Study Guide Test- 2

Study Guide Test- 2 - OBJECTIVES FOR TEST #2 Topic 4:...

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OBJECTIVES FOR TEST #2 Topic 4: “What explains demand and supply?” 4.1 Understand the concept of demand What the population wants Shifters o Population o Preferances o Income o Price of related goods (compliments, substitutes) o Expectations 4.1.1 List 5 determinants of market demand 4.1.2 Define demand, demand curve Demand curve o Shows how much of a good or service consumers will want to buy at different prices 4.1.2.1 Give a formal definition The quantity of goods that buyers will take a particular price 4.1.2.2 Use numerical info to graph a demand curve 4.1.3 Understand the Law of Demand 4.1.3.1 State the Law The proposition that a higher price for a good leads people to demand a smaller quantity of that good 4.1.3.2 Understand why the Law operates; explain income and substitution effects; explain link between MB (Marginal benefit) and demand Income o Inferior good (↑ Income= ↓ Demand) o Normal good (↑Income= ↑ Demand) Substitution o Things that are interchangeable with a product ( coke and Pepsi) Marginal benefit o The additional benefit derived from undertaking one more unit of that activity
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4.1.3.3 Explain how the Law is manifested in the demand curve The demand curve will shift in or out depending on the demand shifters 4.1.4 Understand demand curve shifts 4.1.4.1 Know how income changes shift the demand curve, for normal and inferior goods 4.1.4.2 Know how the demand curve shifts in response to price changes for substitutes, complements 4.1.4.3 Know how changes in preferences, expectations, population shift the demand curve Preferences (increased love for product = ↑ Demand) Expectations (intrest= ↑ Demand Population (↑ Population= ↑ Demand) 4.2 Understand the concept of supply Amount that the producer supplies Shifters o Input prices o Technology o Number of producers o Taxes and Subsidies o Expectations 4.2.1 Define supply, supply curve Supply curve o Graphically, how much of a good or service people are willing to sell at any given price 4.2.1.1 Give a formal definition The quantity of a commodity that is in the market and available for purchase or that is available for purchase at a particular price 4.2.1.2 Use numerical info to graph a supply curve 4.2.2 Understand the Law of Supply 4.2.2.1 State the Law The quantity of a good or service a firm is willing to produce is directly related to price o Cetepus Perefus
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4.2.2.2 Understand why the Law operates; explain the role of rising costs Rising Costs (↑Cost=↓ Supply) 4.2.2.3 Know how the Law is manifested in the supply curve The supply curve will shift in or out depending on the supply shifters 4.2.2.4 Understand price elasticity of supply and what affects it
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Study Guide Test- 2 - OBJECTIVES FOR TEST #2 Topic 4:...

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