Unit 2

Question 1

Front (Question)

Answer 1

Back (Answer)

Question 2

What does supply represent?

Answer 2

The quantity of a good or service that producers are willing and able to offer at various prices.

Question 3

What does demand represent?

Answer 3

The quantity of a good or service that consumers are willing and able to purchase at various prices.

Question 4

What is market equilibrium?

Answer 4

When the quantity supplied equals the quantity demanded, resulting in a stable price.

Question 5

What does elasticity measure?

Answer 5

The responsiveness of supply or demand to changes in price or other factors like income or prices of related goods.

Question 6

What are price controls?

Answer 6

Government interventions like price ceilings and price floors that can distort market outcomes, leading to shortages or surpluses.

Question 7

What causes a shift in supply or demand curves?

Answer 7

Changes in factors other than price, like technology, expectations, or preferences.

Question 8

What causes a movement along supply or demand curves?

Answer 8

A change in the price of the good itself.

Question 9

Why are supply curves upward-sloping?

Answer 9

Higher prices incentivize producers to supply more, following the law of supply.

Question 10

Why are demand curves downward-sloping?

Answer 10

Higher prices make goods less affordable, reducing quantity demanded, following the law of demand.

Question 11

What does a steeper supply or demand curve indicate?

Answer 11

Less elasticity (more inelastic).

Question 12

What does a flatter supply or demand curve indicate?

Answer 12

More elasticity.

Question 13

What factors shift the supply curve?

Answer 13

Changes in input prices, technology, expectations, and number of sellers.

Question 14

What factors shift the demand curve?

Answer 14

Changes in income, preferences, expectations, and prices of related goods (substitutes or complements).

Question 15

What determines the equilibrium price and quantity?

Answer 15

The intersection of the supply and demand curves.

Question 16

What happens if price is above equilibrium?

Answer 16

A surplus occurs, putting downward pressure on price.

Question 17

What happens if price is below equilibrium?

Answer 17

A shortage occurs, putting upward pressure on price.

Question 18

What is the difference between a shift and a movement along a curve?

Answer 18

Shifts are caused by non-price factors, movements are caused by price changes.

Question 19

What is price elasticity of demand (PED)?

Answer 19

The percentage change in quantity demanded divided by the percentage change in price.

Question 20

What indicates elastic demand?

Answer 20

PED > 1, quantity demanded is highly responsive to price changes.

Question 21

What indicates inelastic demand?

Answer 21

PED < 1, quantity demanded is less responsive to price changes.

Question 22

What is unit elastic demand?

Answer 22

PED = 1, meaning percentage change in quantity demanded equals percentage change in price.

Question 23

What is price elasticity of supply (PES)?

Answer 23

The responsiveness of quantity supplied to changes in price.

Question 24

What indicates elastic supply?

Answer 24

PES > 1, quantity supplied is highly responsive to price changes.

Question 25

What indicates inelastic supply?

Answer 25

PES < 1, quantity supplied is less responsive to price changes.

Question 26

What is income elasticity of demand?

Answer 26

The responsiveness of demand to changes in consumer income.

Question 27

What is cross-price elasticity of demand?

Answer 27

The responsiveness of demand for one good to changes in the price of another good.

Question 28

What is a price ceiling?

Answer 28

A legal maximum price; if set below equilibrium, it causes a shortage.

Question 29

What is a price floor?

Answer 29

A legal minimum price; if set above equilibrium, it causes a surplus.

Question 30

How do taxes affect markets?

Answer 30

Taxes increase production costs, shift supply left, raise prices, and lower quantity.

Question 31

How do subsidies affect markets?

Answer 31

Subsidies reduce production costs, shift supply right, lower prices, and increase quantity.

Question 32

How do businesses use supply and demand?

Answer 32

To make production and pricing decisions based on market conditions and elasticity.

Question 33

How do policymakers use supply and demand?

Answer 33

To predict the effects of regulations, taxes, and subsidies on markets.

Question 34

How do consumers use supply and demand?

Answer 34

To make informed purchasing decisions and anticipate changes in prices and availability.

Question 35

What is a common mistake regarding shifts and movements?

Answer 35

Confusing shifts caused by non-price factors with movements caused by price changes.

Question 36

What is a common mistake regarding price controls?

Answer 36

Misinterpreting that price ceilings lead to shortages and price floors lead to surpluses.

Question 37

How does elasticity affect changes in price and quantity?

Answer 37

More elastic markets have larger changes in quantity and smaller changes in price.

Question 38

What is a common mistake regarding market interventions?

Answer 38

Ignoring indirect effects like incentives and market efficiency impacts.

Question 39

Do all markets operate the same?

Answer 39

No, different goods and services have unique supply and demand characteristics.