UNIT 2 STUDY QUESTIONS / FRAMEWORK 1

Define demand:

• The desire to own something and the ability to pay for it

• The supply of goods available in the market

• The cost of production of goods

• The government regulation of prices

Define product market:

• A market where products are bought and sold

• A place where only services are exchanged

• A financial market for trading securities

• A market for new raw materials

Define law of demand:

• The law of demand states that, all else being equal, as the price of a product increases, quantity demanded decreases, and as the price decreases, quantity demanded increases.

• The law of demand states that, all else being equal, as the price of a product increases, quantity demanded increases.

• The law of demand states that, all else being equal, as the price of a product decreases, quantity demanded decreases.

• The law of demand states that, all else being equal, price and quantity demanded are unrelated.

Define law of supply:

• The law of supply states that, all else being equal, an increase in price results in an increase in quantity supplied.

• The law of supply states that, all else being equal, an increase in price results in a decrease in quantity supplied.

• The law of supply states that, all else being equal, a decrease in price results in an increase in quantity supplied.

• The law of supply states that, all else being equal, price and quantity supplied are unrelated.

Define price floor and list an example:

• A price floor is a minimum price set by the government above the equilibrium price. Example: Minimum wage laws.

• A price floor is a maximum price set by the government below the equilibrium price. Example: Rent control.

• A price floor is a tax imposed on goods and services. Example: Sales tax.

• A price floor is a subsidy given to producers. Example: Agricultural subsidies.

Define price ceiling and list an example:

• A price ceiling is a maximum price set by the government below the equilibrium price. Example: Rent control.

• A price ceiling is a minimum price set by the government above the equilibrium price. Example: Minimum wage.

• A price ceiling is a tax imposed on goods to reduce consumption. Example: Cigarette tax.

• A price ceiling is a subsidy given to producers to lower production costs. Example: Agricultural subsidies.

Define equilibrium:

• Where supply and demand are the same.

• Equilibrium is the point where only supply increases regardless of demand.

• Equilibrium is when the price is always at its maximum value.

• Equilibrium is the situation where demand is always greater than supply.

If prices are above equilibrium, what is created? SHORTAGE or SUPLUS

This is when D is _________ S (=, >, <)

CHOOSE TWO

• Surplus
• Shortage
• Greater Than

• Less Than

• Equal to

If prices are below equilibrium, what is created?

SHORTAGE or SUPLUS

This is when D is ________ S (=, >, <)

CHOOSE TWO

• Surplus
• Shortage
• Greater Than

• Less Than

• Equal To

(Unit 2) If population increases, demand will

• INCREASE

• DECREASE