Econ Exam 2 MMHS

What term describes a table that lists the quantities demanded at each price by all the consumers in the market?

Market demand schedule

Why does an economist create a market demand curve?

To predict how people will change their buying habits when prices change

What does it mean when an economist says a consumer has demand for a good or service?

He is willing and able to buy the good or service at the specified price

VA demand curve is only accurate for a specific set of market conditions and what is the only factor affecting demand on a demand curve?

price

What term describes a graphic representation of a demand schedule?

Demand curve

How does the substitution effect work when the price of an item drops?

Consumers buy the item as a substitute for other similar items

What term describes consumers reacting to a rise in the price of a good by consuming less of it and more of a substitute?

Substitution effect

What term describes the change in consumption resulting from a change in real income?

Income effect

How do economists measure the consumption of a good?

The amount of a good that is bought

What term describes consumers buying more of a good when its price is lowered?

Law of demand

What do economists call a situation in which consumers buy a different quantity than they did before, at every price?

A change in demand

In which direction will the demand curve for RV’s shift as baby boomers start to retire?

Right

What term describes goods used in place of one another?

Substitutes

How can expectations about the future change consumer behavior?

Immediate demand for a good will drop if its price is expected to drop

What term describes goods that consumers demand more of when incomes increase?

Normal goods

What type of influence on consumers can shift a demand curve?

All answers are correct

What causes a change in the demand curve or a shift in demand?

A change in an area other than price

What term describes the phrase “all other things held constant”?

Ceteris Paribus

What term describes two goods that are used together?

Complements

What term describes goods for which demand falls as income increases?

Inferior goods

What term describes demand that is relativity unresponsive to price changes?

Inelastic

What term describes the total amount of money a company receives by selling its goods?

Total revenue

How does the price range affect the elasticity of demand for a product?

Demand for a good can be inelastic at a low price, but elastic at a high price

What term describes demand that is responsive to price change?

Elastic

When elasticity of demand for a good is exactly 1, how is demand described?

Unitary

What is an example of a good for which the demand is likely to become more elastic over time if price changes dramatically?

Gasoline

If there were no substitutes for the medicine that kept you healthy and the price increased, what type of demand would you have?

Inelastic

How does a person’s perception of whether a good is a necessity or a luxury affect his or her purchase of it?

A good that is perceived as a necessity will be purchased even if the price rises

What does elasticity of demand measure?

How consumers react to a change in price

What effect does the availability of many good substitutes have on the elasticity of demand for a good?

Demand is elastic

What is created when the data points on a supply schedule are graphed?

A supply curve

What term describes how much of a good is offered for sale at a specific price?

Quantity supplied

What is the term for the supply of a product that cannot easily or quickly expand or reduce its production?

Inelastic

What term describes a measure of how suppliers react to a change in price?

Elasticity of supply

What does the principle of the law of supply state?

All answers are correct

What term describes a chart that lists how much of a good a supplier will offer at different prices?

Supply schedule

What term describes the relationship between price and total quantity supplied by all firms?

Market supply schedule

What term describes the tendency of suppliers to offer more of a good at a higher price?

Law of Supply

What is the elasticity of supply for an orchard owner in the short run if the price he can get for his crop goes up?

Inelastic

What term describes elasticity of supply that is less than 1 and is not very responsive to changes in price?

Inelastic

What term describes the additional income from selling one more unit of a good?

Marginal revenue

The best level of output occurs when marginal revenue is equal to what?

Marginal cost

When do diminishing marginal returns occur?

When additional workers increase total output at a decreasing rate

What term describes a cost that does not change no matter how much is produced?

Fixed cost

How is the total cost of a factory or other production site determined?

Fixed cost plus variable cost

If marginal cost becomes higher than price, what happens to a company?

The company will lose money on each additional unit produced

What term describes the additional cost of producing one more unit?

Marginal cost

When would it make sense for a factory that is losing money to remain in operation?

If the revenue from the goods being manufactured exceeds the operating cost

What term describes a cost that rises or falls depending on the quantity produced?

Variable cost

What term describes the change in output that results from having one more worker?

Marginal product of labor

How do future expectations about the price of a good affect the present supply?

If the price is expected to increase, many producers will hold onto their supply

What does the United states regulate automobile manufacturing in so many ways?

To offset the air pollution caused by automobiles

When any effort by a government causes the supply of a good to rise, in what direction will the supply curve shift for that good?

Right

What is one reason European governments protect the growing of food with subsidies even though imported food would be cheaper?

To have food in case imports are ever cut off

What term describes a condition of rising prices?

Inflation

What term describes a payment to the government on the production or sale of a good that raises the price and discourages consumers?

Excise tax

What term describes government intervention in a market that affects price, quantity, or quality?

Regulation

What effect does a rise in the cost of machinery or raw materials have on the cost of a good?

The good becomes more expensive to produce

What term describes a government payment that supports a business or market?

Subsidy

What does new technology generally do to production?

It lowers costs and increases supply