question
What are the determinants (shifters) of demand?
answer
1. Income
2. Taste(preference)
3. Related Goods: substitute/complementary
4. Consumer price expectations
5. # of consumers in the market
2. Taste(preference)
3. Related Goods: substitute/complementary
4. Consumer price expectations
5. # of consumers in the market
question
What are the determinants (shifters) of supply?
answer
1. Change in costs of factors/ resource costs
2. Change in profit opportunity
3. Changes in producer price expectations
4. Change in technology
5. Change in the # of sellers in the market
6. International events/disasters
2. Change in profit opportunity
3. Changes in producer price expectations
4. Change in technology
5. Change in the # of sellers in the market
6. International events/disasters
question
What is a substitute good?
answer
a good/ service similar to another good/ service that can be used for the same purpose.
question
Give an example of a substitute good.
answer
peanuts - walnuts
coffee-tea
Pringles - Lays
coffee-tea
Pringles - Lays
question
What is complimentary good?
answer
two goods that are related (go together)
question
Example of a complimentary good.
answer
peanut butter & jelly
camera - film
shampoo - conditioners
camera - film
shampoo - conditioners
question
What is Law of Supply ?
answer
Law of Supply states the higher the price leads to the larger the quantity supplied.
question
What is Law of Demand ?
answer
Law of Demand states the higher the price, the lower the quantity demanded
question
What is price elasticity of Supply?
answer
responsiveness of sellers to change in price
question
What's another word/ phrase for market equilibrium?
answer
market clearance (clearing)
question
What are government price controls?
answer
when a local, state, or national government decides to set a legal minimum or maximum price for a good/ service in the market.
question
Describe a price ceiling.
answer
legal maximum price for a good, service or factors of production. Paying or charging above this price is legal.
question
Describe a price floor.
answer
legal minimum price for a good, service or factors of production. charging below that price is ILLEGAL.
question
Why do government implement price controls?
answer
To manage the economy by direct intervention.
question
What is Elasticity of Demand?
answer
A measure of the relationship between a change in the quantity demanded of a particular good and a change in its price
question
What is elastic demand?
answer
when consumers buy significantly more or less of a product when its price changes
question
What is inelastic demand?
answer
an increase or decrease in price will not significantly affect demand for the product
question
What is an equilibrium?
answer
where the supply and demand of a good/ service meet.
question
What effect does price ceiling have on the market if above the EP? below the EP?
answer
Above the EP: no effect
Below the EP: creates a shortage
Below the EP: creates a shortage
question
What effect does price floor have on the market if above the EP? below the EP?
answer
Above the EP: creates a surplus
Below the EP: no effect
Below the EP: no effect
question
Which way is the demand curve shifting?
answer
Right, because its an increase in the demand.
question
Which way is the demand curve shifting?
answer
Left, because its an decrease in the demand
question
What is price elasticity of demand?
answer
responsiveness of consumers to changes in its price.
question
What is surplus?
answer
quantity supplied is greater than quantity demanded.
question
What is shortage?
answer
quantity supplied is less than the quantity demanded,
question
What is moving along the demand curve?
answer
a change in the price of a good/ service cause a movement along the demand curve. (another point on the curve)
question
Graphs of elastic & inelastic demand
answer
-Elastic if demand quantity is stretching out.
-Inelastic if the demand quantity isn't showing little to no quantity demanded. (not stretching out)
-Inelastic if the demand quantity isn't showing little to no quantity demanded. (not stretching out)
question
Graphs of elastic & inelastic supply
answer
-Elastic if supply quantity is stretching out & shows large quantity change.
-Inelastic if the supply quantity isn't showing little to no quantity demanded. (not stretching out)
-Inelastic if the supply quantity isn't showing little to no quantity demanded. (not stretching out)
question
What is a supply curve?
answer
is from the consumers perspective. Shows the quantity supplied of a good by all suppliers at different prices. When the price is high, the larger the quantity.
question
What is a demand curve?
answer
is from the businesses/ firms production of goods. Shows all the quantities that consumers would pay for a good. When the price is high, demand is low. Price is low, demand high.
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