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The change in the quantity demanded occurs due to this factor...
change in price
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The change in the quantity supplies occurs due to this factor
change in price
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Name some of the factors that change the demand for a product
- IT IS NOT DUE TO CHANGE IN PRICE
- wealth or income
- anticipated price changes
- price of related goods (substitutes, complimentary)
- taste or preference (fad)
- number of buyers in the market
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Name some of the factors that change the supply of a product
- IT IS NOT DUE TO CHANGE IN PRICE
- anticipated price changes (produce more before the price drops=sell more at the higher rate)
- production costs (including subsidies, taxes)
- price of related goods
- increases in efficiency of production
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What is a price (1) floor, (2) ceiling? What are the effects?
- These are government imposed restrictions.
- (1) Floor: the lowest price that a supplier may charge for a product (ex=corn at $10 barrel to subsidize farmers). Effect=suppliers want to produce to make good money, but consumers don't want to buy = surplus of product
- (2) Ceiling: the highest price that a supplier may charge (ex=rent to low income families). Effect=suppliers don't want to produce b/c no profit [or even a loss], but consumers love the price = shortage.
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What is the effect on price if both an increase in demand and increase in supply occur simultaneously?
Indeterminate. It could increase or decrease depending on which curve shifts more.
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What is the formula to determine elastisticity of demand? What do the results indicate?
- The absolute value of --
- % chg in quantity demanded / % chg in price, watch for use of midpoint
- (new quantity-old quantity)/((new+old)/2) / (new price-old price)/((new+old)/2)
- If =0, perfectly inelastic = the supplier can charge whatever it wants and demand won't chg.
- If <1.0, price inelastic = the supplier can charge more and the quantity sold won't chg much = increase in revenue
- If >1.0, price elastic = if supplier charges more, demand will drop considerably = decrease in revenue
- If =1.0, unit elastic = the quantity demanded will increase proportionally with the price change.
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What is the formula to determine elastisticity of supply? What do the results indicate?
- The absolute value of --
- % chg in quantity supplied / % chg in price
- (new quantity-old quantity)/((new+old)/2) / (new price-old price)/((new+old)/2)
- If =0, perfectly inelastic = the supplier will produce the same qtnty at any price.
- If <1.0, price inelastic = the supplier will produce about the same amt despite a large chg in price
- If >1.0, price elastic = the supplier will produce considerably more or less even with small chgs in price
- If =1.0, unit elastic = the supplier will increase the quantity supplies proportionally with the price change.
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What is the formula to determine cross elasticity. What do the results indicate? Why would these results occur?
- % chg in # units demanded or supplied / % change in price of a different product
- If (+) coefficient = substitute goods. People will purchase a different product if the price of the 1st product increases (ex=butter instead of margarine)
- If (-) coefficient = complementary goods. People will purchase more (or less) of the 2nd product along with your product (ex=printer ink to go with your printer)
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What is a (1) normal or (2) inferior good? How can you tell?
- % chg in units purchased / % chg in income
- Normal: What people want to buy if they can. If (+) coefficient = normal good.
- Inferior: What people buy when they are cash poor. If (-) coefficient = inferior good.
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What are the 6 factors that cause a shift in the demand curve?
- WRITEN
- Wealth
- Related Goods (substitutes, complements)
- Income
- Tastes
- Expectations
- Number of Buyers
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What are the 5 factors that cause a shift in the supply curve
- E-COST
- Expectations of the supplying firm
- Costs of inputs
- Other goods
- Subsidies (supply will increase) or taxes (supply will decrease)
- Technology
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Define market equilibrium. What is another name?
- The point at which the support and demand curves intersect. There are no surpluses or shortages.
- aka Market Clearing Price
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For price elasticity of demand, if price increases, what is the effect on total revenue if elasticity is (1) elastic, (2) inelastic, (3) unit elastic
- (1) decreases
- (2) increases
- (3) remains unchanged
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For price elasticity of supply, if price increases, what is the effect on total production if elasticity is (1) elastic, (2) inelastic, (3) unit elastic
- (1) increases quantity supplied
- (2) decreases quantity supplied
- (3) unchanged
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Which of the following pricing policies results in establishment of a price to external customers higher than the competitive price for a given industry: (1) predatory, (2) dual, (3) transfer, (4) collusive
(4) Collusive
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