Abeka Economics Test 2

What are THREE of the five factors that can change the demand for a good?

1. income* 2. tastes and preferences* 3. population* 4. consumer expectations* 5. prices of related goods*

What are THREE of the six factors that can cause a shift in a good's supply?

1. technology* 2. resource prices* 3. prices of related goods* 4. number of sellers* 5. producer expectations* 6. government taxes subsidies and regulations*

ESSAY: Explain the differences in how prices are determined in market economics and in command economies. What are the results of each?

In a market economy, prices are efficiently determined by the interaction of supply and demand, resulting in an equilibrium price at which consumers and suppliers are willing to buy and sell. In a command economy, prices are fixed by the central authority, frequently resulting in surpluses and shortages pf goods.

ESSAY: How do the laws of supply and demand restrict many companies from making large profits in a competitive free enterprise system?

When the laws of supply and demand are allowed to work without interference by government or some other entity, a business cannot raise the prices it charges for its products above that which its competitors are charging. If it does, people will buy their goods elsewhere and the overcharging business will soon collapse. Consequently, businesses try to keep their prices as low and competitive as possible.

What type of good is capable of being used in conjunction with another?

complementary good

In a free market, who ultimately determines the distribution of goods?

consumer*

SHORT ANSWER: What is the relationship between a good's price and the amount that people are willing to buy?

demand*

the diminishing of the value of goods that is caused by wear and time

depreciation

What type of good is expected to last at least three years?

durable good

MATCHING: quantity demanded and quantity supplied are equal

equilibrium

the total value of a business minus any liabilities

equity

What refers to the amount of satisfaction that results from a one-unit increase of a good?

marginal utility

a place where sellers and buyers exchange goods

market

the price at which a good could be sold in an open market

market price

used by consumers and producers to determine how much of a good to buy or sell at a given price and time

market signals

the value of the best alternative that is foregone when a different alternative is taken

opportunity cost

What factor that causes a change in quantity supplied within an existing supply?

price*

the excess of a producer's total revenue over his total expenditure

profit

quantity demanded exceeds the quantity supplied at a given price

shortage

What term refers to incentives given by the government to businesses to try and encourage production?

subsidies*

What states that when the price of a certain good rises, people tend to find alternatives that are less expensive?

substitution effect

What is the relationship between a good's price and the amount that producers are willing to provide for customers?

supply*

quantity supplied of a good is greater than the quantity demanded at a given price

surplus

What refers to the satisfaction received from possessing a particular amount of a good?

total utility

MULTIPLE CHOICE: What refers to the direct benefit received by the owner of a good?

value in use