Econ Chapter 2
Which of the following would likely cause an increase in demand for a good?
Expectations that the price of the good may increase dramatically in the future.
Which of the following is an example of a good that may not be fully elastic in the long-term?
Petroleum
If a seller knows that the demand for his good or service is inelastic, then what would they most likely do?
Increase the price.
When quantity demand for product drops when incomes goes up, the product is a(n) _____.
Inferior good
What is the term used to describe the way the behavior of buyers and sellers affects the level of prices for goods and services, without government interference?
Market Forces
What causes movement along a demand curve?
A change in price causes the quantity demanded to change.
Which of the following is an example of price inelasticity of supply in the short-term?
A grocery store running out of parking spots on a major shopping day.
What is a cartel?
A group that agrees to limit supply to increase prices.
Why do diamonds cost so much?
Artificial shortage induced by producers
What does the law of demand suggest?
As prices decrease, demand increases.
Why does internet piracy cause the supply curve to shift to the left?
Because it destroys demand for the product.
If a new clothing brand becomes more popular because some recent movie stars endorsed the clothing line, how will it affect the market equilibrium for the clothing brand?
Demand increase, causing a new higher equilibrium price.
What happens to demand as price increases for an inelastic good?
Demand stays almost exactly the same
If a shoe store was running a big sale over the weekend, what would they be hoping to do?
Increase quantity demanded
Which of the following is a characteristic of the income elasticity of demand?
It is between 0 and 1 for necessities
Which of the following statements is TRUE?
Price elasticity of supply tends to be more inelastic in the short-term than in the long-term.
Bob is looking for a job, but he lacks the credentials to get a specialized job with a high starting salary. It is likely he will have to start working in an entry level position. Which of the following would benefit Bob in this scenario?
Price floor.
_____ refers to a specific quantity offered for sale at a specific price.
Quantity supplied
When demand for a product is greater than supply, a _____ exists and there is _____ pressure on prices.
Shortage; upward
_____ refers to the various quantities offered for sale at various prices.
Supply
On the supply and demand graph, what is the term for the area above the market equilibrium line?
Surplus
Why are product shortages normally a bad thing for economic markets?
They mean that the economy is not working at full efficiency.
When is a good considered to have an elastic supply?
When the percentage change in quantity supplied is greater than the percentage change in price.
A binding price ceiling line is _____ the market equilibrium point.
below
Governments have sought to limit the supply of drugs with all of the following strategies, EXCEPT:
placing caps on production.
Movement along the supply and demand curve is caused by changes in the quantity demanded or quantity supplied as a result of _____ changes.
price
When there is excess demand or a shortage of goods and services, this puts _____ pressure on prices.
upward
If the price of printers increased by 10% and the quantity demanded of printer paper fell by 2%, what is the cross elasticity of demand equal and what does it tell us?
-0.2; the products are complements.
When quantity demand stays the same while income drops, what kind of product is it?
Necessity
When consumers change their personal income, populations change, or the price of a substitute good changes, what happens to the demand curve?
The demand curve shifts to an entire new demand line.
The supply curve is _____ sloping, which means that _____ of a good will be supplied at higher prices.
upward; more
How is price elasticity of demand measured?
% change in quantity demanded/% change in price
If a 10% change in price leads to a 30% change in the quantity demanded, then what is the elasticity?
3
When demand for a product goes from 100 to 200 and income goes up from $40,000 to $45,000 what is the income elasticity of demand?
8.0
Which of the following is NOT an inelastic demand for a product?
An elasticity of 1.5.
If a shift factor of demand causes a shift of the demand curve to the right, what will most likely happen?
An increase in price and new equilibrium point.
Price ceilings largely benefit:
Consumers
What is the term for economic output lost due to a price floor or ceiling?
Deadweight loss.
If the price of televisions were to fall, then how would the market be affected?
Downward pressure on supply, and increased quantity demanded.
Why might a company have a perfectly inelastic supply?
Due to a lack of inputs, supply cannot be increased.
Which of the following BEST describes the intersection between supply and demand?
Equilibrium
Why is gasoline an inelastic product?
Gasoline is an inelastic product because people are dependent on traveling to their work and moving products all over the country.
Elasticity of demand is said to be elastic when elasticity is:
Greater than 1.
Which of these probably has inversely proportional derived demand to hamburger patties?
Hot dogs
Which of the following does the cross price elasticity of demand between two goods NOT tell us?
How an income change will influence demand for each product.
On a normal demand curve, if we know an individual will demand five units of a good when the good is priced at $5, what statement is MOST LIKELY true if the price of the good changes to $4?
The individual will purchase more units of the good.
How are the market and individual demand curves related?
The market demand curve is the sum of all individual demand curves.
Cross price elasticity of demand is equal to the percentage change in quantity demanded for Product A, divided by:
The percentage change in price of product B.
What is market equilibrium?
The point at which supply meets demand.
Why are surpluses and shortages bad?
They are inefficient.
A binding price floor is _____ the market equilibrium point.
above
What are subsidies?
Money that's paid directly to producers to encourage the production of certain goods.
All of the following can cause the supply curve to shift, EXCEPT:
Changes in disposable income.
How does advertising impact the supply and demand curve?
Demand curve shifts to the right
Market equilibrium is the point where which two of the following intersect?
Demand curve; supply curve
What happens when goods have derived demand?
Derived demand exists when demand for a good is determined by the market conditions of another good.
What does income elasticity of demand show us?
The sensitivity of changes in income on quantity demanded for products and services
How is a supply and demand graph affected by a supply surplus?
The supply curve moves to the right.
How does innovation impact the supply and demand curve?
The supply curve shifts to the right.
Over the course of a summer, New Hampshire experiences a shortage of potatoes. How will the supply and demand graph for potatoes be affected in this state?
The supply curve will move to the left.
If the cross price elasticity between apples and oranges is 2, which is correct?
The two goods are substitutes, and a price increase in one good will cause an increase in the quantity demanded of the other.
A movement along the supply curve is caused by:
A price change.
Susie Smith is a celebrity who is famous for her fashion advice. She recently wore a scarf and spoke publicly about how much she liked it. What is likely to happen to the supply of that scarf and why?
It will increase, because as the demand for a product increases, the supply increases.
How would we describe a supply surplus in terms of supply and demand?
It's when supply exceeds demand.
_____ is when the amount of goods or services sought by buyers is equal to the amount of goods or services produced by sellers.
Market equilibrium
How does price elasticity of demand and cross price elasticity of demand differ?
The price elasticity of demand measures how responsive the quantity demanded for a good is in response to a change in the good's own price, while the cross price elasticity of demand measures how responsive the quantity demanded for a good is in response to a change in the price of another good.
If the supply curve shifts to the left, what most likely happened?
The price of input costs increased.
How is an individual demand curve created?
The quantity of an item a person is willing to buy is plotted along with the price of the item.
Bob sees a tablet for sale at the electronics store that he has seen before, but now the price is higher. According to the law of supply, what will happen, assuming all other factors are held constant?
The quantity of tablets supplied will increase.
Bribery can be _____, but of course is illegal.
innovative