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Supply, Demand and Equilibrium Review Flashcards | StudBud
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Supply, Demand and Equilibrium Review
Supply, Demand and Equilibrium Review
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Review for Unit 2 Test
Flashcards
31 cards
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Practice quiz
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Questions
31
Answers
1
What happens under conditions of scarcity?
Demand down; supply up; price moves down
Demand up; supply down; equilibrium price moves up
Demand down; supply down; price moves down
Demand up; supply up; price moves down
2
What is a shortage?
The difference between costs and sale price
When demand exceeds available supply
When business targets haven't been met for a period of time
When demand can't meet the outgoing supply
3
What is the income effect on demand?
As income changes, demand will remain the same
As income increases, demand usually decreases due to savings
As income decreases, demand will increase out of desperation
As income increases, demand for luxury goods goes up
4
What is the equilibrium price?
When sellers have made a fair profit and buyers have a loss
When sellers have convinced buyers they are getting a deal
The market has cleared; demand is exactly the same as supply
When consumers are happy and sellers are also happy
5
A high price generally tells producers to do what?
Produce fewer things because prices are at disequilibrium
Make less stuff until it drops again
Make and sell more stuff
Hoard stuff so prices rise even more
6
What is the complementary effect on demand?
Stuff that goes together will change demand differently
Demand for one item will change in step with a related item
Low prices will signal to buyers to compliment each other
When prices for buns shift, burgers will remain unchanged
7
What is a surplus?
When supply is larger than demand at current prices
When the demand is too high and supply tries to meet it
Supply is below market value and prices are too low
When demand is in disequilibrium with price due to suppliers
8
What is the definition of profit?
The cost to sell things when resources are low in price
Difference between the cost to make an item and its price
The reason that business owners adjust their prices
The difference between the demand and the supply of an item
9
How will an elastic supply change when price decreases significantly?
It will decrease, but only by a small amount
It will remain largely unchanged
It will decrease significantly also
It will increase at first, then level off
10
What makes supply tend to be inelastic?
If the market for a good has historically been up and down
If the suppliers are spread out across different countries
If it is hard to change production quickly
If the product is priced very high or very low to begin with
11
Elasticity is a measure of what?
How much demand changes when price does, and vice versa
How stretchy the dough in Wilson's pizza shop is
How the supply changes when the demand changes
How the market responds to incentives like taxes and tariffs
12
A lower price will generally do what two things?
Increase demand and increase supply
Decrease demand and decrease supply
Decrease demand and increase supply
Increase demand and decrease supply
13
In a free market with good consumer information and many sellers, how do prices tend to move?
They tend to move up
Generally they move down
They usually stay the same
Toward equilibrium
14
When price increases dramatically for an inelastic good, what will demand do?
Demand will increase with price
Demand will likely remain constant
Demand will decrease, but only by a little bit
Demand will dramatically decrease
15
What is price?
An arbitrary number that doesn't mean much in a market
A marketplace signal that confuses investors and buyers
The cost of buying or selling something that is always fair
A language that buyers and sellers use to determine value
16
What are the non-price factors affecting demand?
Relative inelasticity and wants vs. necessities
Scarcity and abundance
Fraction of total budget and the relative importance
Changes in attitude, income; substitution and complementary
17
What is a demand curve?
It shows how an item will perform in competitive markets
A curved change in price when demand moves
A graph that tells what supply to expect for a given demand
A way to show how demand relates to price on a graph
18
What is the substitution effect on demand?
As price of a substitute goes up, demand for an item goes up
As substitutes become available, demand will always increase
Markets without substitutes are always unbalanced
As demand changes, substitutes will be developed
19
How does a boycott affect price of an item or service, and why?
Price will go down, because a boycott is a decreased supply
Price will go up, because the good will become hard to find
Price will go down, because a boycott is just lower demand
A boycott will increase price because of the scarcity demand
20
How does a price floor work?
It is the lowest possible price any buyer can find
It is when the government raises prices by flooring it
It is a minimum price, which the marketplace can't go below
It is a suggested bottom-end price for a good or service
21
What does the Law of Demand state?
When demand changes, price will always remain the same
If price changes a lot, demand will change a lot
If demand moves due to non-price factors, price stays same
When price goes up, demand goes down, and vice versa
22
What happens to prices of a good or service during a surplus?
They will rise to meet the excess supply
They will typically remain the same
They will
They will fall, sometimes dramatically
23
What happens to demand for an item that is getting more expensive when substitutes exist?
People will buy the substitutes; demand will decrease
People will insist on the original; demand will increase
Demand will remain the same because of the substitutes
Demand will shrink because people just won't buy anything
24
Why do people generally start businesses?
To launder money they need to get rid of
To find their purpose in life and have a good time
To make a profit
To sell all their stuff they have sitting around
25
What do price ceilings and price floors have in common?
They both alwyays cause demand and supply to increase
They help prices to be more fair to both buyers and sellers
They both prevent markets from reaching equilibrium
The keep marketplaces running very efficiently
26
What does the Law of Supply state?
As price increases, demand will decrease so supply changes
As supply moves, demand moves with it because of prices
As supply is increased, the price sellers get is increased
As price increases supply will increase, and vice versa
27
What is Wilson's favorite food item?
Pizza
Pizza
Pizza
Pizza
28
What is a price ceiling?
The lowest price a market equilibrium can make a buyer pay
The highest price a seller charges to maximize profit
The maximum price that can be charged for a good or service
The highest possible price that a buyer will give a seller
29
Which of the following is true about prices?
Prices will change in perfect relationship to demand
Scarcity always causes lower prices as consumers demand more
Low prices signal to producers to make more stuff
Prices are usually more flexible than production
30
What happens to demand for that same expensive item when no substitutes exist?
Demand will increase; the higher price means people want it
Demand will still decrease a lot because price went up
People will change their behavior immediately and not buy it
Demand will change very little or not at all; inelastic
31
What advantage does the price system have over a command economy?
It allows buyers the freedom to lose money on bad deals
It always creates fair prices for everyone
It allows government and producers more control over prices
It costs nothing to administer and creates incentives
