Honors Econ Unit 3 Review

The willingness and ability of consumers to buy a product is called...

• supply

• demand

• inelasticity

• market equilibrium

The willingness and ability of a producer to sell a good or service is called...

• supply

• demand

• market equilibrium

• inelasticity

Goods that are consumed together - a change in the price of one affects the demand for the other

• substitutes

• necessities

• luxuries

• complements

Resources that are used to make a good or service - a change in the price of a resource can affect the supply of a good or service

• input

• substitute

• complement

• elastic good

Which of the following would be most likely to have ELASTIC demand?

• medicine

• water

• chips

• toothpaste

Answer explanation

Goods with ELASTIC demand are luxury items or items with lots of substitutes.

Chips are not a necessary item and have lots of alternatives. The other three items are goods with INELASTIC demand because they are necessities.

Which of the following is NOT a demand shifter?

• Number of consumers

• Cost of inputs

• Tastes and Preferences

• Consumer income

Answer explanation

Cost of Inputs is a supply shifter.

The demand shifters are:

Number of Consumers

Consumer Income

Tastes and Preferences

Price of Related Goods

Consumer Expectations

The supply of a product normally increases if...

• The cost of inputs increases

• Businesses leave the market

• The government subsidizes the production of the item

• The price of the product increases

Answer explanation

Cost of inputs increasing would cause supply to decrease.

Businesses leaving the market would cause supply to decrease.

Increase in the price of the item would be a movement along the curve. (increase in QS)

A subsidy is a payment from the government to help the production of an item so it would increase supply.

How do we show the impact of a change in product price on the demand curve?

• 
• 
• 
• 

Answer explanation

Change in price is shown as a movement along the curve.

In this case, the question specifically asked for the impact on the demand curve.

Equilibrium is met when...

• Only consumers are happy

• Only suppliers are happy

• Neither consumers nor suppliers are happy

• Both consumers and suppliers are happy

Which of the following situations best describes market equilibrium?

• Dove produced too much soap so they have to put their soap on sale.

• The amount of bread produced matches the amount of bread that consumers want to buy.

• The government places a price floor on wages.

• The iPhone 14 is sold out everywhere but many people want to buy it.

Answer explanation

At market equilibrium, the Quantity Supplied (QS) equals the Quantity Demanded (QD). Therefore, the amount produced will be the same as the amount consumed.