Chapter 2

Question 1

Demand Shifters and discuss

Answer 1

• income
• prices of related goods
• advertising and consumer tastes
• population
• consumer expectations
• other factors

Question 2

Normal Good

Answer 2

a good whose demand increases (shifts to the right) when consumer income rises is called a normal good

Question 3

Inferior Good

Answer 3

an increase in income reduces the demand for the good

Question 4

Demand Function

Answer 4

a function that describes how much of a good will be purchased at alternative prices of that good and related goods, alternative income levels and alternative values of other variables affecting demand.

Question 5

Consumer Surplus

Answer 5

the value consumers get from a good but do not have to pay for

Question 6

Supply Shifters and discuss

Answer 6

• input prices
• technology or government regulations
• number of firms
• substitutes in production
• taxes
• producer expectations

Question 7

Producer Surplus

Answer 7

the amount producers receive in excess of the amount necessary to induce them to produce a good

Question 8

Price Ceiling

Answer 8

the maximum legal price that can be charged in a market

Question 9

Supply function

Answer 9

a function that describes how much of a good will be produced at alternative prices of that good,alternative input prices, and alternative values of other variables affecting supply

Question 10

change in quantity supplied

Answer 10

changes in the price of a good lead to a change in the quantity supplied of that good. This corresponds to a movement along a given supply curve.

Question 11

Change in Supply

Answer 11

Changes in variables other than the price of a good,such as input prices or technological advances, lead to a change in supply. This corresponds to a shift of the entire supply curve.

Question 12

Change in quantity demanded

Answer 12

changes in the price of a good lead to a change in the quantity demanded of that good. This corresponds to a movement along the demand curve.

Question 13

Change in Demand

Answer 13

Changes in variables other than price of a good, such as income or the price of another good, lead to a change in demand. This corresponds to a shift of the entire demand curve.

Question 14

Elasticity Formula

Answer 14

(ΔQ x Σ(P))/(Σ(Q)x Δ(P))

Question 15

Point Elasticity Formula

Answer 15

(ΔQ x P)/(ΔP x Q)

Question 16

What if the equilibrium price is above the price floor

Answer 16

the price floor has no effect

Question 17

If a price ceiling is imposed above the equilibrium price

Answer 17

it is ineffective

Question 18

When a surplus exist there is natural tendency for the price to

Answer 18

fall

Question 19

When a shortage exists

Answer 19

there is a natural tendency for the price to rise

Question 20

How are price and consumer surplus related?

Answer 20

inverse relationship

Question 21

Two points on price floor

Answer 21

…..

Question 22

Two points on price ceiling

Answer 22

…..

Question 23

what does the “inferior” in inferior goods not mean

Answer 23

…..

Question 24

Discuss substitutes and complements

Answer 24

…….

Question 25

What happens if you receive a negative supply number?

Answer 25

-supply is zero

Question 26

Where is the consumer surplus located?

Answer 26

-above the price paid for the good but below the demand curve

Question 27

Where is producer surplus located?

Answer 27

• above the supply curve

- but below the market price of the good

Question 28

How does a free market alleviate price floors?

Answer 28

-the price falls to alleviate excesses….but if not the consumers pay higher prices and purchase less goods

Question 29

the other way to talk about increasing Q

Answer 29

expressed differently when marginal benefits exceed marginal costs, the net benefits of increasing the use of Q are positive, by using more Q, net benefits increase.

Question 30

Do the demand and supply chart?

Answer 30

……..