Unit 2

Question 1

What is demand?

Answer 1

How much people want to buy something

Question 2

What are the POINTS of demand?

Answer 2

1. Price
2. Income
3. Information
4. Price of other goods

Question 3

What is price (points of demand)?

Answer 3

When something costs more, people tend to buy less of it. This is called the law of demand

Question 4

What is income (points of demand)?

Answer 4

How much money you have affects what you can buy

Question 5

What is information (points of demand)? What is an example of this?

Answer 5

What we know can change what we buy.

EXAMPLE: Shortage of toilet paper during COVID. Sudden increase in demand for it led to shortages and price changes.

Question 6

What is price of other goods (points of demand)? What are examples of both?

Answer 6

Complement - Things people typically buy together. If the price goes up of one good, we might buy less of both.

EXAMPLE: If movie tickets prices go up, people might buy less popcorn.

Substitute - Goods that are often purchased instead of
another, typically in response to price changes.

EXAMPLE: If hot dog bun prices go up, people might buy burgers instead.

Question 7

What are the two main ways to represent demand?

Answer 7

Graphical representation and algebraic representation

Question 8

Where does price and quantity go on the axis of a demand curve?

Answer 8

Price is always on the y-axis and quantity is always on the x-axis

Question 9

Demand always shifts to the…

Answer 9

Right

Question 10

When the price goes ↑

Answer 10

People buy less

Question 11

When the price goes ↓

Answer 11

People buy more

Question 12

What happens when quantity supplied = quantity demanded?

Answer 12

We get equilibrium price of a product

Question 13

What are the four market behaviours?

Answer 13

1. Supply can INCREASE
2. Supply can DECREASE
3. Demand can INCREASE
4. Demand can DECREASE

Question 14

What is this equation [ Qd(P) = 500 - P ] an example of?

Answer 14

Algebraic representation of DEMAND

Question 15

What is elasticity?

Answer 15

Measures how much quantity demanded changes in response to a change in price

Question 16

What are examples of highly elastic goods, that are very sensitive to price changes?

Answer 16

Luxury items like designer clothing or non-essential items like vacation trips

Question 17

What are examples of inelastic goods, that are less sensitive to price changes?

Answer 17

Essential items like food, gasoline or goods and services like electricity or medical services

Question 18

What is a graphical approach?

Answer 18

Graphical approach in economics means using charts and graphs to show economic ideas visually, making them easier to understand

Question 19

If the demand curve is very steep…

Answer 19

It means there is a small change in price that leads to a big change in how much people want to buy

Question 20

What is supply?

Answer 20

How much of a product or service is available in the market for consumers to purchase

Question 21

What are the three main inputs that affect quantity supplied?

Answer 21

1. Price
2. Cost
3. Government Interventions

Question 22

What is price (three main inputs that affect quantity supplied)?

Answer 22

When the price of a product goes up, more suppliers are willing to produce and sell it because they can make more money

Question 23

What is cost (three main inputs that affect quantity supplied)?

Answer 23

All about how much is costs to make something

Question 24

What is government interventions (three main inputs that affect quantity supplied)?

Answer 24

Government can affect how much of something is available by setting rules

Question 25

Supply always shifts to the…

Answer 25

Left

Question 26

Increasing prices increase supply while it decreases demand…

Answer 26

True

Question 27

For law of supply, what coefficient should go in front of our variable price?

Answer 27

A positive coefficient

Question 28

What is this equation [ Qs(P) = 120 + 6p ] an example of?

Answer 28

Quantity of supply equation

Question 29

What is supply and demand equilibirum?

Answer 29

When what producers want to sell equals what consumers want to buy, creating a balance.

Question 30

What is the graphical representation of equilibrium?

Answer 30

Where supply and demand’s curves intersect

Question 31

What is this equation [ Qs = Qp ] an example of?

Answer 31

Equational representation of equilibrium

Question 32

When should you use the supply and demand model?

Answer 32

1. Price Taking - Market agents must accept market prices
2. Identical Products - Goods in the market are considered the same
3. Full Information - Everyone knows price and quality
4. Low Trading Costs - Easy and efficient market transactions

Question 33

What is a surplus?

Answer 33

The extra value an individual gets from something compared to what they paid for it

Question 34

What is producer surplus?

Answer 34

When a producer sells something for more than they are willing to

Question 35

What is a consumer surplus?

Answer 35

When a consumer buys something for less than they value it

Question 36

Why does surplus matter?

Answer 36

Surplus helps measure welfare and compare policies. The more surplus, the better policy there is

Question 37

What is deadweight loss?

Answer 37

Surplus that is lost due to taxes

Question 38

What are the four possibilities of demand and supply graphs?

Answer 38

1. Demand can go UP
2. Demand can go DOWN
3. Supply can go UP
4. Supply can go DOWN