of gold traded in the market is falling, then this must be the result of an increase in the supply of gold.

Dynamic pricing refers to

"If demand increases and supply decreases, then both the equilibrium price and quantity will increase." What conditions are necessary to make this statement true?

What is meant by the rationing function of prices?

A decrease in the price of digital cameras will cause the demand for memory cards to shift to the left.

The supply curve shows the relationship between

Digital cameras and memory cards are

In the market for crude oil, if the change in demand due to the falling price of natural gas (a substitute for oil)is greater than the change in supply due to disruptions in oil-well operations in the Middle East, then the equilibrium price of oil will decrease.

The rationing function of prices refers to the fact that government must distribute any surplus goods that may be left in a competitive market.

In understanding and analyzing "demand," we focus on how much of a product the buyers are

List six determinants of market supply.

Surpluses drive market prices up; shortages drive them down.

A demand curve

If there is a surplus in a market, competition among the sellers will drive price down.

An increase in consumer incomes will cause a decrease in the demand for an inferior good.