ap econ unit 2 test study

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As the price for a good increases, the quantity demanded should:

Decrease,There is an inverse relationship between Price and Quantity Demanded

Ceteris Paribus

a Latin phrase that means "all other things held constant"

decrease in demand

a leftward shift of the demand curve, shifts left

the income effect

if the price goes down for a product, the purchasing power increases for consumers, allowing them to purchase more

substitution effect

if the price goes up for a product, consumers buy less of that product and more of another substitute product

relationship between price and quantity supplied

positive/direct

complement

two goods that are bought and used together

supply curve

upward-sloping line that graphically shows the quantities supplied at each possible price

5 shifters of supply

1. Price of Resources 2. Number of Producers 3. Technology 4. Taxes and Subsidies 5. Expectations

After a long day of work, which piece of pizza is the most satisfying?

1st, The Law of Diminishing Marginal Utility states that as you buy or consumer more of the same good, that good becomes less satisfying.

subsidy

A government payment that supports a business or market

Which of the following things would cause a decrease in the supply of cotton t-shirts

An increase in the price of cotton,Cotton is an input for cotton t-shirts. A change in the price of an input is a supply shifter. Here an increase in the price of cotton causes the supply to decrease (shift left)

Which of the following things would cause a decrease in the demand for soccer cleats?

An increase in the price of soccer balls, When the price of a complement increases, it causes a decrease in demand for the original good. Soccer balls and soccer cleats are complements.

2. Which of the following are shifters of the supply curve for paper? I. A change in expectations about future profit of paper II. A change in the number of companies selling paper III. A change in the price of wood pulp (product used to make paper) IV. A change in the price of substitutes for paper a. I only b. I and II only c. I, II, and III d. II, III, and IV e. I, II, III, and IV

Answer: C, I. Is a shifter of supply because a change in the future expectations of profit will change the amount of supply for that good II. Is a shifter of supply because a change in the number of companies selling paper will impact the supply for paper. III. A change in the price of an input (wood pulp) with shift the suppl

1. If a good is inferior, an increase in income would cause a. demand to shift to the right b. supply to shift to the right c. demand to shift to the left d. supply to shift to the left e. neither supply nor demand to shift

Answer: C, The demand for inferior goods will fall as incomes rise. Falling demand results in a leftward shift in the demand curve.

law of supply

As price increases, quantity supplied increases As price decreases, quantity supplied decreases

the law of diminishing marginal utility

As the quantity of a good consumed increases the extra satisfaction gained decreases

If the supply of apples increased and the demand for apples decreased (double shifter) what would happen to equilibrium price and quantity?

Price would decrease, and quantity would be indeterminant, if you draw both shifts separately, you will see that both shifts cause the price to decrease. The increase in supply increases quantity, while the decrease in demand decreases quantity. Quantity is left indeterminate as a result.

increase in supply

Rightward shift of the supply curve; at any given price, producers supply a larger quantity of the good than before

If the price for Coca Cola goes up, what can we say will most likely happen:

The Demand for Pepsi will rise, The substitution effect tells us that if the price of a product increases, the demand for its substitute will rise

If the prices of most of the goods at Meijer fall, what can we say will most likely occur

The Demand for Socks will rise, The income effect tells us that if average prices fall, the demand for all goods will most likely rise

What will happen to the demand for Coca Cola if the price of Pepsi goes down.

The demand for Coca Cola will decrease, These are substitute goods, when the price of a substitute goes down, the demand for your good goes up.

The graph on the right shows an actual shift outward (to the right, increase) in the Demand curve. This outward shift is called a change in demand (NOT a change in quantity demanded) this change normally occurs because of an outside event, not because of a change in price for that good.

The graph on the right shows an actual shift outward (to the right, increase) in the Demand curve. This outward shift is called a change in demand (NOT a change in quantity demanded) this change normally occurs because of an outside event, not because of a change in price for that good.

When drawing a demand curve, which unit do we place on the vertical axis?

When drawing both the demand and the supply curves, we place Price on the vertical axis and Quantity on the horizontal axis.

Demand is the different quantities of goods that consumers are ___________ and ____________ to buy at different prices.

Willing, Able

decrease in supply

a leftward shift of the supply curve: at any given price, there is a decrease in the quantity supplied

If both the demand and the supply curves increase what would DEFINITELY change about our equilibrium point?

a. Equilibrium price would definitely increase b. Equilibrium quantity would definitely increase c. Equilibrium price would definitely decrease d. Equilibrium quantity would definitely decrease Answer: B, After drawing both shifts, it is clear that the equilibrium quantity will definitely increase. The equilibrium price may increase or may decrease depending on the amount that the supply shifts vs. the amount that the demand shifts.

Which of the following is not a shifter of demand?

a. The number of consumers b. Expectations of future prices c. Prices of related goods d. Income e. Number of producers Answer: E, A change in the number of producers is a shifter of the supply curve. The rest of the list are all shifters of demand.

An increase in the price of sweaters would cause

an increase in the quantity supplied of sweaters, this question is testing your knowledge of the difference between supply and quantity supplied. There are five shifters of supply, but price of our good is not one of them. Changing the price of our good (sweaters) will only move us along the original supply curve, causing an increase in quantity supplied.

what causes the change in demand?

changes in: number of consumers, consumer incomes, consumer tastes, price of complementary or substitute goods

increase in demand

consumers are willing and able to buy more of the product at each price, shifts right

Law of Demand

consumers buy more of a good when its price decreases and less when its price increases

what is the only thing that effects the quantity demanded

price

if price is too high in the equilibrium

quantity demand would decrease but the quantity supplied would increase, surplus

if price is too low in the equilibrium

quantity demand would increase but the quantity supplied would decrease, shortage

utility =

satisfaction

quantity supplied

the amount of a good or service that a firm is willing and able to supply at a given price, only changed by the price

supply

the different quantities of a good that sellers are willing and able to sell (produce) at different prices


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