Unit 2 Study Guide 1. income effect

Unit 2 Study Guide
Directions—Define the terms, answer the questions, and you will do great on the test.
1. income effect
2 elastic
3inferior good
4 substitute
5 complement
6 subsidy
7 supply schedule
8 diminishing marginal returns
9 marginal cost
10 marginal product of labor
11 start-up costs
12 deregulation
13 commodity
14 patent
15 price discrimination
16 economies of scale
17 monopoly
18. When a consumer is able and willing to buy a good or service, he or she creates what?
Demand 79
19. What determines the price and the quantity produced of most goods?
The interaction between buyers and sellers 79
20. What are inferior goods?
Inferior goods are goods whose demand falls as income goes up. Like generic/store brand items. 87
21. What kind of economic system is the United States economy based on?
Free Enterprise/Capitalism/free market
22. What kind of table lists the quantity of a good that a person will buy at different prices?
A demand Schedule 82
23. What kind of changes would be expected in the demand of a country that has a growing population?
Increased demand for houses, food, and other goods and services 87
24. When prices rise, what happens to your purchasing power if your income does not go up?
Your purchasing power decreases ch 4.3
25. Demand for movie rentals is highly elastic. What will happen to a video store that raises the price of its rentals?
Their customers will find other stores to rent videos from (substitutes). Their demand will fall. Ch 4.3
26. Will, a sprinter on the track team, has inelastic demand for sports drinks. The local store has raised the price of a
sports drink from $1.00 to $1.50. Describe Will’s response to the price change.
Will will continue to purchase the sport drink. He may also look for substitutes. Ch 4.3
27. What do sellers do if they expect the price of goods they have for sale to increase dramatically in the near
Sellers may hold back some items for sale so they can sell more goods in the future at a higher price.
28. What happens when the supply of a nonperishable good is greater than the consumers demand for that good?
The sellers will drop the price of the non perishable good in order to sell it.
29. Sunshine Island has three large supermarkets that supply most of the groceries for the island’s population. A gas
station also sells a very small selection of groceries. How would you describe the market for groceries on Seaside
It is a perfectly competitive market 151
30. In a monopoly market, the market quantity sold will ____than the quantity sold in a perfectly competitive
market. 157
Less than
31. How does a natural monopoly function?
One large company sells all of the goods or services (creates all the output) 158
32. What is one kind of monopoly that the U.S. government generally permits?
Government monopoly 159 / patent / professional sports teams 160
33. What is it called when the government uses some tool other than money to allocate goods?
Rationing 141
34. Give at least two examples of inelastic goods. 90, 91
35. Give at least two examples of elastic good. 90, 91