Supply and Demand

Question 1

relationship between the price of a good and the amount firms are willing to sell of the good

Answer 1

supply curve

Question 2

law of supply

Answer 2

as the price of a good goes up, people will want to sell more of it

Question 3

factors that shift supply curve

Answer 3

1. change in price of inputs (supply decreases at each price point)
2. change in production technology (decrease in price, increase in production)
3. change in number of sellers
4. change in future expectations (future price of the good, future price of inputs)

Question 4

when the price of a good is above the equilibrium price, a (blank) occurs

Answer 4

surplus (quantity demanded is less than quantity supplied)

Question 5

market clearing price

Answer 5

when supply and demand are equal to each other

Question 6

the absolute value of price elasticity of demand is inelastic/elastic when greater than 1

Answer 6

elastic

Question 7

an increase in price of an elastic good correlates to a increase/decrease in revenue

Answer 7

decrease

Question 8

an increase in price of an inelastic good correlates to a increase/decrease in revenue

Answer 8

increase

Question 9

if income elasticity is greater than one, the good is elastic/inelastic

Answer 9

elastic

Question 10

if increase in income correlates to an increase in quantity consumed the good is normal/inferior

Answer 10

normal

Question 11

if increase in income correlates to a decrease in quantity (is less than zero) consumed the good is normal/inferior

Answer 11

inferior

Question 12

the difference between the max you would pay for a good and what you actually paid

Answer 12

consumer surplus

Question 13

consumer surplus on a price/quantity graph is located above/below the price paid and above/below the demand curve

Answer 13

above the price paid, below the demand curve

Question 14

producer surplus on a price/quantity graph is located above/below the price paid and above/below the supply curve

Answer 14

below price paid, above the supply curve

Question 15

total economic surplus formula

Answer 15

value to buyers - cost to sellers

Question 16

goods will be allocated to the buyers who value them most highly and the sellers who can produce them at the lowest costs at

Answer 16

market equilibrium

Question 17

the loss in surplus to society when there’s a distortion in the market due to inability to reach the equilibrium
point

Answer 17

Deadweight loss (ex: sales tax)

Question 18

if the demand curve is relatively inelastic or more inelastic than
supply then the buyer/supplier has the bigger tax burden

Answer 18

buyer (larger difference in price paid and equilibrium price)

Question 19

If the supply is relatively more inelastic than the demand curve then the buyer/supplier pays the bigger part of the tax burden.

Answer 19

supplier (larger difference in price received and equilibrium price)

Question 20

the only price where the plans of consumers and the plans of producers agree—where the amount of the product consumers want to buy (quantity demanded) is equal to the amount producers want to sell (quantity supplied)

Answer 20

equilibrium price

Question 21

any above-equilibrium price, the quantity supplied exceeds the quantity demanded, resulting in

Answer 21

excess supply / surplus

Question 22

When the price is below equilibrium, there is

Answer 22

excess demand / shortage

Question 23

ceteris paribus

Answer 23

“other things being equal.” Any given demand or supply curve is based on the ceteris paribus assumption that all else is held equal.

Question 24

social (economic) surplus formula

Answer 24

consumer surplus + producer surplus

Question 25

the percentage change in the
quantity demanded of a good or service divided by the percentage change in the price

Answer 25

price elasticity of demand

Question 26

the percentage change in quantity supplied divided by the percentage change in price.

Answer 26

price elasticity of supply

Question 27

% change in quantity formula

Answer 27

(q2-q1) / ((q2+q1)/2) * 100

Question 28

% change in price formula

Answer 28

(p2-p1) / ((p2+p1)/2) * 100

Question 29

price elasticity of supply or demand formula

Answer 29

% change in quantity / % change in price

Question 30

the extreme case where either the quantity demanded (Qd) or supplied (Qs) changes by an infinite amount in response to any change in price at all

Answer 30

Infinite elasticity or perfect elasticity (horizontal demand curve)

Question 31

the extreme case in which a percentage
change in price, no matter how large, results in zero change in quantity

Answer 31

Zero elasticity or perfect inelasticity (vertical demand curve)

Question 32

the demand curve for a highly inelastic product will be more vertical/horizontal

Answer 32

vertical

Question 33

the demand curve for a highly elastic product will be more vertical/horizontal

Answer 33

horizontal

Question 34

Income elasticity of demand formula

Answer 34

% change in quantity demanded /
% change in income

Question 35

Cross-price elasticity of demand formula

Answer 35

% change in Qd of good A /
% change in price of good B

Question 36

when a given percent price change leads to an equal percentage change in quantity demanded or supplied

Answer 36

constant unitary elasticity