Econ Unit 2

Question 1

What does microeconomics focus on?

Answer 1

The area of economics that covers the behaviors and decision making of individuals and firms.
The study of individual markets, sectors, or industries.

Question 2

What influences the price that we as consumers pay and that producers charge us?(short answer).

Answer 2

Supply and demand from both the consumers and producers influence the price. The more consumers demand, the higher the supply and price. The less a consumer demands, the lower the supply and the price.

Question 3

How does the law of demand work?

Answer 3

A higher price leads to a lower quantity demanded and a lower price leads to a higher quantity demanded.

Question 4

How does the law of supply work?

Answer 4

An increase in the price of goods or services increases the quantity of supplies made available to the market.

Question 5

What is the purpose of the demand schedule?

Answer 5

A table that lists how much of a product consumers will buy at all possible prices. Helps when plotting a demand curve.

Question 6

What is the purpose of a demand curve?

Answer 6

A curve(graph) that shows the quantities demanded at all possible prices.

Question 7

What is marginal utility?

Answer 7

The additional usefulness or satisfaction a consumer gets from having one more unit of a product.

Question 8

What is diminishing marginal utility?

Answer 8

decrease in usefulness or satisfaction from having one more unit of the same product. Each additional unit of gain leads to an ever-smaller increase in subjective value.

Question 9

How does a change in price impact the quantity demanded by consumers?

Answer 9

if the price goes up, the quantity demanded goes down.
If the price goes down, the quantity demanded goes up.
The price of a product and the quantity demanded for that product have an inverse relationship according to the law of demand.

Question 10

Provide an example of substitutes and complements.

Answer 10

Substitute: Pepsi and Coke.
Complement: Fries and ketchup.

Question 11

What is Elastic demand?

Answer 11

A situation where a change in price causes a relativity larger change in the quantity demanded(sensitive)
Examples: luxury goods, or have many substitutes.

Question 12

What is inelastic demand?

Answer 12

A situation where a change in price causes a relatively small change in quantity demanded.
Examples: milk, eggs, salt: no substitutes.

Question 13

What factors could cause a change in demand?

Answer 13

Price, expectations, consumer tastes, income, substitutes, and compliments.

Question 14

What is elastic supply?

Answer 14

The quantity supplied changes significantly when the price changes.
Examples: clothing, electronics, agricultural products.

Question 15

What is inelastic supply?

Answer 15

Situations where the quantity supplied of a good or service doesn’t change much in response to price changes.
Examples: housing, medical services, electricity.

Question 16

What factors could cause a change in supply?

Answer 16

A situation where different amounts are offered for sale at all possible prices in the market.
Examples: production cost, technology, number of suppliers, natural conditions, and future prices.

Question 17

What are some examples of fixed costs?

Answer 17

Fixed costs: depreciation, interest paid on capital, rent, salary, property, taxes, insurance, premiums, etc.

Question 18

What are some examples of variable costs?

Answer 18

Variable costs: commissions, credit card fees, packaging supplies, production supplies, and raw materials.

Question 19

What message do prices send to buyers and producers?

Answer 19

Prices send signals and provide incentives to buyers and sellers. They signal scarcity and demand to buyers, influencing their purchasing decisions and indicating opportunities or risks to producers, guiding their production levels.

Question 20

How do you figure out equilibrium prices?

Answer 20

Equilibrium price: where the quantity supplied by producers equals the quantity demanded by consumers.

Question 21

How do you figure out shortages and surpluses?

Answer 21

Shortages: where the quantity supplied is less than the quantity demanded at a given price.
Surplus: where the quantity supplied is more than the quantity demanded at a given price.

Question 22

What is a price ceiling and price floor?

Answer 22

Price ceiling: the highest legal price that can be charged for a product. Example: rent control
Price floor: the lowest legal price that can be paid for a product. Example: minimum wage.

Question 23

What are externalities? Positive and negative examples. (short answer question)

Answer 23

Externalities: The cost or benefits felt by a 3rd party due to economic activity.
Positive: A situation where there is a positive impact on a 3rd party due to economic activity. Example: vaccinations and education.
Negative: A situation where there is a negative impact on a 3rd party due to economic activity. Example: pollution and worker treatment.

Question 24

Why are externalities difficult for society to handle? (short answer question)

Answer 24

Externalities are difficult to handle because they involve costs or benefits to third parties not involved in the transaction, leading to market failures. Fixing them often involves government action, which can complicated.