Unit 2 ReviewUnit 2 ReviewEconomicsEconomics

Fall 2009Fall 2009

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.

#1Now 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

#2What factor causes a change in quantity demanded?

Price

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

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

Substitutes

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

Increases

#6Mustard is a ___________ to hot dogs.

Complement

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

Quota

#8Explain 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.

#9A graphic representation of the law of demand.

Demand curve

#10List 2 factors that cause the

demand curve to shift. 1. Preferences2. Prices of related goods3. Number of buyers4. Future price

#11The intersection of supply and demand.

Market price or equilibrium price or market clearing price

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

Inferior good

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

#14Explain 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.

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

Decrease

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

Left

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

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

Price floor

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

Surplus

#20A supply curve slopes _____________.

Upward

#21A legislated price that is below the equilibrium price.

Price ceiling

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

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

More

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

Right

#25A demand curve slopes ____________.

Downward

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

To the right

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

#28The graphic representation of the law of demand.

Demand curve

#29Two goods are complements if they are ________________.

Consumed together

#30As 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

#31The 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

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

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

Increases

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

Neutral good

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

Increases

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

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

Produce less

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

Increases

#39Another name for market price.

Equilibrium price or market clearing price

#40If a seller believes the price of an item will go up in the future, that seller may _______________.

Produce or sell less now.

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

Decreases

#42List 2 factors that cause the supply

curve to shift?1. Resource prices2. Technology3. Taxes4. Subsidies 5. Quotas6. Number of sellers7. Future price8. Weather

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

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

Increase

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

Equilibrium

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

Market

#47Another name for equilibrium price.

Market price or market clearing price

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

Subsidy

#49• Exists when the quantity

demanded changes by a smaller percentage than price.

• Inelastic demand

#50• Exists when the quantity

demanded changes by the same percentage as price.

• Unit-elastic demand

#51• Exists when the quantity

demanded changes by a greater percentage than price.

• Elastic demand

#52• Exists when the quantity supplied

changes by a greater percentage than price.

• Elastic supply

#53• Exists when the quantity supplied

changes by a smaller percentage than price.

• Inelastic supply

#54• Exists when the quantity supplied

changes by the same percentage as price.

• Unit-elastic supply

#55• What impact does a quota have

on price?• Decreases the supply because it

limits imports.

#56• What impact does a subsidy have on supply?

• A subsidy is an incentive for producers to produce more.

#57• The price of raspberries rises 40%. People

also like to eat strawberries. Graph the impact this price increase will have in the market for raspberries and strawberries.

• Change in quantity demanded & quantity supplied for raspberries.

• Increase in demand in the strawberry market.

#58• People like to cook with olive oil and

canola oil. Olive trees fail to produce due to extreme weather conditions. Graph the impact this will have on the market for olive oil, canola oil, and olives.

• The supply curve for olives & olive oil will shift to the left.

• The demand curve for canola oil will shift to the right.

#59• A quota is enacted on the import of foreign

oranges into the U.S. People like grapefruits too. Graph the impact on the markets for oranges, orange juice, and grapefruits.

• The supply curve for oranges & orange juice will both shift to the left (decrease).

• The demand curve for grapefruits will shift to the right.

#60• A drought cuts wheat production by 40%

in the U.S. Graph what will happen in the wheat market. What happens to price? What about supply & demand?

• The price will increase. • Supply will decrease (shift to the left). • Quantity demanded will change

(movement).

#61• A new study links the

consumption of sports drinks with optimum health. What will happen to the price of sports drinks?

• The demand curve will shift to the right causing the price to increase.

#62• The latest fashion craze among high

school students is bib overalls & seed corn caps. What will happen to the price of overalls? What will happen to the price of seed corn caps?

• The demand curve for both caps & overalls will shift to the right causing the price to increase.

#63• A new federal law requires all students at U.S.

public schools receive an iPad. What happens to the supply & demand of iPads? What happens to the supply & demand of textbooks.

• The demand for iPads will shift to the right (increase).

• The demand for textbooks will shift to the left (decrease) due to a change in consumer preferences.

#64

#65

#66

Final Question• Peanut butter & honey are

substitutes for each other. Jelly is a complement to peanut butter. People like to eat honey on toasted bread more than they like to eat peanut butter on toasted bread.

• 75% of the world’s honey bees die