ECON (ENT) COURSE LESSON THREE. Supply and Demand. CHAPTER 7 Supply and Demand. Lesson Three Supply and Demand 93

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1 ECON (ENT) COURSE LESSON THREE Supply and Demand CHAPTER 7 Supply and Demand Lesson Three Supply and Demand 93

2 EXERCISES Matching (28 points) From the list below, select the term that matches each of the following statements. 1. amount of good or service that producers are willing and able to sell at various prices during a specified period 2. the price at which the amount producers are willing to supply is equal to the amount consumers are willing to buy 3. the amount of a good or service that a consumer is willing and able to buy at various prices during a specified period 4. quantity demanded and price move in opposite directions 5. ability of any good or service to satisfy wants 6. the distribution of goods and services based on something other than price 7. consumers responsiveness to a change in price 8. any use of land, labor, and capital that produces goods and services more efficiently 9. price and quantity supplied move in the same direction 10. condition where quantity demanded exceeds quantity supplied 11. condition where quantity supplied exceeds quantity demanded 12. a product often used with another product 13. if two items satisfy the same need and the price of one rises, consumers will buy the other 14. freely exchanging goods and services between buyers and sellers 15. underground or illegal market in which goods are traded at prices above their legal maximum prices or in which illegal goods are sold A. rationing B. elasticity C. utility D. equilibrium price E. law of supply F. shortage G. law of demand H. complementary good I. supply J. surplus K. demand L. technology M. market N. substitution effect O. black market 128 ECON (ENT) COURSE --Economics and the Free Enterprise System

3 Multiple Choice (32 points) 1. The law of states that as a person consumes additional units of a good, eventually the satisfaction gained from each additional unit of the good decreases. A. demand B. diminishing marginal utility C. supply and demand D. quantity demanded 2. When the demand curve shifts to the right, it indicates that buyers are willing and able to purchase of a good at the original price and at all other prices. A. less B. none C. all D. more 3. When demand is, the price change will not result in a substantial change in the quantity demanded. A. neutral B. elastic C. inelastic D. static 4. Important factors that can affect the elasticity of demand include the availability of substitutes, the percentage of income spent on a good, and A. the size of the good. B. competition. C. time given to adjust to price change. D. season. 5. According to the law of supply, the quantity supplied of a good rises when the of that good rises. A. elasticity B. price C. quality D. substitute 6. A leftward shift in a supply curve means that supply has A. increased. B. decreased. C. remained stable. D. neither decreased nor increased. 7. Important factors that can cause supply curves to shift include input prices, technology, and A. consumer preferences. B. taxes. C. imports. D. demand. Lesson Three Supply and Demand 129

4 8. Price is determined A. primarily by supply. B. by outside factors. C. primarily by demand. D. by supply and demand together. 9. A surplus will cause prices to A. rise suddenly. B. rise gradually. C. fall. D. remain constant. 10. A shortage will cause prices to A. remain constant. C. fluctuate. D. fall. 11. An equilibrium price A. rises with falling demand. B. rises with rising demand. C. should remain relatively stable. D. will reduce supply. 12. If nothing else changes, and the supply of a good rises, the price of that good will A. fall. C. remain constant. D. fluctuate. 13. If nothing else changes, and the supply of a good decreases, the price of that good will A. fall. C. fluctuate. D. remain constant. 14. Demand for one particular type of automobile is probably A. inelastic. B. substitutable. C. marginal utility. D. elastic. 15. When the price of a product is below its equilibrium, the result is A. surplus. B. shortage. C. black market. D. demand. 130 ECON (ENT) COURSE --Economics and the Free Enterprise System

5 16. Typically, a good that has no substitutes will have A. no value. B. no demand. C. very inelastic demand. D. very elastic demand. 17. If nothing else changes, and price of a good falls, the supply of that will A. rise. B. fall. C. remain constant. D. fluctuate. 18. Taxes, input prices, and technology are important factors that can cause a(n) curve to shift. A. supply B. demand C. equilibrium. D. probability Graph Interpretation (9 points) Use the following map to answer the questions below. 1. At a price of $15 a unit, how many units are consumers willing to buy? 2. At a price of $5 a unit, how many units are suppliers willing to supply? 3. What is the equilibrium price shown? Lesson Three Supply and Demand 131