Questions onQuestions on Demand, Supply, Price Demand, Supply, Price

What is the law of demand What is the law of demand statesstates

As price goes up, demand As price goes up, demand goes down and as price goes down and as price goes down, demand goes goes down, demand goes up. This is an up. This is an INVERSEINVERSE relationshiprelationship between between price and demandprice and demand

What is a chart or listing What is a chart or listing called that shows prices called that shows prices and the quantity and the quantity demanded at each price?demanded at each price?

Demand ScheduleDemand Schedule

What is a graph of prices What is a graph of prices and the quantity demanded and the quantity demanded at each price called?at each price called?

Demand CurveDemand Curve

What are complementary What are complementary goods?goods?

Name two goods that are Name two goods that are complements.complements.

What happens if the price of What happens if the price of one of the complement goes one of the complement goes up?up?

AnswerAnswerGoods that go together.Goods that go together.

Bread – butterBread – butterCereal – milkCereal – milkDVD players – DVDsDVD players – DVDsetc.etc.

If the price of one goes up If the price of one goes up demand for it and its demand for it and its complement will likely complement will likely decreasedecrease

What is the substitution What is the substitution effect?effect?

Give examples of the Give examples of the substitution effect.substitution effect.

AnswerAnswer

If the price of a good increases If the price of a good increases people may switch to an people may switch to an available substitute.available substitute.Or, if the price of a substitute Or, if the price of a substitute decreases, people may switch decreases, people may switch to it.to it.

As price of hamburgers goes As price of hamburgers goes up, consumers will substitute up, consumers will substitute chicken sandwiches instead. chicken sandwiches instead. If the price of ethanol drops If the price of ethanol drops people will switch to it instead people will switch to it instead of gasoline.of gasoline.

Give 2 factors besides Give 2 factors besides price (non-price factors) price (non-price factors) that can influence that can influence demand for a good.demand for a good.

Consumer taste/preference Consumer taste/preference Market sizeMarket sizePrices of related goodsPrices of related goodsIncome of consumersIncome of consumersFuture expectationsFuture expectations

Which of the following is a Which of the following is a graph of a demand curve graph of a demand curve and which a supply curveand which a supply curve

A.A. B.B.

A = Supply curveA = Supply curveB = Demand CurveB = Demand Curve

What direction does a What direction does a demand curve shift to demand curve shift to indicate an increase in indicate an increase in demand ?demand ?

To the rightTo the right

Elasticity refers to a Elasticity refers to a change (stretch or change (stretch or contraction) incontraction) inA.A. PricePrice

B.B. IncomeIncome

C.C. QuantityQuantity

D.D. Marginal ProductMarginal Product

QuantityQuantity

Which demand curve has a Which demand curve has a steeper slope?steeper slope?

One indicating inelastic One indicating inelastic demand demand or or one showing demand for a one showing demand for a good with elastic demand?good with elastic demand?

One indicating inelastic One indicating inelastic demand or one showingdemand or one showing

The price of a good The price of a good decreases, so then people decreases, so then people have more money to spend have more money to spend and can buy more of that and can buy more of that product increasing demand.product increasing demand.

Answer:Answer:

The income effectThe income effect

Name one factor that Name one factor that determines whether the determines whether the demand for a product is demand for a product is elastic or inelastic ?elastic or inelastic ?

Is is a necessity or not.Is is a necessity or not.If the purchase can be If the purchase can be delayeddelayedIs it an inexpensive or Is it an inexpensive or expensive purchaseexpensive purchase

Which of the following has Which of the following has elastic demand?elastic demand?a. gasolinea. gasolineb. breadb. breadc. tobaccoc. tobacco d. candyd. candy

d. candyd. candy

The law of supply statesThe law of supply states

As price goes up, supply As price goes up, supply goes up and as price goes up and as price goes down, supply goes goes down, supply goes down.down.

What does it mean when What does it mean when there is an inelastic supply there is an inelastic supply of a good?of a good?

Means that suppliers can Means that suppliers can not increase or change not increase or change amount of production amount of production quickly in response to a quickly in response to a change in price or demandchange in price or demand

What factors affect What factors affect whether a product has an whether a product has an inelastic supplyinelastic supply

Expensive to produce.Expensive to produce.

Takes a long time to Takes a long time to produceproduce

Resources are not readily Resources are not readily availableavailable

What labels go on the What labels go on the vertical and horizontal axis vertical and horizontal axis of a demand/supply curve?of a demand/supply curve?

Vertical – priceVertical – priceHorizontal - QuantityHorizontal - Quantity

What is the point or price What is the point or price where the demand curve where the demand curve and supply curve intersect. and supply curve intersect. At this price there will not At this price there will not be a surplus or shortage.be a surplus or shortage.Quantity Demanded (QD) Quantity Demanded (QD) will equal Quantity of will equal Quantity of Supply (QS)Supply (QS)

Equilibrium point or Equilibrium point or price.price.

The increase in production The increase in production cost that results when one cost that results when one more unit of input is added.more unit of input is added.

For example adding 1 more For example adding 1 more worker increases production by 10 worker increases production by 10 units. units.

Marginal ProductMarginal Product

What are the 3 stages of What are the 3 stages of production?production?

Increasing, Diminishing, Increasing, Diminishing, NegativeNegative

What is occurring during What is occurring during each stage of production?each stage of production?

The term for the The term for the minimum price that can minimum price that can be charged for a good or be charged for a good or service if the service if the government sets price government sets price controls.controls.

Price FloorPrice Floor

The term for the The term for the maximum that can be maximum that can be charged for a good or charged for a good or service if the service if the government uses price government uses price controls.controls.

Price CeilingPrice Ceiling

WHICH OF THE FOLLOWING WHICH OF THE FOLLOWING PRODUCTS WOULD MOST PRODUCTS WOULD MOST LIKELY HAVE AN ELASTIC LIKELY HAVE AN ELASTIC SUPPLY?SUPPLY?A. Real Estate - HousesA. Real Estate - HousesB. GoldB. GoldC. Super Bowl T-shirtsC. Super Bowl T-shirtsD. All of the above have elastic D. All of the above have elastic supplysupply

SUPERBOWL T-SHIRTSSUPERBOWL T-SHIRTS

Give an example of a non-Give an example of a non-price factor (influence) price factor (influence) upon the supply of a upon the supply of a productproduct

ANY OF THE FOLLOWINGANY OF THE FOLLOWING

PRICE OF RESOURCESPRICE OF RESOURCESCOMPETITIONCOMPETITIONTECHNOLOGYTECHNOLOGYGOVERNMENT – taxes, regulations, GOVERNMENT – taxes, regulations, subsidiessubsidiesPRODUCER EXPECTATIONSPRODUCER EXPECTATIONS

If a product’s If a product’s price is price is above the equilibriumabove the equilibrium price what will likely price what will likely result?result?

A. SurplusA. Surplus B. ShortageB. Shortage

A. SurplusA. Surplus

If the government interferes in the economy If the government interferes in the economy by setting a price ceiling and that by setting a price ceiling and that price is price is belowbelow the equilibrium price the equilibrium price what will likely what will likely be the result ?be the result ?

A. ShortageA. Shortage B. SurplusB. Surplus C. Huge profitC. Huge profit

A.A. ShortageShortageReason - Producers will Reason - Producers will not increase supply due not increase supply due to the price ceiling.to the price ceiling.

How is total revenue How is total revenue figured at figured at each price using a each price using a demand schedule?demand schedule?

Multiply price times the Multiply price times the quantity demanded at that quantity demanded at that price.price.

Using the Total Revenue Test Using the Total Revenue Test (called the total expenditure test in the text) if (called the total expenditure test in the text) if after a price increase if there is a decrease in after a price increase if there is a decrease in total revenue there istotal revenue there is

A. Inelastic demand at that priceA. Inelastic demand at that priceB. Elastic demand at that priceB. Elastic demand at that priceD. Variable total revenueD. Variable total revenue

Clue: demand decreased enough that Clue: demand decreased enough that total revenue decreased from what it total revenue decreased from what it was at the previous price.was at the previous price.

B. Elastic demand at that price

What are fixed costs?What are fixed costs?

Give an example of a Give an example of a fixed cost. fixed cost.

Costs that do not change Costs that do not change from month to month. Also from month to month. Also called overhead.called overhead.

LeasesLeasesRent or MortgageRent or MortgageInsuranceInsurance

What are expenses that What are expenses that may change from month may change from month to month called?to month called?

Variable costsVariable costs