Unit 2 Review Economics

1. Unit 2 ReviewEconomics Fall 2009

2. Do Now • Within your Pods, discuss the question that follows: • What are the unintended consequences (negative & positive) of recycling paper? Be prepared to share with your group.

3. #1 Now that Sally got a big raise at her job, she buys twice as many designer handbags each month. For Sally, handbags are a(n)_________________. Normal good

4. #2 What factor causes a change in quantity demanded? Price

5. #3 What is a normal good? Demand rises as income rises & falls as income falls

6. #4 People like cashews and almonds equally well. Cashews and almonds are ___________. Substitutes

7. #5 When the number of buyers for a product increases, the demand for the product _____________. Increases

8. #6 Mustard is a ___________ to hot dogs. Complement

9. #7 ________ is a restriction on the number of units of a foreign-produced good (import) that can enter a country. Quota

10. #8 Explain the difference between demand & quantity demanded. Demand: the willingness & ability of buyers to purchase different quantities of a good a different prices during a specific time. Quantity demanded: The # of units of a good purchased at a specific price.

11. #9 A graphic representation of the law of demand. Demand curve

12. #10 List 2 factors that cause the demand curve to shift. • Preferences • Prices of related goods • Number of buyers • Future price

13. #11 The intersection of supply and demand. Market price or equilibrium price or market clearing price

14. #12 If, as income rises, demand for a good falls, then that good is a(n) _______ good. Inferior good

15. #13 What is a neutral good? Demand remains unchanged as income rises or falls

16. #14 Explain what conditions must exist for a supply curve to be vertical? No additional products can be produced or there isn’t time to produce more.

17. #15 If there is a surplus of an item, the price for that item will _________________. Decrease

18. #16 When demand decreases, the demand curve shifts to the _______________. Left

19. #17 What is an inferior good? A good for which the demand falls as income rises & rises as income falls.

20. #18 A legislated price that is above the equilibrium price is called a ___________. Price floor

21. #19 The condition in which the quantity supplied of a good is greater than the quantity demanded. Surplus

22. #20 A supply curve slopes _____________. Upward

23. #21 A legislated price that is below the equilibrium price. Price ceiling

24. #22 What is a neutral good? A good for which the demand remains unchanged as income rises or falls.

25. #23 When consumers think the price of a good will increase in the future, they tend to buy ________ in the present. More

26. #24 When demand increases, the demand curve shifts to the __________. Right

27. #25 A demand curve slopes ____________. Downward

28. #26 If the supply of an item increases, the supply curve shifts ___________. To the right

29. #27 Explain the law of demand. As the price increases, the quantity demanded of the good decreases.

30. #28 The graphic representation of the law of demand. Demand curve

31. #29 Two goods are complements if they are ________________. Consumed together

32. #30 As a person consumes additional units of a good, eventually the utility of satisfaction gained from each additional unit of the good decreases. Law of diminishing marginal utility

33. #31 The willingness and ability of sellers to produce and offer to sell different quantities of a good at different prices during a specific time period. Supply

34. #32 What is a quota? A limit on the # of a specific product that can be imported.

35. #33 Tea and coffee are substitutes for each other. When the price of tea goes up, the demand for coffee __________. Increases

36. #34 With this type of good, consumers buy the same amount regardless of what their income is. Neutral good

37. #35 If demand increases and supply remains constant what happens to market price? Increases

38. #36 What is a subsidy? A government payment to producers.

39. #37 If a producer faces increased taxes for every item they produce, that producer will be motivated to ______________. Produce less

40. #38 If supply decreases and demand is constant, what happens to equilibrium price? Increases

41. #39 Another name for market price. Equilibrium price or market clearing price

42. #40 If a seller believes the price of an item will go up in the future, that seller may _______________. Produce or sell less now.

43. #41 If supply increases and demand is constant, what happens to equilibrium price? Decreases

44. #42 List 2 factors that cause the supply curve to shift? • Resource prices • Technology • Taxes • Subsidies • Quotas • Number of sellers • Future price • Weather

45. #43 Explain the law of supply. As the price of a good increases, the quantity supplied of the good increases.

46. #44 If there is a shortage of an item, the price of that item will _________________. Increase

47. #45 A market is in ________ when quantity demanded equals quantity supplied. Equilibrium

48. #46 Any place where people come together to buy goods & services. Market

49. #47 Another name for equilibrium price. Market price or market clearing price

50. #48 A financial payment made by government for certain actions. Subsidy