Arrange yourselves into groups of no bigger than 4 individuals REVIEW 9/19/2014 Arrange yourselves into groups of no bigger than 4 individuals

Question 1 Why is Demand downward sloping? Why is Supply Upward Sloping?

Answer Demand is downward sloping because, as the price of a good or service increases, the demand for it decreases. Supply is upward sloping because, as the price of a good increases, suppliers want to supply more of that good.

Question 2 What is the difference between movement along the Demand curve or a shift in the Demand Curve

Answer Movement along a Demand Curve occurs when the price of a good changes. A Shift in the Demand Curve occurs when consumers decide that value a product more or less.

Question 3 What is scarcity and why is it important in economic discussions?

Answer Scarcity is the discussion of resources and the fact that there is a finite amount of them. This is important in a society because society has infinite wants but there are not enough resources to meet their needs. Some system of resource allocation has to take place.

Question 4 Technological improvements in the agriculture sector have what affect on the market for corn.

Answer Technological improvements in the agricultural sector cause the supply of Corn to increase because it has become cheaper to produce corn.

Question 5 What is a price ceiling? What is the result of a price ceiling in most circumstances?

Answer A price ceiling  When price charged is over or under the equilibrium price. (Almost every time, it is under! ) This results in a shortage because the quantity demanded is GREATER than the quantity supplied.

Question 6 Analyze what happens when the government raises the minimum wage to $20 when the equilibrium wage was at $8

Answer Because the equilibrium wage, set by the market, is below the minimum wage. The quantity demanded will be less than the quantity supplied which leads to a surplus in the labor market. This surplus represents a growing number of unemployed.

Question 7 Evaluate what will happen in the market for emergency supplies if the government issues a hurricane warning. Tell me how the “invisible hand” will act to work back towards the equilibrium price

Answer Because people will be afraid of the world coming to an end, the demand for emergency products will increase resulting in a greater quantity demanded at a higher equilibrium price. The invisible hand will respond by suppliers producing more emergency supplies which will drive down the price back towards the equilibrium quantity.

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