Econ Ch. 3-4 Test

Question 1

States that people tend to receive less and less addition satisfaction from any good or service as they obtain more and more of it during a specific period of time

Answer 1

Principle of Diminishing marginal utility

Question 2

of units of a product that will be bought at a given price, amount of something not only wanted, but also purchased

Answer 2

Demand

Question 3

States that everything else being held constant, the lower the price charged for a good or service, the greater the demand; the higher the price, the lower the demand

Answer 3

Law of Demand

Question 4

T/F Demand Curve goes top left to bottom right

Answer 4

True

Question 5

Prices serve to…. (3 things)

Answer 5

1) Transfer Information
2) Provide Incentives
3) Circulate Income

Question 6

T/F In a free market, prices are unspoken agreements between buyers and seller

Answer 6

True

Question 7

Situation where the change in price of an item causes a change in the demand (movement occurs along the previously established curve)

Answer 7

Change in quantity demanded

Question 8

Shifting of a demand curve when demand for an item increases or decreases regardless of price (whole curve shifts left or right)

Answer 8

Change in Demand

Question 9

4 things that can change demand

Answer 9

1) Change in people’s income
2) Price of related goods
3) Change in people’s taste
4) Change in expectations

Question 10

Increase in demand moves a curve to the…

Answer 10

right

Question 11

Decrease in demand moves the curve to the…

Answer 11

left

Question 12

Items for which demand typically increase when buyers income increases

Answer 12

Normal goods (ex. cars, movies, clothes)

Question 13

items that typically experience a decrease in demand as buyers income increases

Answer 13

Inferior goods (ex. off brand, ramen noodles)

Question 14

Items that resemble one another and may be used in place of eachother

Answer 14

Substitute Goods (ex. Dasani and Great Value, BK and McDonald’s, Pepsi and Coke)

Question 15

Items usually purchased/used together

Answer 15

Complementary Goods (ex. ketchup and mustard, PB & J, hot dogs and buns, cereal and milk)

Question 16

Compromise between buyer and seller (expensive enough for Business to make money, cheap enough for consumer to buy)

Answer 16

Market Price

Question 17

Amount of goods/services business firms are willing and able to provide at different prices

Answer 17

Supply

Question 18

The higher the price buyers are willing to pay, other things constant, the greater the quantity of a product a firm will produce; the lower the price consumers are willing to pay, the smaller the quantity the supplier will produce

Answer 18

Law of Supply

Question 19

Which way does a supply curve go?

Answer 19

Bottom left to top right

Question 20

Change in price consumers are willing to pay, causes a change in the number of goods made and sold (causes movement along curve)

Answer 20

Change in quantity supplied

Question 21

Business firm produces more or less despite price (causes whole curve to shift left or right)

Answer 21

Change in Supply

Question 22

Things that cause supply to change (3)

Answer 22

1) Change in Technology
2) Change in production cost
3) Change in price of related goods
(see notes for examples)

Question 23

Point at which consumers are willing to purchase from market the exact quantity of a product suppliers put in (point where the market is happy :))

Answer 23

Market Equilibrium

Question 24

Price where market equilibrium occurs

Answer 24

Market Equilibrium Price

Question 25

Excess of unsold products, occurs when supplier raises prices above market equilibrium

Answer 25

Surplus

Question 26

3 solutions to a surplus

Answer 26

1) Increase Demand
2) Decrease Supply
3) Allow price to fall to market equilibrium point

Question 27

When government buys surplus commodities to raise prices it results in a

Answer 27

price floor (barrier intended to prevent prices of items from falling below market price)

Question 28

When various factors hold price of a good below market equilibrium

Answer 28

Shortage

Question 29

Does not allow certain prices to go above market equilibrium

Answer 29

Price Ceiling (if the ceiling holds the price too low for too long, it suffocates profit, and businesses die)

Question 30

3 solutions to a shortage

Answer 30

1) decrease demand
2) increase supply
3) allow prices to raise to market equilibrium point