II.A 1-6

Question 1

what is demand?

Answer 1

the want to purchase goods or services

-people must be willing and able to purchase a good service

Question 2

the law of demand states that
as the price of good ____, the quantity demanded ______
(two sentences from this)

Answer 2

1. as the price of good increases, the quantity demanded decreases
2. as the price of good decreases, the quantity demanded increases

Question 3

what type of relationship is the law of demand?

Answer 3

inverse

Question 4

demand vs. quantity demanded?

Answer 4

demand-willingness and ability to buy

*quantity demanded- the # of units purchased

Question 5

law of diminishing marginal utility

Answer 5

as a person consumes additional units of a good, eventually the utility gained from each additional unit of the good decreases

Question 6

utilty

Answer 6

the amount of satisfaction for and object

Question 7

the more utility you get from a good the higher the price you are willing to pay for it. True?

Answer 7

true!

Question 8

what is the difference in a change in demand and a change in quantity demanded?

Answer 8

1. change in demand- the physical movement of the whole demand line
2. a change in the point of the demand line

Question 9

what are the 6 factors that shift the demand curve?

Answer 9

1. income
2. substitutes
3. complements
4. preferences
5. number of buyers
6. expectations of future price change

Question 10

as the number of buyers increase, the demand for a good _____

Answer 10

increases

Question 11

normal good

Answer 11

the demand for normal goods rises as income rises and falls as income falls

Question 12

inferior good

Answer 12

the demand for inferior goods rises as income falls and falls when income rises

Question 13

neutral goods

Answer 13

the demand for neutral goods remains the same as income rises and falls

Question 14

why is the demand curve downward sloping? (3 reasons)

Answer 14

1. income effect-if a product’s price falls, the purchasing power of a consumer will increase, and therefore, there will be greater quantity demanded at lower prices; the inverse (higher prices—>less quantity demanded) is also true.
2. Substitution effect - if the product price is lower, consumers will shift from purchasing a substitute (a similar product) to buying more of this particular product, therefore, the quantity demanded is higher at lower prices.
3. Diminishing MU - the more additional units a consumer buys of a good, the less marginal utility they receive from it (they are less happy with buying each new one). So to make them buy more of what they are already buying, you have to lower the price.

Question 15

when you are talking about price you are talking about….

Answer 15

change in quantity demanded

Question 16

supply

Answer 16

willingness and ability to produce something at a given range of prices

Question 17

law of supply
“as prices _____ the quantity supplied _____”
(2 possible outcomes)

Answer 17

1. as prices rise, the quantity supplied increases

2. as prices fall, the quantity supplied decreases

Question 18

what changes the supply curve to the left or right? (7 things)

Answer 18

1. cost of inputs
2. technology (new machines)
3. productivity (efficiency increases)
4. taxes and subsidies
5. expectations of future price change
6. govt regulations
7. number of sellers

Question 19

price ceiling

Answer 19

maximum legal price a seller can charge for a product

-goal: make affordable by keeping price from reaching equilibrium

Question 20

price floor

Answer 20

minimum legal price a seller can sell a product.

-goal: Keep price high by keeping price from falling to equilibrium

Question 21

allocatively efficient

Answer 21

society is properly using their resources

social optimal

Question 22

what do price floors and ceilings do to how efficient a market is?

Answer 22

it makes deadweight loss

Question 23

how do you find the elasticity for demand?

Answer 23

%change in quantity demanded/ %change in price

Question 24

if the result of the equation to find elasticity for demand is…
Ed > 1 =…
Ed less than one …
Ed equal to one…

Answer 24

1. elastic
2. inelastic
3. unit elastic

Question 25

how do you find the elasticity for supply?

Answer 25

%change in Quantity supplied/ %change in price

Question 26

if the result of the equation to find elasticity for supply is... Es > 1 =... Es less than 1... Es equal to 1

Answer 26

1. elastic 2. inelastic 3. unit elastic

Question 27

how do you find income elasticity?

Answer 27

%change in quantity demanded/ %change in income

Question 28

if the result of the equation to find income elasticity is... Ei > 0 = positive... Ei less than zero or negative....

Answer 28

1. normal good | 2. inferior good

Question 29

what is the equation to find cross-price elasticity?

Answer 29

%change in quantity demanded of good x/ %change in price of good y

Question 30

if the result of the equation to find cross-price elasticity is... Exy > 0 = positive =.... Exy less than zero or negative...

Answer 30

1. substitutes | 2. complements

Question 31

how do you find total revenue?

Answer 31

price * quantity

Question 32

TOTAL REVENUE TEST 1. P increases, TR increases =... 2. P decreases, TR decreases =... 3. P increases, TR decreases =... 4. P decreases, TR increases =....

Answer 32

1. inelastic 2. inelastic 3. elastic 4. elastic

Question 33

what are the determinants of inelastic demand? (7)

Answer 33

- elasticity coefficient less than 1 - no/ few substitutes - small percent of income - no time to shop - need - price increases causes TR to increase - price decreases causes TR to decrease

Question 34

what are the determinants of elastic demand (7)

Answer 34

- elasticity coefficient >1 - many substitutes - big % of income - time to shop around - want or luxury - P increases, TR decreases - P decreases, TR increases

Question 35

elasticity

Answer 35

how sensitive quantity is to a change in price

Question 36

elasticity of demand

Answer 36

measurement of consumers' responsiveness to a change in price

Question 37

inelastic demand

Answer 37

insensitive to a change in price | -if price increases, quantity demanded will fall only a little per se because people still need the certain good

Question 38

elastic demand

Answer 38

quantity demanded is sensitive to a change in price -if price increases, quantity demanded will fall a lot per se because people don't really need this good and it is more of a luxury

Question 39

why impose a excise tax?

Answer 39

- discourage consumption - redistributive goals - reduce negative externality

Question 40

what does tax burden depend on?

Answer 40

the elasticity of supply or demand

Question 41

what does a per unit tax do?

Answer 41

increases the marginal cost of producing each product