ECON 400 EXAM 1 QUESTIONS & ANSWERS
law of demand - Answers - law of demand states that there is an inverse (or negative)
relationship between the price of a good or service and the quantity of it that consumers
are willing to purchase.
substitutes - Answers - Products that serve similar purposes. An increase in the price of
one will cause an increase in demand for the other (examples are hamburgers and
tacos, butter and margarine, Chevrolets and Fords).
As price increases - Answers - buyers purchase less.
As price decreases - Answers - buyers purchase more.
When the price of a good increases, people cut back - Answers - on their purchases
and turn to substitute products.
demand schedule - Answers - a table that shows the relationship between the price of a
good and the quantity demanded
demand curve - Answers - a curve that shows the relationship between the price of a
product and the quantity of the product demanded
Because of the inverse relationship between price and amount purchased the demand
curve - Answers - will have a negative slope (it will slope downward to the right) -- more
of a good will be purchased as its price decreases
The height of the demand curve at any quantity shows - Answers - the maximum price
consumers are willing to pay for an additional unit
The height of the demand curve indicates - Answers - the marginal benefit (or value)
consumers receive from additional units.
consumer surplus - Answers - the amount a buyer is willing to pay for a good minus the
amount the buyer actually pays for it
marginal value - Answers - is what one more unit of a good is worth to you in terms of
other goods.
marginal cost - Answers - the cost of producing one more unit of a good
relatively elastic demand - Answers - there will be more change in the quantity
demanded of a good or service than in the price of that good or service
perfectly inelastic - Answers - quantity does not respond at all to changes in price (E=0)
, Relatively inelastic demand - Answers - will be more change in the price of a good or
service than in the demand for that good or service.
change in quantity demanded - Answers - movement along the demand curve showing
that a different quantity is purchased in response to a change in price
change in demand - Answers - a shift of the demand curve, which changes the quantity
demanded at any given price (due to shift in: income levels, consumer tastes, number of
consumers in the market, different price being charged for related product, changes in
expectations, demographic changes)
opportunity cost of production - Answers - The total economic cost of producing a good
or service. The cost component includes the opportunity cost of all resources, including
those owned by the firm. The opportunity cost is equal to the value of the production of
other goods sacrificed as the result of producing the good.
profit - Answers - excess of sales revenue relative to the opportunity cost of production.
The cost component includes the opportunity cost of all resources, including those
owned by the firm. Therefore, profit accrues only when the value of the good produced
is greater than the value of the resources used for its production.
loss - Answers - A deficit of sales revenue relative to the opportunity cost of production.
Losses are a penalty imposed on those who produce goods even though they are
valued less than the resources required for their production.
Law of Supply - Answers - A principle that states there is a direct relationship between
the price of a good and the quantity of it producers are willing to supply. As the price of
a good increases, producers will wish to supply more of it. As the price decreases,
producers will wish to supply less.
Change in quantity supplied - Answers - a movement along the supply curve that occurs
in response to a change in price
change in supply - Answers - a shift of the supply curve, which changes the quantity
supplied at any given price (can be due to: change in resource price, improvement in
technology, elements of nature and political disruptions, changes in taxes)
market - Answers - An abstract concept encompassing the forces of demand and
supply and the interaction of buyers and sellers with the potential for exchange to occur.
Equilibrium - Answers - A state in which the conflicting forces of demand and supply are
in balance. When a market is in equilibrium, the decisions of consumers and producers
are brought into harmony with one another, and the quantity demanded will equal the
quantity supplied.
law of demand - Answers - law of demand states that there is an inverse (or negative)
relationship between the price of a good or service and the quantity of it that consumers
are willing to purchase.
substitutes - Answers - Products that serve similar purposes. An increase in the price of
one will cause an increase in demand for the other (examples are hamburgers and
tacos, butter and margarine, Chevrolets and Fords).
As price increases - Answers - buyers purchase less.
As price decreases - Answers - buyers purchase more.
When the price of a good increases, people cut back - Answers - on their purchases
and turn to substitute products.
demand schedule - Answers - a table that shows the relationship between the price of a
good and the quantity demanded
demand curve - Answers - a curve that shows the relationship between the price of a
product and the quantity of the product demanded
Because of the inverse relationship between price and amount purchased the demand
curve - Answers - will have a negative slope (it will slope downward to the right) -- more
of a good will be purchased as its price decreases
The height of the demand curve at any quantity shows - Answers - the maximum price
consumers are willing to pay for an additional unit
The height of the demand curve indicates - Answers - the marginal benefit (or value)
consumers receive from additional units.
consumer surplus - Answers - the amount a buyer is willing to pay for a good minus the
amount the buyer actually pays for it
marginal value - Answers - is what one more unit of a good is worth to you in terms of
other goods.
marginal cost - Answers - the cost of producing one more unit of a good
relatively elastic demand - Answers - there will be more change in the quantity
demanded of a good or service than in the price of that good or service
perfectly inelastic - Answers - quantity does not respond at all to changes in price (E=0)
, Relatively inelastic demand - Answers - will be more change in the price of a good or
service than in the demand for that good or service.
change in quantity demanded - Answers - movement along the demand curve showing
that a different quantity is purchased in response to a change in price
change in demand - Answers - a shift of the demand curve, which changes the quantity
demanded at any given price (due to shift in: income levels, consumer tastes, number of
consumers in the market, different price being charged for related product, changes in
expectations, demographic changes)
opportunity cost of production - Answers - The total economic cost of producing a good
or service. The cost component includes the opportunity cost of all resources, including
those owned by the firm. The opportunity cost is equal to the value of the production of
other goods sacrificed as the result of producing the good.
profit - Answers - excess of sales revenue relative to the opportunity cost of production.
The cost component includes the opportunity cost of all resources, including those
owned by the firm. Therefore, profit accrues only when the value of the good produced
is greater than the value of the resources used for its production.
loss - Answers - A deficit of sales revenue relative to the opportunity cost of production.
Losses are a penalty imposed on those who produce goods even though they are
valued less than the resources required for their production.
Law of Supply - Answers - A principle that states there is a direct relationship between
the price of a good and the quantity of it producers are willing to supply. As the price of
a good increases, producers will wish to supply more of it. As the price decreases,
producers will wish to supply less.
Change in quantity supplied - Answers - a movement along the supply curve that occurs
in response to a change in price
change in supply - Answers - a shift of the supply curve, which changes the quantity
supplied at any given price (can be due to: change in resource price, improvement in
technology, elements of nature and political disruptions, changes in taxes)
market - Answers - An abstract concept encompassing the forces of demand and
supply and the interaction of buyers and sellers with the potential for exchange to occur.
Equilibrium - Answers - A state in which the conflicting forces of demand and supply are
in balance. When a market is in equilibrium, the decisions of consumers and producers
are brought into harmony with one another, and the quantity demanded will equal the
quantity supplied.
