Unit Two: Understanding Markets

The law of demand states:

• There is a direct relationship between price and quantity demanded

• There is an inverse relationship between price and quantity demanded

• There is an inverse relationship between price and quantity supplied

• There is a direct relationship between price and quantity supplied

Why does the demand curve slope downward?

• Because of the substitution effect, income effect, and the law of diminishing marginal utility

• Because the supply curve slopes upwards

• Because of the five shifters of demand

• Because of the change in quantity demanded

The law of diminishing marginal utility states that

• Consumers will always control the market price

• As you continue to produce a given product, you will eventually spend more money on supply

• As you continue to consume a given product, you will eventually get less additional utility from each unit you consume

• As you continue to consume a given product, you will most likely get more additional utility from each unit you consume

There is a(n) _________ relationship between price and quantity supplied

The 5 shifters of supply include

• tastes/preferences, number of consumers, price of related goods, income, and expectations

• tastes/preferences, quantity demanded, price of related goods, income, and expectations

• number of consumers, taxes and subsidies, price of related goods, technology, and expectations

• prices of resources, number of producers, technology, taxes and subsidies, and expectations

The 5 shifters of demand include

• tastes/preferences, number of consumers, price of related goods, income, and expectations

• tastes/preferences, quantity demanded, price of related goods, income, and expectations

• number of consumers, taxes and subsidies, price of related goods, technology, and expectations

• prices of resources, number of producers, technology, taxes and subsidies, and expectations

What is a shortage in the market?

• When the quantity demanded is equal to the quantity supplied

• When the quantity supplied is greater than the quantity demanded

• When the quantity demanded is greater than the quantity supplied

• When the quantity demanded is less than the quantity supplied

What is market equilibrium

• When the quantity demanded is equal to the quantity supplied

• When the quantity supplied is greater than the quantity demanded

• When the quantity demanded is greater than the quantity supplied

• When the quantity demanded is less than the quantity supplied

What is market surplus

• When the quantity demanded is equal to the quantity supplied

• When the quantity supplied is greater than the quantity demanded

• When the quantity demanded is greater than the quantity supplied

• When the quantity demanded is less than the quantity supplied

What happens to the demand for a product when the price decreases?

• Demand shifts left

• Demand shifts right

• Quantity demanded decreases

• Nothing