Unit 2 - Supply and Demand - DONE

Question 1

Demand

Answer 1

The ability and willingness to consume.

Question 2

Law of Demand

Answer 2

As price goes up, quantity demanded decreases. and price therefore decreases. When price decreases, quantity demanded increases.

Inverse Relationship

Question 3

Total Revenue

Answer 3

Money coming in

Price * Quantity of things

Question 4

Profit

Answer 4

The output money made

Profit = total revenue - cost

Question 5

Market Quantites

Answer 5

Sum of what all participants are buying at given price.

Question 6

Determinants of Demand

Answer 6

• Population
• Incomes / wealth
• Price of subsitute goods
• Price of complementary goods
• Addiction
• Necessity

Question 7

Quantity Demanded

Answer 7

Amount we consume at a given price

Question 8

Supply

Answer 8

The producer’s ability and willingness to produce

Ability = ability in all ways except for monetary

Question 9

Quantity Supplied

Answer 9

Amount we produce at a given price

Question 10

Law of supply

Answer 10

As price increases, quantity supplied increases. As price decreases, quantity supplied decreases.

Direct relationship

Question 11

Determinants of Supply

Answer 11

• Availibility of factors of production
• Tech
• Logistics
• Infastructure
• Taxes / subsidies
• Regulations
• Numbers of producers
• Subsitutes of production
• Complements of production (two products of same process –> beef + leather)

Subsitutes of production = other things producers could make

Question 12

Demand curve goes higher

Answer 12

Demand increases

Question 14

Demand curve goes lower

Answer 14

Demand decreases

Question 15

Supply curve goes higher

Answer 15

Supply decreases

Question 16

Supply curve goes lower

Answer 16

Supply increases

Question 17

Point of Equilibrium

Answer 17

Quantity demanded = Quantity supplied

Question 18

Qs < Qd

Answer 18

Shortage

Price back up to equilibrium

Question 19

Qs > Qd

Answer 19

Surplus

Price back down to equilibrium

Question 20

Equilibrium

Answer 20

Units of goods sold and the market price of said good

Question 21

The reality of equilibrium

Answer 21

With changing supply and demand, we are almost never in equilibrium. We are always “trying” to reach this point.

Question 22

Substituion Effect

Answer 22

The change in the quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods that are substitutes

Question 23

Income Effect

Answer 23

the change in the quantity demanded of a good that results from the effect of a change in the good’s price on consumers’ purchasing power

Question 24

Elasticity

Answer 24

A measure of responsiveness that tells us how a dependent variable such as quantity responds to a change in an independent variable such as price

Question 25

Elasticity of Demand

Answer 25

A measure of how consumers react to a change in price; percent change in quantity demanded divided by percentage change in price

Question 26

Total Revenue Test

Answer 26

A test to determine elasticity of demand between any two prices: Demand is elastic if total revenue moves in the opposite direction from price; it is inelastic when it moves in the same direction as price (arms up!); and it is of unitary elasticity when it does not change when price changes.

Question 27

Income elasticity of demand

Answer 27

A measure of how much the quantity demanded of a good responds to a change in consumers’ income, computed as the percentage change in quantity demanded divided by the percentage change in income

Question 28

Cross-price elasticity of demand

Answer 28

A measure of how much the quantity demanded of one good responds to a change in the price of another good, computed as the percentage change in quantity demanded of the first good divided by the percentage change in the price of the second good

Question 29

Complements

Answer 29

Two goods for which an increase in the price of one leads to a decrease in the demand for the other

Question 30

Subsitutes

Answer 30

Two goods for which an increase in the price of one leads to an increase in the demand for the other (positive coefficients)

Question 31

Normal Goods

Answer 31

Goods for which demand increases when income is higher and for which demand decreases when income is lower.

Question 32

Inferior goods

Answer 32

Goods for which demand tends to fall when income rises.