Econ Chapter 3 & 4

15. The total amount of money a firm receives by selling goods or services is

(2) Total revenue.

6. A cost that rises or falls depending on how much is produced is a(n)

(2) Variable cost.

6. Which of the following goods are complements?

(3) canoe and paddles

15. Which of the following will always cause a supply curve to shift to the left?

(3) excise taxes

5. What does a market demand curve predict?

(3) how much of a good people will buy when the price of a good rises or falls

6- What is a marginal cost?

A marginal cost is the additional cost of producing one more unit of a good.

Snow cones cartoon

The economic meaning of the cartoon is showing the true meaning of supply and demand, because the cartoon characters live in a snowy area, the person selling the snow cones may have supply, but he won't have demand because of how plentiful his product is.

7. Why might a rise in price of electric razors result in an increase in demand for non-electric razors?

(1) Because people might decide to shift to non-electric razors to save money.

11. The term "inelastic"

(1) Describes demand that is not very sensitive to a change in price.

7. A cost that does not change, no matter how much of a good is produced is a(n)

(1) Fixed cost.

13. What happens to supply when input costs go up?

(1) It decreases because the good becomes more expensive to produce.

14. Government intervention in a market that affects the production of a good is

(1) Regulation.

2. What factor might lead to the opening of several new pizzerias in a town?

(1) The price of a slice of pizza has gone up.

10. A demand curve is an accurate tool for predicting the decisions of consumers as long as

(1) There are no changes other than price that could affect consumers.

1. What is the law of demand?

(1) consumers buy more of a good when its price decreases and less when its price increase

5. Any factor that can change is

(2) A variable.

8. The shift to the right in a demand curve means a(n)

(2) Increase in demand.

3. As the price of a slice of pizza increases, what happens to the quantity demanded?

(2) It decreases.

8. How does a firm calculate its profit?

(2) Total revenue minus total cost

12. A tax on the production or sale of a good is called

(3) An excise tax.

13. Which of the following is NOT a factor in determining the elasticity of demand for a good?

(3) An increase in population

4. A raise in the price of a product

(3) Increases competition.

14. Why do consumers sometimes take a while to respond to price changes?

(3) They cannot find acceptable substitutes immediately

1. What is the tendency of suppliers to offer more of a good at a higher price?

(3) law of supply

10. If the total cost of producing 300 leather jackets is $400 and the total cost of producing 301 leather jackets is $435, what is the marginal cost of production at 300 leather jackets?

(4) $35

12. What is elasticity of demand?

(4) A measure of how consumers react to a change in price.

11. A government payment that supports a business or market is

(4) A subsidy.

3. The measure of the way quantity supplied reacts to a change in price is

(4) Elasticity of supply.

9. Substitutes are

(4) Goods used in place of one another.

9. The cost of producing one more unit of a good is known as a(n)

(4) Marginal cost.

4. Which of the following would NOT cause the demand curve for Latina magazine to shift?

(4) The price of the magazine has been reduced and is now less expensive than other magazines marketed to women.

Overview on Shift in Demand Curve

-A change in price cannot shift a demand curve because the effects of changes in price are already built into the demand curve. -However, factors other than price can shift the demand curve. -Consumer tastes, advertising, the price of substitutes, the price of complements, and consumer expectations about future prices can shift the demand curve.

Overview on Subsidy

-A subsidy is a government payment that supports a business or market. -Subsidies are designed to protect domestic industries; to protect young and growing businesses; and to protect domestic industries in case imports are ever cut off. -Subsidies shift the supply curve to the right.

Overview on Excise Tax

-An excise tax is a tax on the production or sale of a good or service. =A government can reduce the supply of a good by placing an excise tax on it. -Generally, excise taxes are placed on harmful items such as cigarettes. -Excise taxes shift the supply curve to the left. They reduce supply.

Demand curves

-Demand curves are downward sloping because there is an inverse relationship between price and quantity. -Determinants of demand include: Consumer tastes and preferences, market size, prices of related goods, changes in income, and consumer expectations. -Income Effect: When prices rise, your income buys less and when prices fall, your income buys more. -Substitution effect: When prices rise, substitutes look better so you purchase them instead. When prices fall, substitutes look worse so you buy less of the substitute. -Diminishing Marginal Utility: Each additional unit is worth less to the consumer, so fewer goods are bought at higher prices and more goods are bought at lower prices.

Overview on Elasticity of Demand

-Elasticity of demand is a measure of how consumers react to a change in price. -If demand is inelastic, it is not very sensitive to a change in price. -With inelastic demand, consumers keep buying despite the price increase. -If demand is elastic, consumers will stop buying a good or service and look for substitutes.

2- What factors other than price determine demand?

-Income -Consumer Expectations -Population -Demographics -Consumer Tastes & Advertising

Supply Curves

-Supply curves are upward sloping because there is a direct relationship between price and quantity. -Determinants of Supply: Input prices, Government tools, Number of Sellers, Prices of other goods, technology, & producer expectations.

Overview on Law of Demand

-The law of demand is the basic principle that consumers buy more of a good when its price decreases and less of a good when its price increases.

Overview on Law of Supply

-The law of supply is the tendency of suppliers to offer more of a good at higher prices. -Conversely, suppliers will offer less of a good at lower prices. -A supply schedule is a chart that lists how much of a good or service a supplier will offer at different prices.

Elasticity Coefficient

0= Perfectly Inelastic Greater than 1= Relatively elastic Equal to 1= Unit Elastic Less than 1= Relatively Inelastic Undefined= Perfectly Elastic

2. The law of demand results from which two patterns of behavior?

2) substitution effect and income effect

4- Why does a demand curve shift?

A demand curve shifts to show a change in demand that can be related to non-price determinants. If the demand curve shifts right, the demand increases and if the curve shifts left, the demand decreases.

5- What is the difference between a fixed cost and a variable cost?

A fixed cost is a cost that does not change, so it is not affected by how much of a good is produced. On the other hand, variable costs are costs that change, and they rise or fall depending on the quantity produced.

7- Why would a producer of an inelastic good consider raising the price of the good?

A producer of an inelastic product would consider raising the price of the good because no matter how high the price goes, because it is an inelastic good and a necessity, consumers will still purchase the product. So, the producer would be able to maximize its profits and won't have to worry about consumers switching to another product.

6- Why is advertising a powerful tool in shifting demand?

Advertising is a powerful tool in shifting demand because it plays an important role in many trends. Also, advertising helps companies increase their demand for the goods they sell.

4- How do excise taxes impact supply?

Excise taxes decrease supply as it places a tax on producers, thus making it more expensive for the product to be produced.

3- How do government subsidies affect supply?

Government subsidies increase supply as it is a payment that helps businesses/markets to produce more of the product.

7- Why do governments sometimes regulate markets?

Governments regulate markets to ensure the safety of products and keep the economy fair.

2- Why do rising prices encourage competition?

Rising prices encourage competition because when a product's price increases, producers are producing more of the product as well as new firms join the market to produce that product, thus the supply of the product increases.

3- Why are some goods inelastic and some goods elastic?

Some goods are inelastic while some are elastic because it depends on the type of product it is, if a product is a necessity with no substitutes available, then it is inelastic. However, if the product is not a necessity and has many substitutes then it is elastic since people can find other substitutes when the price changes.

2- Explain the economic meaning of the following cartoon.

The cartoon shows how their are two sides to an excise tax, on the one hand there is a benefit to fewer people buying harmful products such as cigarettes, on the other hand the companies producing these products are being hurt due to the tax that makes it more expensive to produce the product, and makes less people buying the product.

Milk cartoon

The economic meaning of the cartoon is that because people are having such a high demand for milk, the price is high as more producers are making it thus depleting the supply of cows making the milk.

Gas prices cartoon

The economic meaning of this product is showing how gas is an inelastic product, while the person is complaining about the high gas prices and how they are no longer going to accept it, the fact is that the person needs the gas no matter how high the prices rise.

1- What is the law of demand?

The law of demand is an economic principle that states that when a good's price is lower, consumers will buy more of it. When the price is higher, consumers will buy less of it.

1- What is the law of supply?

The law of supply is that producers offer more of a good or service as its price increases and less as its price falls.

5- What role does the substitution effect play in demand?

The role the substitution effect plays in demand by prompting a change in consumption and demand of products when the price rises, so if one product's price rises consumers will react by consuming less of that product, thus decreasing the demand, and will consume more of a substitute product.