Chapter 3

Consider shopping for cucumbers in a farmers' market. For each statement below, note which characteristic of competitive markets the statement describes. Choose from: standardized good, full information, no transaction costs, and participants are price takers. [LO 3.1] a. All of the farmers have their prices posted prominently in front of their stalls. b. Cucumbers are the same price at each stall. c. There is no difficulty moving around between stalls as you shop and choosing between farmers. d. You and the other customers all seem indifferent about which cucumbers to buy.

Suppose two artists are selling paintings for the same price in adjacent booths at an art fair. By the end of the day, one artist has nearly sold out of her paintings while the other artist has sold nothing. Which characteristic of competitive markets has not been met and best explains this outcome? [LO 3.1] a. Standardized good. b. Full information. c. No transaction costs. d. Participants are price takers.

Consider the market for cars. Which determinant of demand is affected by each of the following events? Choose from: consumer preferences, prices of related goods, incomes, expectations, and the number of buyers. [LO 3.2] a. Environmentalists launch a successful One Family, One Car campaign. b. A baby boom occurred 16 years ago. c. Layoffs increase as the economy sheds millions of jobs. d. An oil shortage causes the price of gasoline to soar. e. The government offers tax rebates in return for the purchase of commuter rail tickets. f. The government announces a massive plan to bail out the auto industry and subsidize production costs.

If a decrease in the price of laptops causes the demand for cell phones to increase, are laptops and cell phones substitutes or complements?

If rising incomes cause the demand for beer to decrease, is beer a normal or inferior good?

Consider the market for corn. Say whether each of the following events will cause a shift in the demand curve or a movement along the curve. If it will cause a shift, specify the direction. [LO 3.3] a. A drought hits corn-growing regions, cutting the supply of corn. b. The government announces a new subsidy for biofuels made from corn. c. A global recession reduces the incomes of consumers in poor countries, who rely on corn as a staple food. d. A new hybrid variety of corn seed causes a 15 percent increase in the yield of corn per acre. e. An advertising campaign by the beef producers' association highlights the health benefits of corn-fed beef.

Consider the market for cars. Which determinant of supply is affected by each of the following events? Choose from: prices of related goods, technology, prices of inputs, expectations, and the number of sellers in the market. [LO 3.4] a. A steel tariff increases the price of steel. b. Improvements in robotics increase efficiency and reduce costs. c. Factories close because of an economic downturn. d. The government announces a plan to offer tax rebates for the purchase of commuter rail tickets. e. The price of trucks falls, so factories produce more cars. f. The government announces that it will dramatically rewrite efficiency standards, making it much harder for automakers to produce their cars.

Consider the market for corn. Say whether each of the following events will cause a shift in the supply curve or a movement along the curve. If it will cause a shift, specify the direction. [LO 3.5\(]\) a. A drought hits corn-growing regions. b. The government announces a new subsidy for biofuels made from corn. c. A global recession reduces the incomes of consumers in poor countries, who rely on corn as a staple food. d. A new hybrid variety of corn seed causes a 15 percent increase in the yield of corn per acre. e. An advertising campaign by the beef producers' association highlights the health benefits of corn-fed beef.

Say whether each of the following changes will increase or decrease the equilibrium price and quantity, or whether the effect cannot be predicted. \([\mathrm{LO} 3.7]\) a. Demand increases; supply remains constant. b. Supply increases; demand remains constant. c. Demand decreases; supply remains constant. d. Supply decreases; demand remains constant. e. Demand increases; supply increases. f. Demand decreases; supply decreases. g. Demand increases; supply decreases. h. Demand decreases; supply increases.