UNIT 2 TEST- HNRS ECON

Explain the Law of Demand

The idea that price and quantity demanded of a good or service are inversely related

Explain the Law of Supply

Law of Supply- The idea that price and quantity supplied of a good or service are directly related

Explain Supply

The amount of a good or service that businesses are willing and able to sell at all prices

Explain Quantity Supplied

The amount of a good or service that sellers are willing and able to sell at one specific price.

Explain Demand

The amount of a good or service that customers are willing and able to purchase at all prices

.Explain Quantity Demanded

The amount of a good or service that customers are willing and able to purchase at one specific price

Explain a Change in Quantity Supplied/Demanded On a Graph

Occurs when there is a movement along the supply or demand curve due to a price change, not influenced by other factors.

Explain a Change in Supply/Demand On a Graph

Happens when external factors (determinants like income, tastes, etc.) shift the entire curve, changing the quantity at all price levels.

What does the x-axis and y-axis represent on a Supply and Demand Curve?

the x-axis shows the quantity of goods

the y-axis shows the price

What does the downward slope and upward slope represent on a Supply and Demand Curve?

The Demand Curve slopes downward (inverse relationship between price and demand)

the Supply Curve slopes upward (positive relationship between price and quantity supplied)

What does the equilibrium represent on a Supply and Demand Curve?

where the supply and demand curves intersect, representing the price and quantity where supply equals demand.

What is Equilibrium? Why is it so Important?

Equilibrium is a situation in which the quantity demanded and the quantity supplied are equal.

It is important because changes in equilibrium can indicate shifts in market conditions, such as supply shortages or surpluses.

Explain All of the Determinants (Shifters) of Demand & Explain How Each Would Affect a Graph

Number of Buyers:

Increase in buyers → Increase in demand (shift right).

Decrease in buyers → Decrease in demand (shift left).

Tastes and Preferences:

Increase in preference for a good → Increase in demand (shift right).

Decrease in preference → Decrease in demand (shift left).

Income (Inferior + Normal Goods):

Increase in income (normal goods) → Increase in demand (shift right).

Increase in income (inferior goods) → Decrease in demand (shift left).

Decrease in income → Decrease in demand for normal goods (shift left).

Price of other Goods:

Substitutes: If the price of a substitute rises, demand for the good increases.

Complements: If the price of a complement rises, demand for the good decreases.

Availibility of Credit:

Increase in credit availability → Increase in demand (shift right).

Decrease in credit availability → Decrease in demand (shift left).

Expectations of the Future:

Expecting higher future prices → Increase in demand now (shift right).

Expecting lower future prices → Decrease in demand now (shift left).

How Do You See/Show a Shortage on a Graph?

Occurs when the quantity demanded of a good or service is greater than the quantity supplied. On a graph, the demand curve is above the supply curve at the current price.

How Do You See/Show a Surplus on a Graph?

Occurs when the quantity supplied of a good or service is greater than the quantity demanded. On a graph, the supply curve is above the demand curve at the current price.

Explain the Different Types of Price Controls and How it Looks On a Graph

• Price Ceiling: A maximum price allowed for a good or service (e.g., rent control). It is shown on a graph as a price below equilibrium. If set below equilibrium, it causes a shortage.

• Price Floor: -A minimum price allowed for a good or service (e.g., minimum wage). It is shown on a graph as a price above equilibrium. If set above equilibrium, it causes a surplus.

Explain What Is Necessary for Price Ceiling + Price Floor to Be Effective?

For price controls to be effective, they must be enforced at a price level that causes either a surplus or a shortage, depending on the goal. They can lead to inefficiencies like black markets or decreased quality.

What Are the Characteristics and the Pros and Cons of Sole Proprietorship?

• Characteristics: Owned and operated by one person.

• Pros: Full control, simple to set up.

• Cons: Unlimited liability, limited resources.

What Are the Characteristics and the Pros and Cons of Partnership?

• Characteristics: Owned by two or more people.

• Pros: Shared responsibility, more resources.

• Cons: Shared liability, potential for conflicts.

What Are the Characteristics and the Pros and Cons of Corporation?

• Characteristics: A legal entity separate from its owners.

• Pros: Limited liability, ability to raise capital.

• Cons: Complex setup, double taxation.

What Are the Characteristics of Perfect Competition?

• Many firms, identical products, no barriers to entry.

• No price control (price takers)

• Example: Agricultural markets

What Are the Characteristics of Monopolistic Competition?

• Many firms, differentiated products, low barriers to entry.

• Some price control

• Example: Restaurants.

What Are the Characteristics of Oligopoly?

• Few firms, products may be similar or differentiated, high barriers to entry.

• Significant price control

• Example: Airlines.

What Are the Characteristics of Monopoly?

• One firm controls the market, unique product, very high barriers to entry.

• Complete price control (price maker)