Study Guide: Unit 3
—
Demand, Supply, and the Market
VOCABULARY
For each of the following terms, make a definition card. Use dates/examples where
possible.
Economics
Absolute advantage
Comparative advantage
Specialization
Demand
Quantity Demanded
Law of de
mand
Market demand
Substitute good (substitute)
Complementary good (complement)
Supply

Quantity Supplied

Law of supply

Market supply
Non
price determinants
Elasticity

Inelastic

Unitary elastic
Market equilibrium

Equilibrium price/market
clearing price
D
isequilibrium

Excess demand (shortage)

Excess supply (surplus)
Price controls
Price floor

Minimum wage
Price ceiling

Rent control
Rationing
Black market
QUESTIONS TO CONSIDER
Answer each of the following questions on a separate sheet of paper. Use specif
ic examples when possible.
1.
What’s the difference between the change in quantity demanded and a change in
demand?
a.
What about the change in quantity supplied and a change in supply?
2. Why do price and quantity demanded move in opposite directions? What
kind of relationship is this?
3. Why do price and quantity supplied move in the same direction? What kind of
relationship is this?
4
. What is the only factor that causes a change in quantity demanded or supplied?
5.
What
factors cause
a change in
:
a.
dema
nd
b.
supply
6
.
What factors influence the elasticity of demand
and supply
?
a.
How do you calculate elasticity of demand and supply?
7
.
How do you calculate total revenue?
8
. When do people, and economists, know that a “price is right”? Who sets this
price?
a.
When reaching equilibrium, why does time vary in different markets?
b.
What causes excess demand and excess supply?
9
.
What is the relationship between quantity demanded
(or quantity supplied)
and price in a market?
a.
What sort of incentives do prices create?
b.
How do prices allow markets to respond to changing conditions?
c.
Why do “black markets” exist? Where do they exist?
10
. Explain why it’s so hard to end price controls.
11
. How do price floors and price ceilings affect you as a consumer and as a
producer?
OVER

PRACTICE/REVIEW
1
2
. Be able to graph demand and supply curves using schedules.
13
. Be able to figure out when a curve will shift along the curve or to the right/left
and why.
a.
How does the curve change based on changes in demand
only?
b.
How does the curve change based on changes in supply only?
c.How does the curve change based on changes in BOTH demand and supply?
14. Be able to find points of equilibrium, price floors, and price ceilings on a
curve.