study guide for test #2 Flashcards
Which two economic concepts best explain why the law of demand says there is an inverse relationship between price and quantity demanded?
income effect and substitution effect
A table that indicates the quantity demanded of a particular good at various prices is:
demand schedule
An increase in the price of a good:
will result in a decrease in the quantity demanded
The idea that wealthy people purchase certain luxury goods as a signal that they have a high social standing is known as:
c. conspicuous consumption.
The law of demand is illustrated by a demand curve that is:
downward sloping
the law of supply is illustrated by a supply curve that is:
upward sloping
A change in which factor is not likely to cause a shift of the demand curve?
price
When we move along a demand curve we call the resulting change in the quantity consumers want to buy:
change in the quantity demanded
simple price shifts contribute most directly to
changes in the quantity demanded
If the government decides to impose a price floor above the equilibrium price, the price floor will:
cause a surplus of the good
How do sticky prices lead to shortages or surplusses?
by preventing the equilibrium price from resetting quickly enough
When prices in a particular market move very slowly in relation to their equilibrium values, these prices are referred to as:
sticky prices
If the government decides to impose a price ceiling below the equilibrium price, the price ceiling will:
cause a shortage of the good
Price changes that cause consumers or producers to change their patterns are known as:
signals
Prices help achieve customer satisfaction in part by:
encouraging producers to make goods that provide the most value
What main economic problem does rationing attempt to correct?
shortages
Suppose there is a shortage of beef. What is the most likely reason that a restaurant chain would not immediately adjust its prices on hamburgers and steaks?
costs on reprinting menus and changing advertising
When excess supply persists for a significant period of time, we call it:
surplus
What happens during a market failure?
markets overproduce or underproduce
The increase in total output that results from hiring an additional worker is called the:
marginal product of labor
Anita has recently opened a small coffee shop in her community. She employs two high school students to work at the coffee shop part-time. Which of the following represents a fixed cost that Anita must pay?
monthly rent payments
A period of time during which the quantities of all inputs are variable is:
the long run
A firm’s total cost can be calculated by:
adding fixed and variable costs
The additional revenue a firm receives from selling another unit of output is called:
marginal revenue
The costs of a firm’s inputs that change with the number of units of output produced are:
variable costs
If a firm sells 30 units of output at a price of $10 each, its marginal revenue is:
$10
Firms will continue to produce additional units if:
the marginal revenue of producing an additional unit is greater than the marginal cost of producing an additional unit.
A cost that does not change with the level of output produced is called a:
fixed cost
If a market finds itself in a temporary situation in which at a price of $10 the quantity demanded is 100 and the quantity supplied is 50, we would expect to see:
price will eventually rise
Which two key economic factors determine prices in the free market?
supply and demand
A rightward shift of demand will:
increase the equilibrium price
A rightward shift of supply will:
decrease equilibrium price
When there is a great deal of demand for something that is in short supply, we expect:
the price to be high
Which good is likely to be the most expensive?
one w high demand and low supply
At a price above equilibrium:
quantity supplied exceeds quantity demanded
If a market finds itself in a temporary situation where at a price of $10 the quantity demanded is 150 and the quantity supplied is 150, we would expect to see:
the price remains at $10
If the market for soybeans is in equilibrium:
the price is at a level at which the quantity of soybeans produced is equal to the quantity of soybeans demanded.
The tendency for the price and the quantity supplied to move in the same direction is known as:
the law of supply
An increase in supply is caused by:
a decrease in input prices
How does technological change affect supply?
Better production methods make it possible to produce more goods from the same inputs.
Which of the following events would decrease the supply of cheese pizza?
the price of cheese rises
What is the most likely direct result of a rise in government subsidies to suppliers?
supply would increase
Corn is an input in the production of beef. Suppose the price of corn drops. How would this change most likely affect the supply of beef?
It would increase because production costs would decline.
The total revenue a firm receives from selling its product minus the total cost of producing it is:
profit
How would a war in an oil-producing region most likely affect the supply of oil?
The supply would likely decline because the conflict would disrupt production and shipment.
A decrease in the price of a good will result in:
a decrease in the quantity supplied.
A decrease in supply means:
a shift to the left of the entire supply curve.
determinants of elasticity of demand
availability of substitutes, if the good is a luxury or necessity, amount spent on the good, and how much time has passed since price changed
determinants of demand
are consumer tastes/preferences, shifts in income, price of related goods, expectations of future prices, and number of buyers in a market.
determinants of supply
include: changing input costs/factors of production, changing regulations, changing technology or production methods, natural disasters/weather, the number of firms producing goods, and the expectations for future prices.
marginal product
the extra output that results from adding one unit of the input to the existing combination of productive factors.
elasticity
How do changing prices affect consumer decisions?
What happens to prices of domestic goods when similar products are imported from other countries?
The price of domestic goods decreased and the quantity supplied increased.
income effect
the change in consumption that occurs when a price increase causes consumers to feel poorer or when a price decreases causes them to feel richer
supply schedule
a good in a table listing the quantity of a good that will be supplied at specific prices
diminishing marginal productivity
hired more workers but less work is done/not a lot of profit is made
determinants of demand elasticity
availability of substitutes, if the good is a luxury or necessity, amount spent on the good, and how much time has passed since price changed
elasticity of demand
a measure of how strongly consumers respond to a change in the price of a good, calculated as the percentage change in the quantity demanded divided by the percentage change in price
Stages of production (in order):
Stage one= period of most growth in increasing marginal returns- output for adding one more worker
Stage two= marginal returns start to decline (making less when selling things)
Stage three= marginal returns start to decline- diminishing returns
Government ceilings cause
shortages
Government price floors cause
surpluses
price signals
assist consumers to decide if they have the desire/ability/willingness to go through with the purchase and it helps producers decide what to produce, how to produce, and for who to produce
elasticity of supply
is a measure of the responsiveness of the quantity supplied to price changes, calculated by dividing the percentage change in the quantity supplied by the percentage change in price.
increase in demand
increase in price and quantity
decrease in demand
decrease in price and quantity
decrease in supply
increase price, decrease quantity
increase in supply
decrease price, increase quantity
if supply and demand decrease by the same amount
price will not change and quantity will decrease
profit maximizing output level
is the amount of output that gives a firm as much profit as possible.
