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Economics Unit Two Test (S1)
Terms in this set (20)
What is the difference between want and demand_
- Demand is the desire to have some good or service and the ability to pay for it.
- want is a desire for a certain product that they may not be able to afford.
Explain why price and demand have an inverse relationship
Price and demand have an inverse relationship because the more expensive a product becomes the less people can afford it, causing the demand to decrease
explain the difference between the "change in quantity demanded" and the "change in demand"
- the change in quantity demanded is the movement of a specific point on the curve due to a change in price and amount purchased
- change in demand is the curve itself shifting to the left or right
What are the six factors that can cause a change in demand
- market size,
- consumer taste
- consumer expectations
- substitute goods
- complementary goods
What happens to the demand curve when one of the events (factors) occurs?
the curve on the graph will shift in some way
In your own words, describe it means if the demand for a product is inelastic
If a demand for a product is inelastic, it will not change as much as the price
What are the three factors that affect the elasticity of demand
- whether the good or service is a necessity or luxury (luxury: elastic, necessity: inelastic)
- if there are possible substitutes (yes: elastic, no: inelastic)
- the proportion of income (large: elastic, small: inelastic)
How do the slopes of the demand curve differ for a product that has elastic demand versus inelastic
an elastic demand will produce a graph with a gradual, more horizontal slope, and an inelastic graph will contain a steep, more vertical slope
How does the total revenue test measure elasticity?
The total revenue test measures elasticity by measuring the change in total revenue from the change in the price of a product or service
What is the definition of supply?
Supply is defined as the willingness and ability of producers to offer goods and services for sale.
Explain the law of supply
- centered around the fact that as price rises/lowers, supply rises/lowers
- a producer is then more willing to sell a product at a higher price
Why do price and supply have a direct relationship
they respond in the same direction
Why is it important for a producer to compare marginal revenue to marginal cost at each level of production?
to maximize the amount of profit the company is making
explain the difference between change in quantity supplied and a change in supply
Change in quantity supplied is known as a movement along the supply curve itself due to a change in price, while change in supply is defined as the shift of the curve itself due to other factors
What are the six factors that cause a change in supply?
- input cost
- labor productivity
- government action
- producer expectations
- number of producers
What does elasticity of supply measure
Elasticity of supply measures how responsive producers are to prices changes
What is the difference between elastic and inelastic supply
- Elastic supply is defined as a high responsiveness to price change
- inelastic supply is low responsiveness to price change
What are the factors that cause a change in the elasticity of supply
the ease of changing production to respond to price change, the time period in which producers react to a price change, as well as the availability of substitutes
What is the difference between industries that have elastic supply and those that have inelastic supply
Industries with elastic supply do not require large amounts of skilled labor, rare resources, and capital, while inelastic supply does
Add chap 6 during lunch
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