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What is the difference between a normal good and an inferior good? 

• Normal Goods - goods consumers demand more of as income increases.

• Inferior Goods - goods consumers demand more of as income decreases.

2. What is the difference between a substitute and a complement? 

• Complementary Goods - Two goods bought and used together.

• Substitutionary Goods - goods used in place of each other.

3. If prices rise what happens to the quantity demanded? 

• It decreases

4. What is supply? 

• The amount of goods available.

5. Why is the supplier willing to produce more at a higher price? 

•  The law of supply a producer wants to supply more if prices rise.

6. What is the greatest factor affecting elasticity in supply?

• The greatest factor that affects a producer's elastics is time horizon.

7. What factors affect changes in supply? 

• Numbers of sellers: more sellers means greater supply.

• Expectations: will the economy grow or weaken.

• Technology: lower costs.

• Input prices: if input costs rise, supply decreases as profits fall.

8. What does surplus mean? 

• Surplus - An excess of goods or services.

9. What is the difference between a change in quantity supplied and a change in supply? 

• Supply - the amount of goods available.

• Quantity supplied - how much of a good is offered for sale at a specific price.

10. What does a price ceiling, like rent control, create? 

• It creates a shortage.

11. What is the difference between fixed costs and variable costs?

• Fixed Cost - have to be paid no matter whether a firm produces or not(Ex: rent , a loan).

• Variable Costs - may change with the amount produced(Ex: electric bill, raw materials, labor).

13. What does a price floor, like minimum wage, create for the binding? 

• It creates a surplus.

14. Import restrictions and what they cause in supply?

• Import restrictions reduce supply.

15. What is the marginal product of labor? 

• Marginal Product of Labor - change in output per worker.

16. Total cost is what? 

• Fixed plus variable cost.

17. What is Profit? 

• Total revenue minus total cost.

18. What are the factors that affect elasticity of Demand? 

• Available substitutes.

• Time horizon - short run vs long run.

• Necessities vs Luxuries

• Changes over time - habits, styles, advertisement.

• Definition of the Market - broad or narrow.

• Percentage of Income Spent.

19. Price floor 

• Price floor is a legal minimum price.

20. Price Ceiling

• Price ceiling is a legal maximum price that can be charged.