Test 1

Question 1

Factors affecting Demand (other than price)

Answer 1

1. Taste and preferences
2. Price of related goods (substitutes & complements)
3. Income
4. Expected future price
5. Population or demographics

Question 2

Change in Demand vs. Change in Quantity Demanded

Answer 2

Change in D: SHIFT of curve

Change in QD: MOVEMENT along curve

Question 3

Factors affecting Supply (other than price)

Answer 3

1. Cost of inputs/ production
2. Better technology
3. Price of related goods in production
4. Natural factors
5. Future expected prices
6. Number of sellers (competition)

Question 4

Market Equilibrium

Answer 4

When QD = QS

Question 5

Surplus

Answer 5

When QS > QD

Question 6

Shortage

Answer 6

When QD > QS

Question 7

Combined effect on Eq P

Answer 7

D ↑ S ↑: depends
D ↑ S ↓: Eq P ↑
D ↓ S ↑: Eq P ↓
D ↓ S ↓: depends

Question 8

Combined Effect on Eq Q

Answer 8

D ↑ S ↑: Eq Q ↑
D ↑ S ↓: depends
D ↓ S ↑: depends
D ↓ S ↓: Eq Q ↓

Question 9

Consumer surplus

Answer 9

difference between highest price a consumer is willing to pay - the actual market price

Question 10

Area of consumer surplus

Answer 10

Area below D curve and above market price

Question 11

Producer surplus

Answer 11

difference between the actual market price - reservation price

Question 12

Area of producer surplus

Answer 12

Area above S curve and below market price

Question 13

Price floor

Answer 13

minimum price sellers may receive

- minimum wage

Question 14

Why impose minimum wage?

Answer 14

Equilibrium price is too low

Question 15

Effects of minimum wage

Answer 15

1. creates surplus of unemployment
2. supply decreases
3. prices increase (inflation)

Question 16

Price ceiling

Answer 16

maximum price sellers may charge

- rent control

Question 17

Why impose rent control?

Answer 17

Equilibrium price is too high

Question 18

Effects of rent control

Answer 18

Short term:
1. creates shortage of apartments
2. quality of service decreases
3. find other ways to increase income
Long term:
1. sell apartment buildings and invest elsewhere
2. long-run shortage

Question 19

Tax incidence

Answer 19

the actual division of the burden of a tax between buyers and sellers in a market

Question 20

Price elasticity of demand

Answer 20

% change in QD / % change in P
(how D responds to a change in P)
- always negative, but we use absolute values

Question 21

Midpoint formula

Answer 21

to ensure we have only 1 value of the P elasticity of D between the same 2 points on a D curve

(Q2 - Q1/ (Q2 + Q1) / 2) / (P2 - P1/ (P2 + P1) / 2)

Question 22

Perfectly inelastic demand

Answer 22

ed = 0

vertical line

Question 23

Relatively less elastic demand

Answer 23

ed < 1

steep line

Question 24

Unitary elastic demand

Answer 24

ed = 1

Question 25

Relatively more elastic demand

Answer 25

ed > 1

not steep line

Question 26

Perfectly elastic demand

Answer 26

ed = infinity

horizontal line

Question 27

Total revenue

Answer 27

the amount of funds a seller receives from selling a goof or service
TR = (price per unit) x (# of units sold)

Question 28

TR when D is inelastic

Answer 28

P and TR move in the same direction

Question 29

TR when D is elastic

Answer 29

P and TR move inversely