AMERICAN GOVERNMENT/ECONOMICS TEST 2-STUDY QUESTIONS 1. What is the Law of Diminishing Returns? (Hint: Paper chain factory) 2. If the quantity demanded (or supplied) has changed at the same price, what has happened? 3. If the federal government imposes a tax on computer games, what will happen FIRST on the supply and demand curves in the computer game market? Why? a. b. 4. If the price of a good is expected to increase (future price will go up), what will happen to the current demand for that good? 5. How are computers and computer games related to each other from an economic standpoint? (Type of goods) 6. Because of the relationship described in #5, what would happen FIRST on the supply and demand curves for computer games if the price of computers increased? 7. What does the Law of Demand state? 8. What does the Law of Supply state? 9. What is equilibrium? 10. What happens if a price ceiling is set BELOW the equilibrium price? 11. What happens if a price ceiling is set ABOVE the equilibrium price? 12. What happens if a price floor is set BELOW the equilibrium price? 13. What happens if a price floor is set ABOVE the equilibrium price? 14. Which of the 4 market structures has very high barriers to entry, meaning it is almost impossible for a new company to enter the market? 15. In which market structure do a few large firms dominate the market? 16. Which business organization is one in which there are partners and ALL partners are responsible for the management and financial obligations of the business? 17. If a good’s price increases and there is no significant impact on buying habits, economists would say that this good is _____________________. (elastic/inelastic-pick one) 18. Which market structure provides the individual business with the least amount of market power (control over price)? 19. What are the 4 advantages of a corporation? a. b. c. d. 20. What is the condition in which the cost of producing each additional unit decreases as the company get larger? 21. Which business structure is most common in the United States? 22. What is a subsidy? Which side is influenced by subsidies, supply or demand? a. b. 23. What are the 3 main weaknesses/disadvantages of a sole proprietorship? a. b. c. 24. If many firms (companies) are making products that are differentiated (similar, but not identical), these firms are operating in which market structure? 25. If you buy more of a product when your income increases (you have more money), then that product is a(n) _____________________ (normal/inferior-pick one) good to you. If you buy less of a product when your income increases (you have more money), then that product is a(n) ___________________ (normal/inferior-pick one) good to you. 26. What kind of monopoly are public utility companies? 27. What are the 5 main strengths (advantages) of partnerships? 28. What type of product is produced in a monopolistic competition market structure? 29. What type of product is produced in a monopoly market structure? 30. What type of product is produced in a perfect competition market structure? 31. If a business is owned and operated by a single individual, it is known as what type of business organization? 32. When Jack in the Box hamburgers caused 3 kids to die from e.coli poisoning, what was the reason for the sudden shift in demand? 33. If a lot of people move into Idaho all of a sudden, demand for houses will obviously ________________ (increase/decrease) because there is a change in ___________________________________________. 34. If a market is in equilibrium and supply increases, what will happen to the price of the good? 35. If a market is in equilibrium and supply decreases, what will happen to the price of the good? 36. What is the only thing that can limit a pure monopoly’s control over the price of their product? (Note the difference between a PURE monopoly and a NATURAL monopoly!!) 37. If rent on commercial buildings increases, why will supply decrease? (Hint: One of four specific reasons) 38. Who owns a corporation?