Lesson 5

Question 1

Comparative Statics

Answer 1

Studying how supply and demand curves shift

Question 2

Increase

Answer 2

Shift to the right

Question 3

Decrease

Answer 3

Shift to the left

Question 4

Elasticity

Answer 4

A measure of the responsiveness of one variable
to changes in another variable

Question 5

Income Elasticity of Demand

Answer 5

The effect that a change in a person’s income has on their demand for a certain good

Question 6

Normal Good

Answer 6

A good for which demand increases when income increases, and demand decreases when income decreases

Question 7

Inferior Good

Answer 7

A good for which demand decreases when income increases, and demand increases when income decreases

Question 8

Cross-Price Elasticity of Demand

Answer 8

The effect that a change in the price of one good has on the demand for another good

Question 9

Substitutes

Answer 9

Goods that perform a similar function or satisfy a
similar human desire

Question 10

Complements

Answer 10

Goods that are more valuable when consumed
together

Question 11

Tax

Answer 11

When the government takes money from you when you engage in a certain activity

Question 12

Subsidy

Answer 12

When the government gives you money when you engage in a certain activity.

Question 13

Own-Price Elasticity of Demand

Answer 13

The responsiveness of the quantity demanded for
a good to changes in the price of that good

Question 14

Inelastic

Answer 14

When the absolute value of a good’s price elasticity of demand is less than 1

Question 15

Elastic

Answer 15

When the absolute value of a good’s price elasticity of demand is greater than 1

Question 16

Demand curve

Answer 16

the set of maximum buying prices

Question 17

Supply curve

Answer 17

the set of minimum selling prices

Question 18

Consumer Surplus

Answer 18

A measure of the gain that the buyer experiences
from an exchange

Question 19

Producer Surplus

Answer 19

A measure of the gain that the seller experiences
from an exchange

Question 20

Total Gain from Trade

Answer 20

The sum of consumer surplus and producer
surplus

Question 21

Equilibrium

Answer 21

A situation in which no
individual, taking the behavior of all others as
given, wants to change their own behavior

Question 22

Shortage

Answer 22

When the quantity supplied is
lower than the quantity
demanded

Question 23

Surplus

Answer 23

When the quantity demanded is
lower than the quantity
supplied

Question 24

Dead Weight Loss

Answer 24

Gains from trade that are not being made

Question 25

Economic Efficiency

Answer 25

A situation in which all possible gains from trade are being
made

Question 26

Entrepreneur

Answer 26

A person who takes advantage of a profit opportunity in the market