Supply, Demand and Prices

What is rent control an example of?

Price ceilings

When does a market experience a shortage?

A market experiences a shortage when quantity demanded exceeds the quantity supplied.

When does a market experience a surplus?

A market experiences a surplus when the quantity supplied exceeds the quantity demanded.

What is a fixed cost?

A fixed cost doesn't change no matter how much business owners produce.

What is a variable cost? List some examples.

A variable cost is a cost that changes depending on the level of production output. Examples = labor and electricity

How would an increase in consumer income affect demand?

An increase in consumer income can affect demand because when income rises, demand for certain products increase.

What does an increase in demand do to equilibrium price? A decrease in demand?

An increase in demand causes equilibrium price to increase. A decrease in demand causes equilibrium price to decrease.

What does an increase in supply do to equilibrium price? A decrease in supply?

An increase in supply causes equilibrium price to decrease. A decrease in supply causes equilibrium price to increase.

Buyers/consumers are motivated to do what?

Buy things at lower prices

Why is demand for some goods highly elastic and demand for some goods highly inelastic?

Demand for some goods are highly inelastic because they are necessities and there are no substitutes. Demand for some goods are highly elastic because they are luxuries and become elastic due to an increase in consumer income.

If a good becomes a popular trend, what happens to demand?

Demand will increase

What are diminishing returns? Why would a company experience diminishing returns?

Diminishing returns is when total output grows, but at a decreasing rate. A company would experience diminishing returns by adding more workers.

What type of goods have inelastic demand?

Gasoline, water, etc.

How do higher prices motivate producers? Lower prices?

Higher prices motivate producers to enter the market. Lower prices motivate producers to leave the market.

What are products that consumers demand less of when their income rises?

Inferior goods

When buyers purchase exactly as much as sellers are willing to sell, what has been reached?

Market equilibrium

What is the smallest amount that can legally be paid to most workers for an hour of work?

Minimum wage

What type of goods have elastic demand?

Movie tickets, jewelry, etc.

On a demand and supply graph, what goes on the vertical axis? Horizontal axis?

Price goes on the vertical axis and quantity goes on the horizontal axis.

What happens to prices when there's a surplus?

Prices decrease

What happens to prices when there is a shortage?

Prices increase

Sellers/producers are motivated to do what?

Sell things at higher prices

If a company gets new technology, what happens to supply?

Supply will increase

What does the Law of Demand state?

The Law of Demand states that when price increases, demand decreases and when price decreases, demand increases.

What does the Law of Supply state?

The Law of Supply states that producers are willing to sell more of a good or service at a higher price.

What is a marginal product?

The change in total output when adding a new worker

How can the government influence supply?

The government can influence supply by adding excise taxes on materials, making production costs too high, so producers decrease supply.

Why does the government use excise taxes?

The government uses excise taxes to discourage the production of goods, such as alcohol and tobacco.

Explain the interaction between supply and demand to reach equilibrium price.

To reach equilibrium price, quantity demand has to equal quantity supplied.