Unit 2 Text Review: Supply & Demand

What kind of system is the United States economy based on?

• Command Economy

• Traditional Economy

• Market Economy

• Constitutional Economy

If prices will go up in the future, what happens to current demand?

• it goes up

• it goes down

What is the basic principle of the law of demand?

• When a good's price is low, people will buy more of it

• When a good's price is low, people will buy less of it

• When a good's price is high, people will buy more of it

The income effect says that when prices rise, what happens to income?

• It buys more

• It buys less

• nothing

What does it mean when the demand for a product is inelastic?

• A price increase does not have a significant impact on buying habits.

• A price increase has a significant impact on buying habits.

As prices increase, will a seller make more or less of a good?

• more

• less

On which kinds of goods do governments generally place price ceilings?

• Those that are cheap but could become more expensive without the ceiling

• Those that are not necessary but have become customary

• Those that are essential and cheap

• Those that are essential but too expensive for some consumers

What is a basic principle of the law of demand?

• The higher the price, the more people will want the good.

• Everyone has a limited income that they will spend.

• When a good's price is lower, people will buy more of it.

• Services are of interest in the same way that goods are.

What happens when the supply of a nonperishable good is greater than the consumer wants to buy?

• The goods get thrown away

• The goods become a luxury item and prices go up

• The goods are saved or the price is raised

• The goods go unsold or the price drops

What happens to a market in equilibrium when there is an increase in supply?

• Quantity supplied will exceed quantity demanded, so the price will drop.

• Quantity demanded will exceed quantity supplied, so the price will drop.

• Excess supply means that producers will make less of the good.

• The goods will become very expensive.