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Unit 3 Econ

The document provides an overview of key economic concepts related to demand and supply, including the law of demand, elasticity, and market demand schedules. It explains how factors like price changes, consumer expectations, and demographics influence demand and supply curves. Additionally, it discusses fixed and variable costs, marginal costs, and the impact of government subsidies on supply.

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3 views

Unit 3 Econ

The document provides an overview of key economic concepts related to demand and supply, including the law of demand, elasticity, and market demand schedules. It explains how factors like price changes, consumer expectations, and demographics influence demand and supply curves. Additionally, it discusses fixed and variable costs, marginal costs, and the impact of government subsidies on supply.

Uploaded by

velardev321
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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● What does it mean when you have demand for a good or service?

○ It means you are willing and able to to buy the goods at the given price
● What is the law of demand?
○ The Law Of Demand States that people will buy more of a good when its price
falls and less when its price rises
● Give an example of the Substitution Effects
○ If the price of Coca-Cola goes up the demand for Pepsi goes up
○ If the price of hamburger rise, consumers will buy the cheaper hotdogs as a
substitute for hamburgers
● Why does an economist create a market demand schedule?
○ Made to predict how people will change their buying habits when prices change
● When prices increase, what happens to the quantity demanded?
○
● What is a demand curve?
○ Is a graphic representation of a demand schedule
● What does the Latin phrase “ceteris Paribus” mean?
○ All things other than price stay constant
● When non-price factors cause demand to fall or rise, the curve shifts_____
● How do consumer expectations shift the demand curve?
○ If you expect the price to rise, immediate demand for the good will rise, which
means you will boy the good sooner and vice versa
● What are demographics?
○ The characteristics of populations, such as age, race, gender and occupation
● How does advertising shift the demand curve?
○ By helping create fads and trends
● EX: If your rent increases, you will spend less on other items. Those goods are
considered normal goods.
● EX: Getting a raise and deciding to buy fancy pasta instead of cheap instant noodles. The
instant noodles were inferior goods.
● What is elasticity of demand (M)
○ Is the measure of how consumers respond to price changes
● Give an example of something that is inelastic
○ Milk, Medicine
● Know elasticity examples
○ Cow’s milk is considered inelastic because there are no substitutes (necessity)
● How does elasticity affect a company’s pricing policy
○ Elasticity affects a company’s price policy because the company knows that if
demand is elastic an increase in price would reduce total revenue
○
● If a firm raises the price of a product with elastic demand, what will happen to total
revenue
○ If a firm knows that the demand for its product is elastic at the current price, it
knows that an increase in price would decrease total revenue
● What is the law of supply? Give an example
○ States that as prices increase, so will the quantity supplied
■ A paper plate factory makes more when the price increases
● What happens to supply when the price of an item increases?
○ If the price of home computers rise, the computer makers will make more
computers
● What is a supply schedule?
○ Is a chart that tells how much a supplier will offer at different prices
■ Supply is upward sloping (demand is downward sloping)
● Give an example of elasticity of supply.
○ If Ruth’s bread supply is highly elastic, when the price of bread falls, cut costs by
hiring fewer workers

● What are the fixed costs? Give an example?


○ Are costs that do not change
■ E.g Rent
● What are variable costs?
○ Rise or fall depend on the quantity produces
● What is Marginal cost?
○ The additional cost of producing one or more unit
● What is formula profit?
○ Profit= total revenue- total cost
● How does a factory decide whether or not to continue to operate?
○ A factory that is loosing money will continue to operate if total revenue is still
greater than its total cost.
● When cost of resources (inputs/ outputs) increase, what happens to supply?
○ Results in a decrease in supply because the good has become more expensive to
produce
● How do advances in technology effect supply?
○ Lover production cost and increase supply
● What is a subsidy and why does the Gov’t give them out?
○ Subsidy- is a government payment
○ The gov’t gives out subsidies to farmers to keep food supply up
● When Gov’t causes the supply of a good to rise, which way does the supply curve shift?
○ When any effort by gov’t causes the supply of a good to rise, the supply curve
shifts to the right
● Give an example of something in the global economy that can have a large effect on
supply?
○ High global demand for fule has a great impact on the change in supply
● What is Equilibrium?
○ The point of balance which the quantity of demand equals the quantity of
supply.
○ The market is stable at an equilibrium.
● When do both buyers and sellers benefit?
○ When a market is at an equilibrium, both buyers and sellers benefit.
● Understand how to draw supply and demand graph in equilibrium. Be able to show an
increase/ decrease in demand and an increase/ decrease in supply. (short answer)
○ Draw an equilibrium that shows the supply and demand for an item. Lable the
equilibrium price P* and the equilibrium quantity Q*. must label axis with price
and quantity.

○ Part B) Show an increase or decrease in DEMAND OR SUPPLY (depending ont he


version of the test)
○

Terms:

1. Demand is the desire to own something and the ability to pay for it
2. Substitution Effect: Consuming Less of a good and more of another as a reaction to a
price increase
3. A market demand schedule is a table listing the quantity of a good that all consumers
will buy at various prices
4. Substitutes - goods that are used in place of other (coke/pepsi)
5. Compliments- two goods that are bought and used together (Playstation and
Playstation Games)

Matching:

1. Normal goods- goods consumers demand more of when thor income increases
2. Inferior good- goods for which demand falls as income increases
3. Demographics- The characteristics of populations, such as age, race, gender and
occupation
4. Substitutes - goods that are used in place of other (coke/pepsi)
5. Compliments- two goods that are bought and used together (Playstation and
Playstation Games)
6. Elastic - very sensitive to price changes
7. Inelastic - When demand does not change much after a price change (milk/medicine)
8. Unitary Elastic if ED = 1
9. A company’s total Revenue is the amount of money the company receives from
selling its goods
10. Law of Supply- States that as prices increase, so will the quantity supplied
11. Supply Schedule- Is a chart that tells how much a supplier will offer at different
prices
12. Fixed cost- costs that do not change
13. Variable costs- Rise or fall depend on the quantity produces
14. Regulation- Law that tells how a good must be made

Short answer: When NON PRICE FACTORS cause demand to fall, the demand curve shifts to the
left. An increase in demand appears as a shift to the right.

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