Economics Unit 2 Flashcards

Questions and Answers

The vertical axis of a demand curve shows:

The supply of a product

The interest in a product

The price of a product (correct)

The production cost of a product

The total amount of a product available in a market at a given price is called the:

Demand

Count

Supply (correct)

Number

Which statement best explains the law of supply?

The quantity supplied by producers increases as prices rise and decreases as prices fall. (correct)

The quantity supplied by producers decreases as prices rise and increases as prices fall.

The quantity supplied by consumers increases as prices rise and decreases as prices fall.

The quantity supplied by consumers decreases as prices rise and increases as prices fall.

According to the law of supply, price and quantity move:

Along a track in the same direction. Signup and view all the answers

The point where supply and demand meet and prices are set is called:

Equilibrium Signup and view all the answers

The amount of goods and services consumers want is called the:

Demand Signup and view all the answers

A factor that most directly affects the demand for automobiles is:

The individual tastes and preferences of buyers. Signup and view all the answers

How might a drop in price for washing machines affect the demand for dryers?

The demand for dryers would only be affected by an increase in the price of washing machines. Signup and view all the answers

How do changing prices affect supply and demand?

As price decreases, supply decreases, but demand increases. Signup and view all the answers

Which factor most directly affects a furniture company's supply?

The availability of raw materials and natural resources. Signup and view all the answers

Which statement best explains the law of demand?

The quantity demanded by consumers decreases as prices rise, then increases as prices fall. Signup and view all the answers

What happens when the quantity of a good supplied at a given price is greater than the quantity demanded?

Excess supply Signup and view all the answers

Supply and demand coordinate to determine prices by working:

Together. Signup and view all the answers

On a graph, an equilibrium point is where:

A supply curve and a demand curve meet. Signup and view all the answers

Which occurs during market equilibrium? (Check all that apply)

Supply and demand meet at a specific price. Signup and view all the answers

Which explains the connection between the law of demand and excess demand?

The law states that decreases in price lead to greater quantity demanded and limited supply, which occurs during excess demand. Signup and view all the answers

On a graph, a(n) ____________________ supply shows the demand portion of equilibrium.

demand curve Signup and view all the answers

A limited amount of goods available means that excess _____________ is occurring.

demand Signup and view all the answers

What is the difference between a price floor and a price ceiling?

A price floor is the minimum price allowed for a good. A price ceiling is the maximum price allowed for a good. Signup and view all the answers

A consumer might respond to a negative incentive by:

Decreasing use of the product to save money. Signup and view all the answers

Which statement best describes incentives?

Incentives can be positive or negative. Signup and view all the answers

The lowest amount a manufacturer can pay factory workers is an example of:

A price floor. Signup and view all the answers

The government has set a price floor on bread. Manufacturers cannot sell loaves for less than $5.00, which is a dollar above the market price. What will most likely result from this price control?

The quantity demanded for bread will decrease, and the quantity supplied will increase. Signup and view all the answers

In the market, actions known as incentives affect:

Consumers or producers. Signup and view all the answers

Which statement best explains how elasticity and incentives work together?

An elastic good, such as a game, is more likely to respond to incentives. Signup and view all the answers

Which is an example of a negative incentive for producers?

A sharp increase in production costs. Signup and view all the answers

Price controls on goods can be set by:

Governments. Signup and view all the answers

Producers often work to maximize their debts ___________________ and make them as large as possible.

profits Signup and view all the answers

What is the difference between marginal cost and marginal revenue?

Marginal cost is the money paid for producing one more unit of a good. Marginal revenue is the money earned from selling one more unit of a good. Signup and view all the answers

Brenda's Boards manufactures skateboards. Each skateboard sells for $45 and includes the following expenses: $3 for the wheels and mounts, $1 for the plastic board, $1 for the paint, and $10 for the labor. What is the total profit the company earns after selling 100 boards?

$3,000 Signup and view all the answers

In order to calculate marginal cost, producers must compare the difference in the cost of producing one unit to the cost of:

Producing the next unit. Signup and view all the answers

How can producers maximize their profit? (Check all that apply)

They can raise prices to increase marginal revenue. Signup and view all the answers

To generate higher profits, producers must work to:

Decrease their production costs. Signup and view all the answers

Profit equals the total amount of money made minus:

Expenses. Signup and view all the answers

It is better for businesses to have higher __________________ opportunity costs, as it often gives them a comparative advantage.

lower Signup and view all the answers

Which calculation helps determine which producer has the absolute advantage?

Amount produced divided by resources used. Signup and view all the answers

Which of these best describes an opportunity cost?

A trade-off. Signup and view all the answers

Which is the best measurement to use to determine who might have the absolute advantage?

High efficiency. Signup and view all the answers

Which best describes how consumers may benefit from specialization?

Consumers find products at lower prices. Signup and view all the answers

A producer with a comparative advantage has the ability to produce a good or service at:

A lower opportunity cost than any competitor can. Signup and view all the answers

Which best explains why producers choose to specialize? (Choose two answers)

To gain a comparative advantage. Signup and view all the answers

Which best describes how producers benefit from specialization?

Producers can increase their profits. Signup and view all the answers

The term ______________________, often used in conjunction with absolute advantage, is defined as making the best use of resources.

efficiency Signup and view all the answers

Study Notes

Demand and Supply Basics

Demand curve's vertical axis represents the price of a product.
Supply refers to the total quantity of a product available in the market at a specific price.
The law of supply indicates that as prices rise, the quantity supplied by producers increases, and vice versa.
Price and quantity supplied move in the same direction according to the law of supply.
The equilibrium point is where supply and demand curves meet, determining prices.

Demand and Supply Interactions

Demand reflects the amount of goods and services consumers wish to purchase.
Factors affecting demand include consumer tastes and preferences.
A drop in the price of one good can increase demand for complementary goods.
Changes in price cause differing impacts; as prices decrease, supply decreases, while demand may increase.

Market Conditions and Responses

When quantity supplied exceeds quantity demanded, it results in excess supply.
Market equilibrium occurs when supply meets demand at a specific price and quantity.
The law of demand states that quantity demanded decreases as prices rise and increases as prices fall.
Excess demand occurs when demand outweighs supply due to limited availability.

Price Controls and Incentives

A price floor is a minimum price set above the market price, causing a decrease in quantity demanded and an increase in quantity supplied.
Incentives can influence both consumers and producers, being either positive or negative.
A price ceiling is the maximum price allowed, often leading to shortages if set below equilibrium price.

Cost and Revenue Dynamics

Marginal cost is the cost of producing one additional unit, while marginal revenue is the income from selling one additional unit.
To maximize profit, producers should manage marginal costs and aim to keep them below marginal revenues.
Total profit is calculated as total revenue minus total expenses.

Specialization and Comparative Advantage

Comparative advantage enables a producer to create goods at a lower opportunity cost than competitors.
Specialization enhances efficiency, leading to increased profits and a greater market presence.
Absolute advantage relates to producing more efficiently with fewer resources, enhancing competitive capability.

Opportunity Costs and Decision Making

Opportunity cost represents the trade-offs made when choosing one option over another.
Higher opportunity costs may still provide a comparative advantage under certain market conditions.
Producers benefit from specialization by achieving lower costs and enhancing product quality for consumers.

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Test your knowledge on key concepts from Economics Unit 2 with these flashcards. Learn about demand curves, supply, and more essential economic principles through engaging questions and answers. Perfect for students preparing for exams.