ECO 365 Exam Guide: Supply Curves and Demand Curves

ECO 365 Final Exam Answer Supply Curves and Demand Curves

Supply curves and demand curves are among the most important visualizations to understand in the field of economics. This section will cover answers that use these visual aids to explain the relationship between supply and demand at different levels. 

The exhibit given below shows the supply curve

The exhibit given below shows the supply curve of printing machines. At a price of $400 per machine, the producer surplus is

The exhibit given below shows the supply curve of printing machines. At a price of $400 per machine, the producer surplus is

The exhibit given below shows the supply curve of printing machines. At a price of $400 per machine, the producer surplus is

$200

Explanation: Producer surplus is the difference between the amount producers are receiving for a product and the baseline amount that they would actually accept to maintain a certain supply level. If you imagine a diagonal line running from point (4, 400) to point (2, 200), this area is the surplus and is solved with the equation: (2 * 200) / 2 = 200.

A sudden increase in the demand for air conditioners

A sudden increase in the demand for air conditioners increased the earnings of the workers employed in air conditioner-manufacturing firms and attracted workers from other sectors. Which of the following will be true in the market for workers employed in air conditioner-manufacturing firms?

There will be a leftward shift of the labor supply curve, leading to a decrease in the equilibrium wage and employment

Explanation: This problem addresses the backward bending phenomenon of the labor supply curve.  Basically, higher wages lead to a reduction in the labor supply as workers substitute work time for leisure time. More workers will drive wages and overall employment down.

Suppose Timothy consumes two goods, soda and chips. The slope of his indifference curve for these two goods reflects

The rate at which he is willing to substitute one good for the other

Explanation: The marginal rate of substitution can be found as the slope of the indifference curve at a given point. The slope of the indifference curve is all about substitution rate.

Which of the following reflects the law of demand?

Jacques purchasing 4 bottles of lemonade instead of 3 when its price decreased from $12 to $10 per bottle

Explanation: Demand goes up when price goes down. That’s the law, and it applies perfectly to the scenario of Jacques buying more lemonade after the price decreased.

 
  • Student: Sandy Lopez
  • Textbook:  Principles of Microeconomics
  • Course: ECO 365 Microeconomics 2017 Final Exam
 

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