Supply And Demand

Front 1

If the price of barley, an ingredient in beer, increases, the demand for beer will

Back 1

Not change, or stay the same. The demand will remain constant, while prices might fluctuate.

Front 2

____________ occurs when an auto mechanic tunes up an accountant's car in exchange for the accountant's doing the mechanic's income taxes.

Back 2

Barter. It is the direct exchange of goods and services without the use of money.

Front 3

A paper manufacturer can produce notebook paper or wedding invitations. If the selling price of wedding invitations skyrockets, we can expect the supply of notebook paper to _______________.

Back 3

Decrease. Obviously, the manufacturer will try to produce a product with a higher return; in this case, the manufacturer stands to make more money producing invitations rather than notebook paper.

Front 4

In the short run, a perfectly competitive firm's supply curve is the portion of the Marginal Cost curve which is above the ______ Curve.

Back 4

AVC. The portion above the AVC (Average Variable Cost) Curve is the supply curve. This applies to the short run. In the long run, it is the portion above the AC (Average Cost).

A couple of things to remember--1> In the short run, the supply curve starts above the AVC curve, because the point where MC intersects with AVC is the shutdown point. Below the AVC, the firm produces zero units, and goes out of business. 2> In the long run, there are no variable costs. There is only an average cost, not an AVC or AFC. The firm's shutdown point in the long run is where the MC intersects with the AC.

Front 5

Surpluses eventually lead to decreases in price and quantity supplied and _____________ in quantity demanded.

Back 5

Increases. When there is a surplus, that means there is more of a product than is in demand. Therefore, the price of the product will drop, and the demand for the product will increase because the price is lower. At the same time, the quantity supplied by the manufacturer will drop to match demand, because it doesn't make sense to produce more than people will buy. Eventually, it will reach an equilibrium point, where the quantity supplied equals the quantity demanded, and the price will stop dropping and be at equilibrium.

Front 6

Demand curves slope __________ because of the inverse relationship between price and quantity.

Back 6

Down. Where the law of demand applies to the particular market under consideration, the demand curve will slope (either gently or steeply) downwards from left to right. This is because usually the demand for a product decreases as the price increases.

Front 7

A perfectly __________ demand curve is a horizontal line.

Back 7

Elastic. A perfectly elastic, or infinitely elastic demand curve is a horizontal line. This means that as long as the firm is selling at the market price, no matter what quantity it supplies, it will sell at that price. If it tries to raise the price even slightly, it will get zero sales.

A couple of important things to note: 1> perfect elasticity occurs in perfect competition. 2> The demand curve, which is a horizontal line at the market price, is also the MR (Marginal Revenue) curve.

This is important, because this means with infinite elasticity, whether its the first unit, or the 50th unit, the MR is the same; it is always equal to the price.

Front 8

Since 1900, changes in technology have greatly reduced the costs of growing wheat. The population also has increased. If you know that the changes in technology had a ____________ effect than the increase in population, then since 1900 the price of wheat has decreased and the quantity of wheat has increased.

Back 8

Greater. In fact economics defines technology as ways of combining resources to produce output. Increase in technology equates to an increase in quantity supplied, and an increase in population equates to an increase in quantity demanded. If the supply increases faster than the demand, then obviously the price will drop.

Front 9

According to the graph, the equilibrium price is _____ dollars.

Back 9

60. The equilibrium point is where the Supply curve and the Demand curve intersect. Based on the equilibrium point, we can see that the equilibrium price is 60 dollars, and the equilibrium quantity is 40

Front 10

A price of $80 would cause a surplus of _____ units to develop, driving the price down.

Back 10

25. Looking at the graph, we can see that at $80, the demand would be for 25 units, whereas the supply would be for 50 units. That results in a surplus of 25 units. On the other hand, a price of $20 would result in a demand for 70 units, but a supply of only 20 units, resulting in a shortage of 50 units to develop.

Front 11

If the price of a T-shirt is $11 and the price of a pair of designer jeans is $66, the relative price of designer jeans is ________.

Back 11

6 t-shirts. The relative price of designer jeans would be 6 t-shirts, because you could buy 6 t-shirts for the price of one pair of designer jeans.

Front 12

Given two different products, if the price of one good increases when the demand for the other good increases, then the goods are considered _____________ goods.

Back 12

Substitute. Substitute goods are goods that can be used in place of each other (as the price of one rises, the demand for the other rises). For example, if an increase in the price of mercedes benz cars directly results in an increase in demand for BMWs, then BMWs would be considered a substitute good for MBs. This means that when one product gets more expensive, more people turn towards the substitute good to fulfill that same need.

Front 13

If the price of a good decreases then the demand for that good

Back 13

Increases. Price and demand are inversely related. When one goes up, the other goes down. As the price for a product goes up, the number of units demanded goes down.

Front 14

A demand schedule shows the relationship between the quantity demanded of a commodity over a given period of time and the __________ of the commodity.

Back 14

Price. The demand schedule shows a list or table of the prices and the corresponding quantities demanded of a particular good or service.

Front 15

The __________ schedule shows the relationship between the quantity supplied at each price.

Back 15

Supply. A list or table of prices and corresponding quantities supplied of a particular good or service. Below is a supply-demand schedule:

Front 16

An increase in demand (upward shift of demand curve) results in both the commodity's equilibrium price and quantity _____________.

Back 16

Increase. This can be confusing, because normally when you raise the price for a product, demand drops. However, that is referring to an artificially raised price. When demand goes up on its own, then price goes up, because the supplier can sell each unit for more. At the same time, the manufacturer increases the quantity supplied in response to the increased price. Eventually, a new equilibrium is reached, where the final price and quantity supplied is higher than it originally was before demand went up.

The point is, what is being shifted? If demand goes up, the demand curve is shifted to the right, as shown in the graph below. If supply goes up, then the supply curve would be shifted to the right, resulting in a lower price, and hence a higher demand.

Front 17

In economics, advances in technology means increased __________.

Back 17

Supply. For example, advances in factory machinery for producing cars would indicate increased supply, or in other words, the supply curve moves to the right.

Front 18

If the demand curve for product X shifts to the right when the price of product Y increases, then X and Y are ____________ products.

Back 18

Substitute. If the demand curve shifts to the right, that means demand has risen. If the demand for X increases as a result of increase in price of product Y, then X and Y are substitute products for each other.

Front 19

If demand increases and supply remains constant, the equilibrium price and _________ will rise.

Back 19

Quantity. If demand increases (i.e. the demand curve shifts to the right), and supply remains constant (i.e. the supply curve does not change), then the equilibrium price and quantity will both be higher. Remember, if supply increases, that means the entire supply curve shifts to the right. On the other hand, an increase in quantity simply refers to movement along the supply curve--not a shift of the curve itself. Here is a graph that illustrates increase in demand with constant supply:

Front 20

If a shortage develops, then the existing price (current price) is __________ the equilibrium price.

Back 20

Below. The existing price will have to rise if a shortage exists. Let's say a product is at the equilibrium point, then a shortage develops. That basically means that the supply curve shifts to the left. Assuming the demand curve has not shifted as well, the equilibrium point (intersection between supply & demand) will be at a higher price:

Front 21

If the U.S. government were to artificially maintain the selling price of beef above the equilibrium level, then there would be a _____________.

Back 21

If the U.S. government were to artificially maintain the selling price of beef above the equilibrium level, then there would be a _____________.

Front 22

If consumers' income goes up, and that ultimately results in price going up for a product, then it must be a(n) ___________ good

Back 22

Normal. It must be a normal good. Here's how you determine that--first of all, a change in income directly affects demand for the product. With a normal good, when income goes up, demand goes up. In other words, the demand curve shifts to the right. Assuming supply does not change, the equilibrium price should be higher:

Front 23

In the _______________ theory of government, government is viewed as acting primarily to provide benefits for special interest groups.

Back 23

Capture. These are just government actions that benefit some special-interest group that has captured control of regulations, legislation, or governing authority.

Front 24

Following U.S. Justice Department guidelines, a Herfindahl index of 10,000 would indicate an industry that is considered a _______________, whereas an index approaching zero would indicate an industry that is considered purely competitive.

Back 24

Monopoly. Herfindahl index is a measure of concentration calculated as the sum of the squares of the market share of each firm in an industry.

Front 25

Under the ____________ rule, actions that could be anticompetitive are intrinsically illegal.

Back 25

Per se. Actions that could be anticompetitive are intrinsically illegal

Front 26

The notion that government actions are undertaken to protect the best interests of society is called the __________ _________ theory of government.

Back 26

Public Interest. According to this the government intervenes in business actions to improve the well-being of the general public.

Front 27

The Sherman Act (1890), Clayton Antitrust Act (1914) and the Federal Trade Commission Act (1914) are major _____________ laws in the United States.

Answer:

Back 27

Antitrust. These are government policies and programs designed to control the growth of monopoly and enhance competition.

Front 28

Using private firms to perform certain government functions is called _____________.

Back 28

Contracting out. Hiring a private firm to provide a product or service for a government entity.