Economics Test 2 (Ch 4-5)

Demand Curve

A ___________ is a graphic representation of the quantity of goods purchased at different prices.

Substitute good

A good capable of being used in place of another

Normal good

A good whose demand is directly related to consumers' incomes.

Demand schedule

A list of numbers that compares price with quantity demanded

Market

A place where sellers and buyers exchange goods

Price floor

A regulated price level set above the equilibrium price is considered a _______________.

Traditional economy

An economic system in which decisions involving the production, distribution, and consumption of goods are based upon custom, heredity, caste

We can do that!

Be able to read the charts on pages 68 - 69.

Inferior good

Demand for these items decreases as a consumers' income increases, and vice versa

Command economy

Economic system in which a centralized authority controls production, distribution, and consumption of goods, as well as savings, investments, and prices

When the laws of supply and demand are allowed to work without interference by government for 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.

Essay #1: How do the laws of supply and demand restrict many companies from making large profits in a competitive free enterprise system?

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 of goods.

Essay #2: Explain the differences in how prices are determined in market economies and in command economies. What are the results of each?

Price

Factor that causes a change in quantity supplied within an existing supply

$45,000

If Mr. Martinelli quit a job where he annually made $40,000 to start a business whose expense was $20,000 and total revenue was $15,000 during the first year, what would his opportunity cost for the year equal?

Decrease them

If the demand for a car dealer's new convertibles decrease but he still wanted to sell the same number of cars, what would he have to do to his prices?

Decrease them

If the demand for snowmobiles remained steady while the supply grew larger, what would the producers be able to do to the prices?

Consumers

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

Surplus

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

subsidies

Term that refers to incentives given by the government to businesses to try to encourage production

Private sector

That part of an economy that is controlled by private individuals, businesses, and organizations.

Price

The amount of money that a buyer pays the seller for a particular item is the item's ________.

Elastic

The availability of substitutes is a major reason why the demand for most goods is ________.

Depreciation

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

Profit

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

More

The income effect says that when the price of a good falls, consumers tend to buy (more or less) of that good or of other items because they can do so without giving up anything.

Equilibrium

The point at which Quantity demanded and quantity supplied are equal

Market Price

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

Diminishing marginal utility

The principle stating that as ones supply of a specific good or service increases, the satisfaction derived from each additional unit tends to decrease

Inferior

The purchase of ______ goods, such as used tires, decreases as the average income rises.

Shortage

The situation in which the Quantity demanded exceeds the quantity supplied at a given price

1- Technology 2- Resources Prices 3- Prices of related goods 4- Number of sellers 5- Producer expectations 6- Gov't taxes, subsidies, and regulation

The six factors that can cause a shift in a good's supply

Equity

The total value of a business minus any liabilities

Opportunity Costs

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

Market Signals

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

Value in exchange

What a particular good is worth in exchange for some other good

1- Income 2- Tastes and preferences 3- Population 4- Consumer expectations 5- Prices of related goods

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

Horizontal

What axis of a graph do economists use to represent quantity supplied?

Price ceiling

What is a price level set below the equilibrium price

Demand

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

Supply

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

Marginal Utility

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

Value in use

What refers to the direct benefit received by the owner of a good

Total Utility

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

Public

What sector is the part of an economy controlled by national, state, and local governments?

Substitution Effect

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

Complementary good

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

Durable good

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

Shortage

What would the result of a price ceiling be?

Supply curve

What's a graphic representation of the quantity of goods supplied at different prices.

Profit motive

___________ gives a person the willingness to trade certain goods for other goods that have greater personal value to him.