1. Chapter 4 and 5 Review

2. Describe a demand schedule and a demand curve. How are they alike?
A demand schedule is a list that shows quantities demanded. A demand curve shows them graphically.

3. Explain the principal of diminishing marginal utility.
As we use more of a product we become less willing to pay as much for it.

4. Describe the difference between the income effect and the substitution effect.
The income effect is a change in price that alters consumers real income. Sub effect- change in quantity demanded because of the relative price of the product.

5. Identify the five factors that can cause a change in demand?
Consumer income
Tastes
Substitutes and compliments
Expectations
# of consumers

6. What questions should you ask to determine if demand is elastic?
Can the purchase be delayed?
Are adequate substitutes available?
Does the purchase use a large portion of income?

7. What is meant by supply?
Quantities offered for sale at all possible prices.

8. Explain what is meant by a change in quantity supplied.
The change in the amount offered for sale in response to a price change.

9. Identify the factors that cause a change in supply.
Cost of inputs
Productivity
Technology
Numbers of sellers
Taxes and subsidies
Government regulations

10. Describe the law of Variable Proportions.
Output will change as one input is varied while others remain constant.

11. What is marginal product?
The extra output generated by adding one input.

12. Identify the three stages of production
Increasing returns
Diminishing returns
Negative returns

13. A change in the number of consumers can cause
a. the demand curve to shift. b. a substitution effect.
c. the market demand curve to shift. d. prices to fall.
The relationship between the change in price and total expenditures for an elastic demand curve is
a. variable. b. unit elastic. c. inverse. d. direct.

14. All of the following are determinants of demand elasticity EXCEPT
a. whether the purchase of the product can be delayed.
b. whether there are adequate substitutes for the product.
c. whether the purchase of the product requires a large portion of income.
d. whether the product has utility.

15. A company decreases the price of a gallon of milk by 10 percent and the company’s total revenues fall significantly. What term best describes the demand for milk?
a. elastic b. inelastic c. unit elastic d. demand elastic

16. All of the following products have relatively inelastic demand EXCEPT
a. a physician’s services. b. tobacco products. c. stereo equipment. d. prescription drugs.