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Econ Review for Unit II Exam
Vocab and Questions
59
Economics
9th Grade
04/02/2009

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Cards

Term

What is Demand?

What is the law of demand?
Why does it exist?

Definition

Demand is the desire to own and pay for something.

P goes up. D goes down. P goes down. D goes up

Because people are cheap skates

Term
How do the income and substitution effects work?
Definition

As income goes up, or down, consumption changes

Substitution usually shows people saving money.

Term
Why is the demand curve downward sloping?
Definition
Because of the law of demand.
Term
What does an economist mean by ceteris paribus?
Definition
All things stay constant, except for price.
Term
How does a change in quantity demanded differ from a change in demand?
Definition

Change in quantity demanded means price was the shifter.

Change in demand means that anything other than price was the reason of its shift.

Term
List the various shifters of demand.
Definition

1. Income effect

2. Consumer expectations

3. Population 

4. Tastes and Advertisements

5. Substitutes

6. Complements

Term
If your demand for a good is inelastic, what will happen if its price changes?
Definition
It doesnt matter, people still need the items.
Term
If your demand for a good is elastic, what will happen if its price changes?
Definition
Change in demand will either go up or go down.
Term
What is the value of an inelastic good? An elastic one? A unitary elastic one?
Definition

In < 1

E > 1

U = 1

 

 

Term
List the various factors that affect elasticity of demand.
Definition

1. substitutbility

2. Budget constraints

3. necessity vs. luxury

4. habit formation

5. time

 

Term
What is the formula for price elasticity of demand?
Definition

elasticity of demand : percentage change in QD / Percentage change in Price

 

Term
What is the formula for total revenue?
Definition
Total revenue: Price x Quantity sold
Term
If demand is elastic and firm raises its prices, what may happen to total revenue?
Definition

Decrease

quantity sold decreases

 

Term
If demand is elastic and firm lowers its prices, what may happen to total revenue?
Definition
It will rise b/c quantity sold goes down
Term
If demand is inelastic and a firm raises its prices, what may happen to total revenue?
Definition
higher revenue becasue increase prices makes up for low price
Term
If demand is inelastic and firm lowers its prices, what may happen to total revenue?
Definition
lower revenue because increase in Quantity but decrease in price
Term

What is supply?

Law of suppy?

Why does it exist?

Definition

amount of good availible

As price goes up, supply goes up. Price goes down, supply goes down.

it exists because firms want to make more profit

(an incentive)

Term
What two movements account for the law of supply?
Definition

existing firms make more

and 

new firms establish because they want to be a part of all the action

Term
List the shifters of supply
Definition

1. Input costs

-land 

-labor

-capital

2. Government

-subsidy

-tax

-regulation

3. Global Economy

4. Future expectations

5. Number of suppliers

Term
Why would a firm choose to locate close to its inputs?
Definition
When raw materials are expensive to transport
Term
Why would a firm choose to locate cloe to its consumers?
Definition
When output is more costly to transfer
Term
Why would a firm choose to locate in a diverse city?
Definition

there are a variety of workers

and businesses in the urban areas

Term
What happens at equlibrium?
Definition

There is no shortage

There is not surplus

Everything is equal. 

*QD = QS*

Term
How do you find equilibrium price and equilibrium quantity?
Definition

Its the point where the two lines intersect

and the sloped up = supply 

sloped down = demand

 

Term
What kind of prices cause excess demand? Why? What will happen to such prices?
Definition

low prices

because more people will buy

it will rise

Term
What kind of prices cause excess supply? Why? What will happen to such prices?
Definition
high prices becasue more buyers will want a profit. and it will eventually have to decrease
Term
What two methods of price control does the government use?
Definition

Price floors

and 

Price ceilings

 

Term
Why does the government set price ceilings?
Definition
to make it more affordable for buyers
Term
give an example of a price ceiling
Definition
rent control
Term
Why does a government set a price floor?
Definition
It serves as an incentive for sellers to make a profit
Term
Give an example of a price floor.
Definition
minimum wage
Term
What do prices do in the free market?
Definition
to make sure its resources go to who plan to make the best use of them.
Term
what two things does the market system ensure?
Definition

1. resources are allocated efficiently

2. resources used wisely

Term
To whom do resources go to and why?
Definition

highest bidder because the highest bidder becomes a firm

or

to the highest bidder because they value it most

Term
DEMAND
Definition
DESIRE TO OWN SOMETHING AND ABILITY TO PAY
Term
LAW OF DEMAND
Definition
CONSUMERS BUY MORE OF A GOOD WHEN ITS PRICE IS LOW AND LESS OF A GOOD WHEN ITS PRICE IS HIGH
Term
SUBSTITUTION EFFECT
Definition
WHEN CONSUMERS REACT TO AN INCREASE IN A GOOD'S PRICE BY CONSUMING LESS OF THAT AND MORE OF ANOTHER
Term
INCOME EFFECT
Definition
THE CHANGE IN CONSUMPTIONS FROM A CHANGE IN REAL INCOME
Term
CETERIS PARIBUS
Definition
ALL OTHER THINGS HELD CONSTANT BUT PRICE
Term
COMPLEMENTS
Definition
TWO GOODS THAT ARE BOUGHT AND USED TOGETHER
Term
SUBSTITUTES
Definition
GOODS USED IN PLACE OF ANOTHER
Term
ELASTIC
Definition
DESCRIBES A DEMAND THAT IS VERY SENSITIVE TO A CHANGE IN PRICE
Term
INELASTIC
Definition
DESCRIBES DEMAND THAT IS NOT SENSITIVE TO A CHANGE IN PRICE
Term
TOTAL REVENUE
Definition
TOTAL AMOUNT OF MONEY A FIRM RECEIVES BY SELLING GOODS AND SERVICES
Term
SUPPLY
Definition
AMOUNT OF GOOD AVAILIBLE
Term
LAW OF SUPPLY
Definition
TENDENCY OF SUPPLIERS TO OFFER MORE OF A GOOD AT A HIGHER PRICE
Term
QUANTITY SUPPLIED
Definition
THE AMOUNT A SUPPLIER IS WILLING AND ABLE TO SUPPLY AT A CERTAIN PRICE
Term
SUBSIDY
Definition
A GOVERNMENT PAYMENT THAT SUPPORTS A BUSINESS OR MARKET
Term
REGULATION
Definition
GOVERNMENT INTERVENTION IN A MARKTET HAT AFFECTS THE PRODUCT OF A GOOD
Term
EQUILIBRIUM
Definition
POINT AT WHICH QUANTITY DEMANDED AND QUANITY SUPPLIED ARE EQUAL
Term
DISEQUILIBRIUM
Definition
ANY PRICE OF QUANTITY NOT AT EQULIBRIUM
Term
PRICE CEILING
Definition
MAXIMUM PRICE THAT CAN BE LEGALLY CHARGED FOR A GOOD OR SERVICE
Term
PRICE FLOOR
Definition
A MINIMUM PRICE FOR A GOOD OR SERVICE
Term
RENT CONTROL
Definition
 A PRICE CEILING ON RENT
Term
MINIMUM WAGE
Definition
A MINIMUM PRICE THAT AN EMPLOYER CAN PRAY A WORKER FOR AN HOUR OF LABOR
Term
SURPLUS
Definition
QUANTITY SUPPLIED IS GREATER THAN QUANTITY DEMANDED (EXCESS SUPPLY)
Term
SHORTAGE
Definition

QUANITY DEMANDED IS GREATER THAN QUANITY SUPPLIED (EXCESS DEMAND)

Term
SUPPLY SHOCK
Definition
A SUDDEN SHORTAGE OF A GOOD
Term
BLACK MARKET
Definition
MARKET IN WHICH GOODS ARE SOLD ILLEGALLY
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