Week on Eecon Questions

Chapter One

  1. What are the basic decision-making units in the economy?

      Supply, Demand and Market Equilibrium

  2. What are the relationships between these basic units? How does a circular flow diagram illustrate these relationships?

      The relationship between supply and demand underlies the forces behind the allocation of resources.

      When opportunity costs are high suppliers can’t produce more; however, if the demand is higher the price will rise.

  3. What do we mean by "quantity demanded?" What influences quantity demanded on the part of households?

      The amounts of product people are willing and able to buy at any given time. The price of the product influences the quantity demanded.

  4. What is the demand schedule for a product? What are the main features of a demand curve? What is the law of demand and how is it illustrated by demand curves?

      The demand schedule for a product is a table showing the number of units of a single type of good (or service) that potential purchasers would offer to buy at each of a number of varying prices during some particular time period.

      Law of Demand is as prices fall quantity demanded will rise and as prices rise the quantity demanded decreased.

  5. What can change the demand for a product? How does the demand curve react to changes in demand? What do we mean by normal goods? Inferior goods? Complementary goods? Substitute goods?

      The items that can change demand for a product include: preferences, population, prices of other goods and services, income and perceptions of future prices.

      Normal goods are quantity demanded for a particular good or service as a result a change in the given level of income.

      Inferior goods are the types of goods for which the demand declines as the level of income or real GDP in the economy increases. This occurs when a good has more costly substitutes that see an increase in demand as society’s economy...