I "Demand" a Break
What does the "law of demand" state? Explain using price and quantity.
If the price of a good increases, then the quantity demanded decreases (and vice-versa)
A market structure in which there is one seller of a unique product.
Monopoly
What does the "law of supply" state? Explain using price and quantity.
If the price of a good increases, then the quantity supplied increases (and vice-versa)
Which term indicates a type of good for which when there is a decrease in income, there is a decrease in purchases of the good.
Normal Good
Which axis is price on? Which axis is quantity on?
Price is on the Y axis and Quantity is on the X axis.
A change in ____________ causes a change in quantity demanded.
Price
Name the form of market structure that the airline industry is considered to be.
Oligopoly
In 2015 there was a large outbreak of the avian (bird) flu. What impact did this event have on egg prices?
This was a supply decrease that caused egg prices to rise (almost 20%).
When the quantity demanded exceeds the quantity supplied there is a __________ in the market.
Shortage
If cigarettes and marijuana are substitutes, what impact would a tax on cigarettes have on the price and quantity of marijuana?
Equilibrium price and quantity of marijuana would rise (due to increased demand for marijuana).
Red beans and Navy beans are substitutes in soup making. The price of red beans decreases. Explain what will happen to the price and quantity in the market for navy beans?
Which market structure(s) is/are characterized by barriers to entry?
Monopoly and Oligopoly
In 1978 the Airline Deregulation Act was passed. What does the S/D Model predict would happen in the market/industry as a result? State the impact market price and quantity.
Supply increased, so quantity increased and price decreased. Effectively deregulation lead to more competition, more flights and lower prices.
The price of product X decreases and the demand for product Y also decreases. By definition these goods must be: ________________
Substitutes
Suppose an American Medical Association study finds that brown sugar causes weight loss while white sugar causes weight gain. How would the P's and Q's change in each market?
The price and quantity of brown sugar would increase (due to demand increase); while the price and quantity of white sugar would decrease (due to demand decrease).
There is an acrostic mnemonic device used to remember the demand shifters. State each letter of the acrostic and what it stands for.
Tastes, Related Goods, Income, Buyers (# of), Expectations of Price (by Buyers)
Describe the 4 main attributes of a perfectly competitive market. (Think back to the chart).
Many sellers, identical products, zero ability to set price, ease of entry.
The Quantity Supplied increased (and the Quantity Demanded decreased, resulting in a surplus as well as decreased consumption)
What is the unit of measurement economists use to measure the satisfaction or usefulness derived from a product or activity.
Utils (utility)
What happens to equilibrium price and quantity in the market if there is both an increase in supply and a decrease in demand?
Equilibrium Price Decreases and Equilibrium Quantity is Indeterminate.
One explanation of the downward slope of demand is referred to as the "law of diminishing marginal utility". What is the law and how does it explain the downward slope of demand?
The law states that as we consume consecutive units of a good, the additional utility we derive from consumption diminishes. This means that our willingness to pay for the first unit of a good is higher than the 2nd and so on.
Rank order the 4 market structures from MOST price control to LEAST price control.
Monopoly, Oligopoly, Monopolistic Competition, Perfect Competition
There is an acrostic mnemonic device for supply shifters. State each letter of the acrostic and what it stands for.
State the Latin term for "holding all else constant"
Ceteris Paribus
What would happen to the equilibrium price and quantity of peanut butter if: the price of peanuts increased, the price of jelly (a complementary good) decreased, fewer firms decided to produce peanut butter and health officials announced that peanut butter is good for you?
Price will rise and the effect on quantity is ambiguous.