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Econ 202
Directed Reading Questions
Chapters 3, 8, and 7
As you are reading each of the following chapters, you should consider the directed
reading questions listed below. You should be prepared to discuss these concepts and
issues, or ask questions about these issues when the chapter is covered in class.
Chapter 3
What is demand?
What is quantity demanded?
What assumptions must be made in order to determine the demand for a product
(service)?
What causes a change in demand?
What causes a change in quantity demanded?
Why is it necessary to distinguish between demand and quantity demanded?
Why is it necessary to distinguish between a change in demand and a change in quantity
demanded?
What is supply?
What is quantity supplied?
What assumptions must be made in order to determine the supply of a product (service)?
What causes a change in supply?
What causes a change in quantity supplied?
Why is it necessary to distinguish between supply and quantity supplied?
Why is it necessary to distinguish between a change in supply and a change in quantity
supplied?
What determines the equilibrium (market) price? What determines the equilibrium
quantity?
What is an economic shortage?
How does the market respond to an economic shortage?
What is an economic surplus?
How does the market respond to an economic surplus?
Chapter 8
What is the income effect? How does it help to explain the downward sloping demand
curve?
What is the substitution effect? How does it help to explain the downward sloping
demand curve?
What is marginal utility?
Why does marginal utility decrease after some level of consumption/purchases?
How does the law of diminishing marginal utility help to explain the downward sloping
demand curve?
Chapter 7
What does price elasticity of demand measure?
What are the two methods by which price elasticity of demand can be measured?
Specifically, what does the coefficient of price elasticity of demand tell?
What are the three ranges of elasticity?
As an entrepreneur, why is it important to understand price elasticity of demand?
What does it mean if price elasticity of demand is in the elastic range?
What does it mean if price elasticity of demand is in the inelastic range?
What does it mean if price elasticity of demand is in the unit elastic range?
What are the determinants of price elasticity of demand?
What does income elasticity of demand measure?
How can income elasticity of demand can be measured?
What does it mean if the coefficient of income elasticity of demand is positive?
What does it mean if the coefficient of income elasticity of demand is negative?
As an entrepreneur, why is it important to understand income elasticity of demand?
What does cross elasticity of demand measure?
How can cross elasticity of demand can be measured?
What does it mean if the coefficient of cross elasticity of demand is positive?
What does it mean if the coefficient of cross elasticity of demand is negative?
As an entrepreneur, why is it important to understand cross elasticity of demand?
What does price elasticity of supply measure?
What is the primary determinant of price elasticity of supply?
What is the market (immediate) period? What is price elasticity of supply in the market
period?
What is the short run? How does price elasticity of supply differ from the market period
to the short run? Why?
What is the long run? How does price elasticity of supply differ from the short run to the
long run? Why?
What is a price ceiling?
Why is a price ceiling usually set? Who is the price ceiling designed to benefit?
Is a price ceiling usually set above or below the equilibrium market price?
What are the benefits of a price ceiling?
What are the problems (immediate and longer run) associated with a price ceiling?
What is a price floor?
Why is a price floor usually set? Who is the price floor designed to benefit?
Is a price floor usually set above or below the equilibrium market price?
What are the benefits of a price floor?
What are the problems (immediate and longer run) associated with a price floor?
In the agricultural industry government sometimes uses supply restriction programs
(acreage allotment programs) instead of or in addition to price floors. What is the
difference between price floors and supply restriction programs? What are the advantages
of supply restriction programs compared to price floors? What are the disadvantages of
supply restriction programs compared to price floors?
What is an excise tax?
What are the two primary reasons the government might impose an excise tax on a
product?
Knowing the rational for an excise tax, does prices elasticity of demand influence the
effectiveness of an excise tax?
How does an excise tax impact the market on which it is imposed?
Does the consumer always pay the entire amount of the excise tax levied? What
determines how much of the excise tax is paid by the consumer?
What are spillover benefit (also known as a social benefits or a public benefits)?
Does the private market economy take spillover benefits into account? Why or why not?
How can government intervene in the market to insure that spillover benefits are taken
into account?
What are spillover costs (also known as a social costs or a public costs)?
Does the private market economy take spillover costs into account? Why or why not?
How can government intervene in the market to insure that spillover costs are taken into
account?