Demand
Define the Law of Demand
There is an inverse relationship between price and quantity. When price goes up quantity demanded will decrease and vice-versa.
Define Supply. What side of the economy does it effect?
Supply is how much of a good or service is available. Supply is related to producers of goods and services.
It measures the responsiveness or change in one variable (quantity demanded) in response to the change of another variable (price).
What is the formula for cross price elasticity and income elasticity of demand
Cross Price Elasticity: %Change in Good A / %Change in Price of Good b
Income Elasticity: %change in Quantity Demanded / Percent Change in Income
This president's "deal" saw a large expansion of gov't spending and involvement in the economy. This was introduction of Keynesian economics in U.S. fiscal policy.
FDR and the New Deal
Identify 3 Demand Shifters
Tastes and Preferences, price of Related goods (substitutes and compliments), Income of consumers, # of Buyers, future Expectations
List three shifters of supply.
Resource prices / availability of inputs, Other goods prices (other things a supplier could pivot to produce), Technology, Gov't action (Taxes & Subsidies), Future Expectations, Number of Firms
Describe three determinants of elasticity.
Substitutability of the good, Proportion of income, luxury or necessity, time period, addictive or habitual nature
Define income elasticity and cross price elasticity.
Income elasticity: a measure of the change in quantity demanded in response to a change in consumers' income.
Cross-price elasticity: measures how the quantity demanded of one good changes in response to a price change in another good.
Which U.S. President ended the Bank of the United States, thus creating unregulated "Wild Cat Banks" that resulted in the U.S. lacking a centralized currency?
Andrew Jackson
Explain how substitution and income effects in the context of a price change.
Describe how technology can impact supply.
A change in technology can effect supply by increasing production and lowering costs if a new technology makes production more efficient.
Explain how cross-price elasticity indicates whether two goods are substitutes or compliments.
If the cross-price elasticity is positive then the goods are substitutes. If the cross-price elasticity is negative the goods are compliments.
4 part question:
1. What does a positive XED coefficient indicate? 2. What does a negative XED coefficient indicate? 3. What does a positive YED coefficient indicate? 4. What does a negative YED coefficient indicate?
1. Positive XED = substitute 2. Negative XED = compliment
3. Positive YED = normal good 4. Negative YED = inferior good
What is the 16th amendment to the U.S. constitution?
Federal Income Tax
Which of the following would most likely cause a rightward shift in the demand curve?
A. Increase in consumer income B. Decrease in the price of substitutes
C. Increase in the price of complements D. All of the above E. None of the above
A. Increase in consumer income will shift the curve right
B. Decrease in substitutes makes the good more attractive which shifts the curve left
C. Increase in price of compliments reduces joint consumption which shifts the curve left.
D. False B & C shift left not right E. False A (for normal goods) shifts right
If the gov't imposes a tax on a good, what is the expected effect on the supply curve?
A. Shift Leftward B. Shift Rightward C. No Effect D. Upward Shift
E. Indeterminate Shift
A. Shift Leftward
2 part question: A price elasticity of demand of 0.5 indicates
a. demand is elastic b. demand is inelastic
c. demand is unit elastic d. Demand is perfectly elastic e. demand is relatively elastic
Give a real world example of a good that would fit this type of elasticity.
b. demand is inelastic, a good like gasoline would have an elasticity coefficient around 0.5 or less than 1
(Send someone to the board to show the work to solve the problem).Assume that a 3 percent increase in the price of dough causes a 9 percent decrease in the demand for tomato sauce.
What is the cross-price elasticity of demand between the two goods, and how are these goods related?
XED = -3 and these goods are compliments
This financial "panic" / economic meltdown saw J.P. Morgan and other prominent bankers rescue the U.S. financial system by "investing" in prominent U.S. banks that were about to go bankrupt. This event also led to the creation of the Federal Reserve
The Panic of 1907
A decrease in the price of a normal good leads to an increase in quantity demanded. What is the relationship between price and quantity demanded in this scenario, and what concept does this illustrate?
The Law of Demand. Price decreases so the quantity demanded goes up.
Which of the following scenarios would likely lead to a decrease in supply?
A. Improvement in production technology B. Increase in the price of inputs
C. Government Subsidies D. Increase in the number of suppliers
E. Producers expect the price of their good to fall in the future
B. Increase in the price of inputs
If the price of a designer handbag increased from $200 to $220, and the quantity demand decreased from 150 to 105, what is the elasticity of demand? Is the demand elastic or inelastic
Demand Coefficient = 3 and demand is elastic
(Send someone to the board to do this problem) When Sarah's income increases from $500 to $600, the quantity of cinema tickets she purchases increases from 10 to 12.
What is Sarah's income elasticity of demand, and what type of good is a cinema ticket for Sarah?
IED = 1. A cinema ticket is a normal good for Sarah
2 part question:
1. Name the prominent U.S. founding fathers that opposed and supported the First National Bank of the U.S.
2. Briefly explain each sides argument supporting or opposing the First National Bank of the USA
1. Support: Hamilton Oppose: Thomas Jefferson
2. Support: broad interpretation of "necessary and proper clause" in U.S. constitution b/c a national bank in necessary for a functioning country. Oppose: It's not in the constitution, it will concentrate too much power in the hands of a small group of elite.