Econ Unit 2 (Supply and Demand) Review

What is the real income effect?

• Idea that if a product has a cheaper substitute, you will buy the substitute instead of the more expensive option

• Decrease in satisfaction due to additional consumption of an identical or similar product

• Idea that you can't buy everything you want because of a limited income

• Amount of a good or service that people are able and willing to buy

What is demand?

• What people want but are not willing to purchase

• Amount of a good or service that a producer is willing to supply to consumers

• The total combination of all the goods and services you are unable to purchase

• Amount of a good or service that people are able and willing to buy at various prices

What effect does technology have on supply?

• Causes supply to go down

• Causes supply to increase

• Has no effect on supply

What is the best example of a good with elastic demand?

• Gasoline

• Water

• Ice cream

• Light bulbs

This is when the buyer and seller of a good/service work out their own terms of exchange....

• Voluntary exchange

• Command economy

• Marketplace

• Diminishing marginal utility

What is elasticity?

• The relationship between price and quantity supplied

• How responsive consumers will be with a change in price

• Satisfaction one gets out of a good or service

• Adding additional units of a factor of production leads to increased supply

When the supply of a good increases, the supply curve shifts

• To the left

• To the right

• Up

• Down

What is a substitute?

• Good that is completely identical to another

• Good that always has inelastic demand

• Good that is not exactly identical to another but serves the same purpose

• Good that is always a necessity

Which of the following is NOT a MAJOR demand determinant?

• Population

• Income

• Political beliefs

• Tastes and preferences

If the price of milk decreases, the demand for cereal will increase.

• True

• False