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Throck Eco Ch 7 2011

Throck Eco Ch 7 2011 Test Review

QuestionAnswer
According to the law of demand, when the price of an item increases, what happens to quantity demanded? it decreases or falls
According to the law of supply, higher prices cause producers to do what? increase the supply
What type of relationship exists between price and quantity demanded? inverse
What type of relationship exists between price and quantity supplied? direct
What affects the quantity demanded of a product, and is illustrated on a curve as a shift a long the line? price
What refers to the fact that additional satisfaction declines as additional units of an item are consumed? law of diminishing marginal utility
If the price of a product is above its equilibrium price, what happens? a surplus, as people do not buy as much of the product and producers make more because the price is high
If the price of a product is below its equilibrium price, what happens? a shortage occurs as people buy more and more, and producers make less because the price is low
What "effect" says that if two items satisfy the same need and the price of one increases (such as DVDs and blue rays), people will buy the lower priced item. substitution effect
If the population increases, what happens to demand for most products? it increases
What direction does a a supply and demand curve shift if there is a decrease? to the left
When a product becomes a fad, what happens to demand? it increases and the curve shifts to the right
List some goods/services that have an inelastic demand. (meaning demand isn't affected by price) medicine, sugar, salt, pepper, heart surgery
If two items are complimentary goods, such as peanut butter and jelly, how will a decrease in the price of peanut butter affect jelly? demand will increase
If technology increases, what happens to supply? increases
If the price of inputs (land, labor, capital) increases, what will happen to supply? decrease
If taxes increase, what will happen to supply? decrease
If government subsidies increase, what will happen to supply? increase
What determines equilibrium price? interaction of supply and demand
When a change in the price of an item leads to a larger change in quantity demanded, what is the demand? elastic, such as with Cokes and steaks.
What two things mainly determine how much of an item you will buy? price and your income
What is elasticity? measure of consumer's responsivemnss to an increase or decrease inprice
When two items satisfy the same need, what are they called? substitutes
What rule states that as the price of an item increases you cannot continue to buy the same amount if your income stays the same? real income effect
What is the equilibrium price? price at which producers and buyers agree to.
What is the process of freely exchanging goods and services through voluntary exchange? market
tables showing either quantity supplied or demanded at every possbile price are called what? schedules
What happens to equilbirium price is supply increases? it decreases
What happens to the equilbrium price if demand increases? increases
If the quantity demanded is higher than the quantity supplied, what happens? shortages
If prices are expected to decrease, what happens to current demand? decreases
What does a supply curve look like? upward sloping line
What does a demand curve look like? downward sloping line
Draw a diagram of a supply and demand curve and label the lines S1 and D1.
Draw a supply and demand curve and mark the equilibrium price. .
Draw and supply and demand curve, and illustrate what happens to the equilbrium price if overall demand increases. .
If price is the only thing to change, what happens to the supply or demand curve? it will be seen as movement along the curve, from point to point
What happnens to supply and demand curves if something other than price affects the supply or demand? (so quantity supplied or demanded changes at every possible price) the entire curve will shift left or right
Created by: davislauren