Economics

Quiz 1

1. Question: (TCO 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?

  Your Answer: 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. What happens to bicycle demand? When prices of materials increase this in it of itself does not impact demand or the demand curve will not shift. However, now that the supply curve has shifted to the left due to higher production prices firms might not be as willing to produce as many units as before so supply will fall. When supply declines and demand remains the same then prices will rise which in turn might decrease demand. Supply and Demand are always interacting with each other so in this case demand will likely respond to the shift in supply.

  Instructor Explanation: Since a change in costs to produce the product is a supply factor, an increase in costs would be expected to decrease bicycle supply.  Remember that supply is a schedule of how many units suppliers are willing to offer at different prices.  When costs rise, the supply curve decreases or shifts to the left. 

Since changes in producer costs is not a demand factor, there would be no impact on demand.

  Points Received: 10 of 10

2. Question: (TCO A)  Digital cameras and memory cards are complements in consumption. The price of digital cameras falls.

(4 pts.) What happens to the demand for memory cards?

(6 pts.) What happens to the demand for digital cameras?

  Your Answer: What happens to the demand for memory cards? Since...