unit 4 study guide

Question 1

law of demand

Answer 1

the law of demand states that consumers buy more of a good when its price decreases and less when its price increases

Question 2

substitutes

Answer 2

substitutes are goods used in place of one another EX: skis & snowboards

Question 3

complements

Answer 3

complements are two goods bought and used together EX: cereal & milk

Question 4

elasticity of demand

Answer 4

elasticity of demand is a measure of how consumers react to a change in price (cut back or increase demand due to its price)

Question 5

elastic

Answer 5

demand for a good that is very sensitive to changes in price is elastic EX: steak

Question 6

inelastic

Answer 6

demand for a good that consumers will buy despite a price increase is inelastic EX: insulin

Question 7

what causes a shift in the demand curve? 5 answers

Answer 7

1. increase/decrease in income
2. increase/decrease in population
3. consumer expectations
4. advertising/consumer taste
5. change in price of compliments or substitutes

Question 8

law of supply

Answer 8

states that suppliers will offer more of a good at a higher price

Question 9

elasticity of supply

Answer 9

a measure of the way quantity supplied reacts to a change in price (if a firm could change its output)

Question 10

subsidy

Answer 10

a government payment that supports a business or market ( they cause the supply of a good to increase)

Question 11

excise tax

Answer 11

is a tax on the production or sale of a good

Question 12

marginal product of labor

Answer 12

the change in output from hiring one additional unit of labor, or worker

Question 13

equilibrium

Answer 13

the point at which the quantity demanded & supplied come together

Question 14

price ceiling

Answer 14

a maximum price that can be legally charged for a good ( government intervention)

Question 15

price floor

Answer 15

a minimum price set by the government that must be paid for a good or service EX: minimum wage

Question 16

what causes the supply curve to shift?

Answer 16

1. price of resources
2. number of producers
3. technology
4. government regulations
5. future expectations

Question 17

normal goods

Answer 17

a good consumers demand mire of when their income increases

Question 18

inferior goods

Answer 18

a good that consumers demand less of when their income rises EX: mcdonalds

Question 19

ceteris paribus

Answer 19

latin phrase” all other things held constant”

Question 20

surplus

Answer 20

where quantity supplied is greater than quantity demanded

Question 21

shortage

Answer 21

where quantity demanded is smaller than quantity supplied

Question 22

fixed cost

Answer 22

does not change

Question 23

variable cost

Answer 23

changes due to price in resources

Question 24

total cost

Answer 24

fixed + variable

Question 25

marginal cost

Answer 25

cost of producing on more unit of a good

Question 26

total cost-total revenue