Week 2 - Supply And Demand

Question 0

Prohibition

Answer 0

Emphasize the supply side of things, allow no activity to occur Hope to increase production costs, reduce supply, and reduce quantity consumed

Question 1

Regulation

Answer 1

Allow to occur in a certain amount

Question 2

Unintended consequences of prohibition

Answer 2

People who have comparative advantage in crime join in Parallel, violent enforcement systems arise Suppliers switch to more valuable items Product quality also declines

Question 3

Demand

Answer 3

Quantities of specific goods or services that individuals will purchase at various possible prices, cp

Question 4

Law of demand (Picture)

Answer 4

Quantity demanded is inversely related to price

Question 5

Five factors that shift demand

Answer 5

Income (normal and inferior goods) Tastes and Preferences Price of Related Goods Expectations of future prices and income Market size and potential buyers

Question 6

Quantity demanded

Answer 6

Point on the demand curve Changes with good’s own price

Question 7

Law of supply (Picture)

Answer 7

Positive relationship between prices and supply

Question 8

Five factors that shift supply

Answer 8

Input costs Technology and productivity Taxes and subsidies Price expectations Number of firms in industry

Question 9

Rare goods

Answer 9

Vertical supply curve

Question 10

Equilibrium (market clearing price) (Picture)

Answer 10

Price at which quantity demanded equals quantity supplied

Question 11

Shortage (Picture)

Answer 11

Temporary condition Quantity demanded exceeds quantity supplied at a price below market clearing

Question 12

Surplus

Answer 12

Quantity supplied exceeds quantity demanded at a price above market clearing

Question 13

Prices rationing

Answer 13

What people are willing to pay for a good or service

Question 14

Nonprice rationing

Answer 14

First come, first serve Political power Physical power Random assignment

Question 15

Price controls

Answer 15

Govt mandated minimum or maximum prices that can be charged for a good or service Price ceiling - max (rent control, kidneys) Price floor - min (agriculture) Choosing a price below market clearing causes a shortage

Question 16

Black market

Answer 16

Price-controlled goods are sold at higher prices than in legal markets

Question 17

Functions of rental prices

Answer 17

Efficient maintenance Allocating scarce housing Rationing

Question 18

Quantity restrictions

Answer 18

Shift supply to left Producers gain, consumers lose

Question 19

Price elasticity of demand

Answer 19

How much quantity demanded changes when the price of a good changes

Question 20

Elastic demand

Answer 20

E>1 1% change in price causes a greater than 1% change in quantity demanded

Question 21

Unit elastic demand

Answer 21

E=1 1% change in price causes a 1% change in quantity demanded

Question 22

Inelastic demand

Answer 22

E<1 1% change in price causes a less than 1% change in quantity demanded

Question 23

Perfectly inelastic demand (Picture)

Answer 23

Consumers demand the same amount regardless of price Buyer pays tax

Question 24

Perfectly elastic demand (Picture)

Answer 24

Any price change leads to zero demand Seller pays tax

Question 25

Determinants of price elasticity of demand

Answer 25

Substitutes Allocation in a consumer’s budget Adjustment time

Question 26

Price elasticity of supply

Answer 26

Change in quantity supplied of a commodity in response to changes in its price

Question 27

Elastic supply

Answer 27

E>1 Producers are relatively responsive to changes in price

Question 28

Inelastic supply (Picture)

Answer 28

E<1 Producers are relatively unresponsive to changes in price