Demand/Supply Test

Question 1

What is quantity demand?

Answer 1

What you’re willing and able to pay at a PARTICULAR POINT

Question 2

Why does the demand curve go downward to the right?

Answer 2

• substitution effect
• income effect
• diminishing marginal utility

Question 3

What is the substitution effect?

Answer 3

If the price goes up for a particular product, consumers buy less of that product and more of another substitute product (and vice versa)

Question 4

What is the income effect?

Answer 4

If the price goes down for a product, the purchasing power increases for consumers- allowing them to purchase more

Question 5

What is the law of diminishing marginal utility?

Answer 5

States that as you consume more units of any good, the additional satisfaction from each additional unit will eventually start to decrease
-the more you buy of ANY GOOD the less satisfaction you get from each new unit

Question 6

What are the factors that shift the demand curve?

Answer 6

1) number of consumers
2) change in income
3) taste and preferences
4) expectation of price changes
5) related goods
A. Substitute goods
B. Compliments
6) taxes

Question 7

What are normal goods?

Answer 7

Average products

Question 8

What are inferior goods?

Answer 8

Cheap products

Question 9

What is elasticity?

Answer 9

Measurement of consumers responsiveness to a change in price

Question 10

What is inelasticity?

Answer 10

Insensitive to a change in price

Question 11

What are characteristics of inelastic demands?

Answer 11

• few substitutes
• necessities
• small portion of income
• required now, rather than later
• elasticity coefficient

Question 12

In inelastic demands

Answer 12

People will continue to buy a product no matter what the price

Question 13

In an elastic demand

Answer 13

The amount people buy is sensitive to price

Question 14

What are general characteristics of elastic goods?

Answer 14

• many substitutes
• luxuries
• large portion of income
• plenty of time to decide
• elasticity coefficient > 1

Question 15

Elastic demand

Answer 15

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Question 16

Inelastic demand

Answer 16

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Question 17

What is demand?

Answer 17

The different quantities of goods that consumers are willing and able to buy at ALL PRICES

Question 18

What is supply?

Answer 18

The different quantities of a good that sellers are willing and able to sell (produce) at different prices

Question 19

What is the law of supply?

Answer 19

There’s a direct relationship between price and quantity supplied

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Question 20

Why does the supply curve go up and to the right?

Answer 20

Profit motive

Question 21

What is cost?

Answer 21

How much a company pays to produce something

Question 22

What is price?

Answer 22

How much a company sells a product for

Question 23

What is a subsidy?

Answer 23

Government pays producer to produce a product

Question 24

What are the non-price factors of supply?

Answer 24

1. # of firms
2. Cost of resources
3. Price of related goods/ opportunity cost
4. Future price expectations
5. Advances in technology
6. Government regulation
7. Subsidies (increases)
8. Taxes

Question 25

Anything with act behind it….

Answer 25

Increases price of production

Question 26

Why is there no total revenue test for supply?

Answer 26

Because total revenue will always go up

Question 27

When a supply is elastic what does that mean?

Answer 27

• made quickly

- made w/ little expense or use of resources

Question 28

What does it mean for supply to be inelastic?

Answer 28

• can’t be made regardless of funds

- resource intensive

Question 29

What drives up the price of a product?

Answer 29

Competition among consumers

Question 30

What drives down the price of a product?

Answer 30

Competition among sellers