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Name: ___________________
Ms. Petrou
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Date:_____________
Economics
How is price determined?
a. Where supply and demand meet- equilibrium point
What factors affect demand?
a. Consumer expectation, population, consumer tastes, trends and fads (celebrities), and preferences, compliments
and substitutes.
How do production costs affect demand?
a. If production costs decrease demand will increase, If production costs increase demand will decrease.
How do taxes affect price?
a. They cause price to rise. As a result quantity demanded will decrease.
How does price affect supply?
a. As price increases so will supply.
What is the law of quantity supplied?
a. If price increases supply will increase.
What factors affect supply? (elasticity)
a. The main factor is time.
b. Consumer need time to find substitutes to an increase in price.
What happens if there is more demand than supply? More supply than demand?
a. More demand than supply: A Shortage
b. More supply than demand: A Surplus
What effect does future price have on demand?
a. If future price is expected to rise, current demand will increase. If future price is expected to drop than current
demand will decrease.
How are luxury goods affected by an increase of income? Decrease?
a. If income increases people will purchase more; If income decreases they will purchase less.
What type of goods will people buy regardless if their price doubles?
a. Necessities
What happens to demand if population increase? Why?
a. Demand will increase because the number of people needed to clothe, feed, etc increases.
If price increase what happens to demand?
a. It decreases
Define:
a. Demand- when a consumer is willing and able to purchase a good
b. Inferior good- goods whose demand falls when income rises.
c. Market economy – Our system, based on supply and demand of goods.
d. Demand schedule – A chart that shows the number of goods demanded at each price point.
e. Supply Schedule – A chart that shows the number of goods supplied at each price pi
f. Market Supply Schedule – total supply in the market
g. Elastic demand- an increase in price will greatly affect the quantity demanded of the good.
h. Inelastic demand – an increase in price will not greatly affect the quantity demanded of the good.
i. Law of supply- If price increases supply will increase.
j. Law of Demand- As price increases quantity demanded decreases
k. Elastic supply- A small change in price will drastically affect the supply.
l. Inelastic supply- A small change in price will not drastically affect the supply.
m. Equilibrium – when consumers will purchase exactly how much suppliers are willing to sell.
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Subsidy- Government influence
Demand Curve- graphic representation of the demand schedule
Normal good – As income increases demand for normal goods increase
Compliment- Goods that go together
Substitute – goods that replace on and other
Short answer:
1. Be sure you can create a supply and demand schedule and draw the supply and demand curve.
2. Be sure you can identify a surplus and a shortage graphically.
3. Be sure you know what factors cause supply and demand to shift and how each curve shifts with each factor.
4. Be sure you can calculate elasticity of demand and graphically depict it.