Demand Basics
What law states that when price increases, quantity demanded decreases?
Law of Demand
What happens to demand of normal goods when income increases?
Demand increases
A product whose demand changes very little when price changes is called what?
Inelastic
For supply, as price increases, quantity supplied ___________.
Increases
Give one example of a fixed cost for a producer.
Rent, insurance, property taxes, etc.
On a graph, which direction does the demand curve always go?
From top left to bottom right
What do we call goods that are used together, like skis and ski passes?
Complimentary goods
What does demand “elasticity” measure?
How sensitive demand is to price changes
Define “supply.”
The amount of a product available at all possible prices
What are the two main types of production costs?
Fixed costs and variable costs
What is a Demand Schedule used to show?
The relationship between price and quantity demanded
Give one example of substitute goods.
Any valid pair (Coke & Pepsi, hot dogs & burgers, etc.)
Is coffee typically elastic or inelastic—and why?
Inelastic; because people buy it regardless of price/habit-forming
What term means the additional revenue made by adding one more worker?
Marginal Revenue
What is the break-even point for a business?
Where total cost equals total revenue
What’s the difference between “demand” and “quantity demanded”?
Demand = whole curve
Quantity demanded = specific point at one price
If people expect prices to rise soon, what happens to current demand?
It increases
List one factor that affects demand elasticity.
Can the purchase be delayed, are substitutes available, does it use a large portion of income
Name one factor that can cause a change in supply.
Cost of resources, labor, technology, taxes/subsidies, regulation, number of sellers, expectations
Profit is maximized when what two things are equal?
Marginal Cost = Marginal Revenue
What assumption do we make when graphing a demand curve?
All other factors remain constant
List two (2) factors that can cause a change in demand.
Income, consumer tastes, substitutes, complements, expectations, number of consumers
If no close substitutes exist for a product, is demand likely to be elastic or inelastic?
Inelastic
If government places a tax on production, what happens to supply?
Decreases due to higher costs
In Stage 2 of production, marginal returns are ____________.
Decreasing