Objectives Assessed on Unit 2 (Supply and Demand) Test
Demand, Supply, and Market Equilibrium (Chapter 3)
- Identify the determinants of demand and explain how each affects demand.
- Explain the role the rationing function of prices plays in achieving market equilibrium.
- Identify the determinants of supply and explain how each affects supply.
- Explain how a change in demand and supply affect the equilibrium price and quantity of a
product.
- Explain how simultaneous changes in supply and demand will affect the equilibrium price
and quantity of a product.
- Explain the relationship between complimentary goods.
- Explain the relationship between substitute goods.
- Explain how a change in consumers’ income will affect both the price and quantity purchased
of normal goods and inferior goods.
Price and Quantity Controls, Consumer Surplus, Producer Surplus, Deadweight Loss
(Ch. 3 and Ch. 4 (p. 85 -90))
- Define consumer surplus.
- On a graph of a market in equilibrium, identify the areas of consumer surplus, producer
surplus, and total surplus.
- On a graph of a market experiencing a price ceiling, identify the areas of consumer surplus,
producer surplus, and deadweight loss.
- Calculate the surplus created by a price ceiling, given a graph with appropriate data.
- Predict the effect of an effective price floor on the market for a product.
Elasticity (Chapter 6)
- Identify the elastic, unit elastic, and inelastic portions of the demand curve.
- Explain how the price elasticity of demand for a product affects total revenue as the price of
the product changes.
- Explain how price elasticity of demand affects the change in price, quantity, and total revenue
when a market is affected by changes in supply.
- Predict the effect of changes in supply on equilibrium price and quantity in a market where
demand is perfectly inelastic.
- Explain the idea of cross elasticity and calculate the cross-price elasticity of two products,
given the change in price of one and quantity demanded of the other.
- Calculate the income elasticity of demand for a product and indicate whether it indicates a
normal good or an inferior good.
Tax Incidence and Deadweight Loss (Chapter 18, p. 416 - 419)
- Identify the portion of an excise tax born by consumers and producers.
- Predict the effects of an excise tax on equilibrium price and quantity in a market, depending
on the elasticities of demand and supply in that market.
- Given a graph of a market with a unit excise tax, identify the price paid by consumers and the
net price received by producers, and calculate the amount of the tax.
- Explain the effect of an excise tax on consumer surplus, producer surplus, and total surplus.
Consumer Theory (Chapter 7)
- Explain the concepts of marginal utility and total utility.
- Explain the law of diminishing marginal utility.
- Explain the substitution effect and the income effect.
- Explain the utility-maximizing rule.
- Use the utility-maximizing rule to determine a consumer’s best spending option when given
income, utility, and price data.