What are complementary goods? Name two goods that are complements. What happens if the price of one of the complement goes up?
Answer Goods that go together. Bread – butter Cereal – milk DVD players – DVDs etc. If the price of one goes up demand for it and its complement will likely decrease
What is the substitution effect? Give examples of the substitution effect.
Answer If the price of a good increases people may switch to an available substitute. Or, if the price of a substitute decreases, people may switch to it. As price of hamburgers goes up, consumers will substitute chicken sandwiches instead. If the price of ethanol drops people will switch to it instead of gasoline.
Give 2 factors besides price (non-price factors) that can influence demand for a good.
Consumer taste/preference Market size Prices of related goods Income of consumers Future expectations
Which of the following is a graph of a demand curve and which a supply curve A.B.
If the government interferes in the economy by setting a price ceiling and that price is below the equilibrium price what will likely be the result ? A. Shortage A. Shortage B. Surplus B. Surplus C. Huge profit C. Huge profit
A.Shortage Reason - Producers will not increase supply due to the price ceiling.
How is total revenue figured at each price using a demand schedule?
Multiply price times the quantity demanded at that price.
Using the Total Revenue Test (called the total expenditure test in the text) if after a price increase if there is a decrease in total revenue there is A. Inelastic demand at that price B. Elastic demand at that price D. Variable total revenue Clue: demand decreased enough that total revenue decreased from what it was at the previous price.
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