Economics test 2 Flashcards
the supply and demand meet perfectly at a price, no surplus or shortage
equilibrium
demand higher than supply
shortage
quantity supplied is higher than quantity demanded
surplus
system of allocating scarce goods and services according to certain criteria
rationing
consists of all commerce on which applicable taxes or regulations are avoided
black market
refers to quantity of a food or service
supply
desire to own something with the ability to buy it
demand
a government payment that supports a business or market
subsidy
total cost of operating a businesses fixed cost plus variable cost is the equation
operating cost
a rule- helps balance needs vs. freedom government intervention in the market
regulation
rising prices make you feel poorer, having more money makes you feel richer
income effect
all things equal
ceteris paribus
what is the law of demand and how does it affect the quantity demanded?
law of demand- when a good price is lower, consumers will buy more of it
when price goes up demand goes down when price goes down demand goes up
what is the law of supply and how does it affect the quantity supplied?
law of supply- price goes up then quantity supplied goes up.
price goes down then quantity supplied goes down
how do producers adjust to changes in supply and demand? how do regulations( price floor/ price ceiling) affect these adjustments?
producers adjust to changes in supply and demand by if the supply goes up price is lowered, if supply goes down prices are higher
producers raise price if demand is low, and lower price when demand is high
regulations keep the prices at a reasonable price. Too much regulation a problem
Explain the difference between a complimentary good and a substitute good? How do the prices of a good’s compliments affect its demand? How do the prices of a good’s substitute affect its demand?
complimentary goods-goods that go well with other goods
substitute goods- products that can be used in the place of another
There is an inverse relationship between a good’s compliments
They are directly related they are competing for each other
What does the point where the supply and demand curves cross represent?
The equilibrium is the point equilibrium price
What is the black market? Why do they come into existence? Provide at least three examples of Black markets?
black market- consisting of all commerce on which applicable taxes on regulations are a voided
They come into existence when price controls are implemented, to avoid regulations
-sex trafficking
-organs
-drugs
Determinants of Supply
STONER
Subsidies and teases Technology Other goods Number of sellers Expectations Resource cost
Determinants of Demand
BITER
Buyers (# of) Income Tastes Expectations Related goods
in which direction would you expect a demand curve to shift if there was an overall increase in demand?
increase to the right
in what direction would a supply curve shift if there were a decrease in supply?
decrease to the left
If prices rise, but not income, what is the effect on demand?
the demand goes down because the income effect
How does a producer react to a rise in demand? Why do they react this way?
producers raise price because there are more people willing to buy the item
Law or shift?
Weather forecaster say that a coming holiday weekend will be sunny. Stores see increase sales for sunglasses, sunblock, and beach chairs.
Shift of Demand
Law or shift?
When a coffee shop cuts the price of bagels, people want to buy more.
Law of Demand
Law or shift?
More fans want to buy lower-priced tickets to a baseball games than higher priced ones.
Law of Demand
Law or shift?
Sales of contact lens cleaner increase as more people wear contact lenses
Shift of Demand
Law or shift?
A video game company announces it will introduce a new game console in three months. Sales of the older version of the console drop by 25%
Shift of Demand
What is the result when a price floor is place above equilibrium? What about when a price ceiling is placed below the equilibrium
When a price floor is above equilibrium is bad, demand goes down, because it’s a surplus
Price ceiling below the equilibrium is a shortage
How does a change in taxes affect the supply of goods and services? Explain for both a increase or decrease in taxes.
The increase in taxes is prices go up, supply go down
Decrease of taxes, the price goes down and supply goes up.
