Week 3 Quiz
1. Question :
(TCO A) There is a decrease in the cost of labor for producing bicycles.
(4 pts.) What happens to bicycle supply?
(6 pts.) What happens to bicycle demand?
Student Answer: When there is an increase in the price of labor for making bicycles the supply would decrease because it would cost more to make the bikes and the supply curve would shift to the left. There would be no change in the demand for the bicycles. Instructor Explanation: Since a change in costs to produce the product is a supply factor, a decrease in costs would be expected to increase bicycle supply. Remember that supply is a schedule of how many units suppliers are willing to offer at different prices. When costs fall, the supply curve increases or shifts to the right.
Since changes in producer costs is not a demand factor, there would be no impact on demand. Points Received: 10 of 10 Comments: 2. Question :(TCO A) Ceteris paribus, coffee Brand X and coffee Brand A are substitutes in consumption. The price of coffee Brand X falls. (4 pts.) a. What happens to the demand for coffee Brand A? (6 pts.) b. What happens to the demand for coffee Brand X? Student Answer: If the price of X falls then the quantity demanded for A would fall because since they are substitutes the consumer will go for the lower price item. The quantity demanded for X would increase as consumers move toward the lower priced item. This would cause a shift up and to the right for Brand X. Instructor Explanation: a. When the price of a substitute good falls, the demand for the other good falls. Price of Brand X falls -- demand for Brand A falls or decreases. b. This tests your ability to distinguish between a change in demand and a change in quantity demanded. When the price of Brand X falls THERE IS NO EFFECT ON THE DEMAND for Brand X. Price of the good itself is NOT a Determinant of Demand. Points Received: 7.5 of 10 Comments: see the better answers on
(TCO A) There is a decrease in the cost of labor for producing bicycles.
(4 pts.) What happens to bicycle supply?
(6 pts.) What happens to bicycle demand?
Student Answer: When there is an increase in the price of labor for making bicycles the supply would decrease because it would cost more to make the bikes and the supply curve would shift to the left. There would be no change in the demand for the bicycles. Instructor Explanation: Since a change in costs to produce the product is a supply factor, a decrease in costs would be expected to increase bicycle supply. Remember that supply is a schedule of how many units suppliers are willing to offer at different prices. When costs fall, the supply curve increases or shifts to the right.
Since changes in producer costs is not a demand factor, there would be no impact on demand. Points Received: 10 of 10 Comments: 2. Question :(TCO A) Ceteris paribus, coffee Brand X and coffee Brand A are substitutes in consumption. The price of coffee Brand X falls. (4 pts.) a. What happens to the demand for coffee Brand A? (6 pts.) b. What happens to the demand for coffee Brand X? Student Answer: If the price of X falls then the quantity demanded for A would fall because since they are substitutes the consumer will go for the lower price item. The quantity demanded for X would increase as consumers move toward the lower priced item. This would cause a shift up and to the right for Brand X. Instructor Explanation: a. When the price of a substitute good falls, the demand for the other good falls. Price of Brand X falls -- demand for Brand A falls or decreases. b. This tests your ability to distinguish between a change in demand and a change in quantity demanded. When the price of Brand X falls THERE IS NO EFFECT ON THE DEMAND for Brand X. Price of the good itself is NOT a Determinant of Demand. Points Received: 7.5 of 10 Comments: see the better answers on