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BIG PICTURE IDEAS

#1. The law of demand shows a .. relationship between price and quantity demanded and the law of supply
shows a .. relationship between price and the quantity supplied.
#2. .. measures the responsiveness of one economic variable to a change in another.
#3. .. surplus, producer surplus, and .. loss are used to analyze the
e ciency and welfare effects of a market.
#4. A .. and .. graph shows the equilibrium price and equilibrium quantity and
can be used to predict and analyze changes in a market.
#5. The effects of .. intervention, like taxes, subsidies, tariffs, and .. controls,
can be analyzed using supply and demand.

Topic 2.1- Demand Topic 2.2- Supply

1. The law of demand states there is an inverse (or negative) 7. The law of supply states there is a direct (or positive)
relationship between . . and relationship between . . and
. .. . ..
2. Why is the market demand curve downward sloping? 8. Why is the market supply curve upward-sloping?

3. What are the five shifters of demand? 9. What are the five shifters of supply?

4. Goods A and B are substitutes. An increase in the price of Good A 10. Good X is an input of Good Z. A decrease in the price of Good X
will cause the demand for Good B to .. will cause the supply of Good Z to ..
5. . are bought and used together. 11. An excise tax on Good A will cause the supply to
6. Good X is an inferior good. An increase in incomes will cause the . and shift to the ..
demand for X to .. 12. . are government payments to sellers.

Topic 2.3- Price Elasticity of Demand

13. Identify the price elasticity of demand (PED) equation. 14. Draw an inelastic demand curve 15. Draw an elastic demand curve

16. List three characteristics of goods with inelastic demand.

17. What is the price elasticity of demand coe cient for a good
with perfectly inelastic demand?

18. If the price of Good Y increased from $10 to $12 and the quantity 19. Use the total revenue test to fill in the blanks with ↑ or ↓.
demanded decreased from 200 to 150, what is the price elasticity of Inelastic Demand Elastic Demand
demand coe cient? Show your work. Price ↑, TR . Price ↑, TR .
Price ↓, TR . Price ↓, TR .
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Topic 2.4- Price Elasticity of Supply Topic 2.5- Other Elasticities

20. Identify the price elasticity of supply (PES) equation. 24. Cross-price elasticity of demand (XED) is used to determine if
two goods are . or
..
21. List three characteristics of goods with inelastic supply. 25. Identify the cross-price elasticity of demand (XED) equation.

22. If the price of Good X increased from $10 to $15 and the quantity 26. Income elasticity of demand (YED) is used to determine if a
supplied increased from 200 to 250, what is the price elasticity good is . or ..
of supply coe cient? Show your work. 27. Identify the income elasticity of demand (YED) equation.

28. True or False: If the income elasticity of Good X is .5 then it is an

23. True or False: The total revenue test cannot be used to inferior good.
determine if the supply is elastic or inelastic. 29. True or False: If the XED is positive for substitutes.

Topic 2.6- Equilibrium and Consumer and Producer Surplus

30. Define consumer surplus (CS). 31. Define producer surplus (PS).

32. Define deadweight loss (DWL).

33. Calculate the CS at the equilibrium price. Show your work.

34. Calculate the CS if the price was $12. Show your work.

35. Calculate the deadweight loss if the market produced only 20 units.

Topic 2.7- Market Disequilibrium and Changes in Equilibrium

Graph #1 Graph #2
36. Draw a shortage on graph #1. Label the price (P1)
and quantity supplied (Qs) and demanded (Qd).
37. Draw a surplus on graph #2. Label the price (P2)
and quantity supplied (Qs) and demanded (Qd)
38. If market forces begin to return graph #2 to
equilibrium the quantity demanded will
. and quantity supplied
will ..

39. A change in . does not shift the demand curve or the supply curves. Instead, it moves along the curves.
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Topic 2.7- Market Disequilibrium and Changes in Equilibrium (continued)

40. Draw a demand increase 41. Draw a demand decrease 44. What is the double shift rule?

45. Draw an increase in demand AND an increase

in supply. What happens to the equilibrium
price and quantity?

42. Draw a supply increase 43. Draw a supply decrease

Use the market for pizza to the left to complete the following:
46. Calculate the amount of the shortage when the price is $8.

47. Calculate the amount of the surplus when the price is $11.

48. Identify a specific scenario that would cause the equilibrium price to increase
and the equilibrium quantity to decrease.

49. Identify a specific scenario that would cause the equilibrium price and quantity
to decrease.

50. Explain the difference between a change in demand and a change in quantity
demanded.

51. For each scenario, identify the initial change (↑, ↓, or no change) in demand or supply, price, and quantity of electric cars.
Scenario Demand Supply Price Quantity
Increase in the price of gas-powered cars, a substitute for electric cars
The effect on car manufactures from a significant increase in the price of labor
Decrease in global incomes discourages foreigners from purchasing electric cars
Decrease in the price of robotic technology used to produce electric cars
A decrease in the number of companies manufacturing electric cars
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Topic 2.8- Government Intervention

52. What is a price ceiling? 54. What is a price floor?

53. A binding price ceiling must go . the 55. A binding price floor must go . the
equilibrium price and results in a .. equilibrium price and results in a ..
Calculate the following assuming the equilibrium price is $10.
56. Consumer surplus (CS).
57. Producer surplus (PS).
58. CS if a price ceiling is placed at $12.
59. CS if a price floor is placed at $12.
Calculate the following after the tax is imposed. Show your work.
60. The tax per unit.
61. CS after tax.
62. PS after tax.
63. Deadweight loss.
64. Total tax revenue.
65. Total spending by buyers.
66. Total revenue to sellers.
67. Total amount of tax buyers pay.
68. Total amount of tax sellers pay.
69. Is the demand curve between $12 and $10 elastic, inelastic, or unit 71. For each scenario, do buyers or sellers pay more of a tax?
elastic? Explain. Demand is more inelastic than supply
Demand and supply have the same elasticity
70. Calculate the elasticity of supply coe cient as price increases from Supply is more inelastic than demand
$10 to $12. Show your work. Demand is perfectly inelastic
Supply is perfectly inelastic

Topics 2.9- International Trade and Public Policy

The domestic market for rice Calculate the following at the equilibrium price. Show your work.
72. Consumer surplus.
73. Producer surplus.
Calculate the following if this country buys rice from other countries at the world price of
$7. Show your work.
74. Quantity produced domestically.
75. Quantity imported.
76. Consumer surplus.
77. Producer surplus.
Identify the following if the government places a $1 tariff on rice. Show your work.
78. Consumer surplus.
79. Tariff revenue.
80. Deadweight loss.
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