Unit 3 Exam- Economics

Equilibrium graph

*Pe1 and *Qe1

Determinants (shifters) of demand (Be able to explain and draw)

1. Price 2. Prices of related goods or services 3. Income 4. Tastes or preferences 5. Expectations. These are usually about whether the price will go up

Normal good

A good for which an increase in income leads to an increase in demand

example of normal good

Goods such as healthy food you can afford when your income goes up

Predictions for future gas market

We will run out and the price of oil and gas will go wayyy up

what is the difference between normal and inferior goods?

When income increases, demand for a normal good increases while demand for an inferior good decreases.

Elasticity

a measure of how consumers react to a change in price

Law of supply

an increase in price results in an increase in quantity supplied

Example of substitute good

coke and pepsi

Complimentary goods

goods that are a completion of one another; ex peanut butter and jelly, body wash and a loofah

Hydraulic fracking

high pressured water, sand, and additives pumped down welbore. process is repeated multiple times, once water is pumped out, oil and gas flow out through cracks

example of inferior good

potato, junk food, public transportation, small house...

Why would the government impose a price restriction or limit?

So that the price of something doesn't get too high or too low. Example: Pharmacy medicine

inelastic vs. elastic

inelastic demand is products that i would not stop buying even if the price went up. Elastic demand is when i would stop buying it if the changed.

example of price floor

minimum wage, farmers, airlines, oil prices

Black market

an illegal market in which goods or currencies are bought and sold in violation of rationing or controls

Shortage

A situation in which quantity demanded is greater than quantity supplied

Surplus

A situation in which quantity supplied is greater than quantity demanded

Equilibrium

A situation in which the market price has reached the level at which quantity supplied equals quantity demanded

Scarcity

A situation in which unlimited wants exceed the limited resources available to fulfill those wants

Why would the supply curve shift? (determinants)

1. Production cost 2. Technology 3. Number of sellers 4. Expectation for future prices

What is the difference between change in quantity demanded and a change in demand?

A change in quantity demanded is a change in the specific quantity of a good that buyers are willing and able to buy. This change in quantity demanded is caused by a change in the demand price.

inferior good

A good for which, other things equal, an increase in income leads to a decrease in demand

Price ceiling

A legal maximum on the price at which a good can be sold

Price floor

A minimum price below which exchange is not permitted

substitute goods

Products or services that can be used in place of each other. When the price of one falls, the demand for the other product falls; conversely, when the price of one product rises, the demand for the other product rises.

Example of price ceiling

Rent controls in some large cities

Law of demand

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