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ESLG 000- Midterm Exam Guide - Comprehensive Notes for the exam ( 13 pages long!)


Department
English as a Second Language
Course Code
ESLG 000
Professor
Berry David
Study Guide
Midterm

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Xavier
ESLG 000
MIDTERM EXAM
STUDY GUIDE

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1. What is the difference between the money price and the relative price?
-The money price of a good is the number of dinars that must be given up in exchange for
it. The money price of a bag is 5 dinars.
-The relative price is the highest value thing you give up when you buy a good
(the opportunity cost). It is calculated as the following:
If the money price of a meal 2 BD and the money price of a cup of coffee 1 BD. Then the
relative price of a meal is 2/1 cups of coffee (we divide the money price of a meal by the
money price of a cup of coffee) and the relative price of a cup of coffee is ½ meal (we
divide the money price of a cup of coffee by the money price of a meal).
-The theory of demand and supply refers to relative prices. When we say a fall in price
of a good, we mean that its relative price decreased relative to the average price of other
goods and services.
2. The Demand
Demand equation= Qd = A - B P
-The demand curve or schedule shows the entire relationship between the price of a good
and the quantity demanded of the same good.
- The quantity demanded of a good or service is the amount that consumers plan to buy
during a given period at a particular price.
- According to the law of demand, other things remaining the same, the higher the price of
a good, the smaller is the quantity demanded; and the lower the price of a good, the
greater is the quantity demanded.
- There are three conditions for the demand. If you demand something, then you:
1. want it,
2. can afford it, and
3. plan to buy it.
4. Willing to buy
3. Why there is a negative relationship between the price and the quantity demanded?
For two reasons:
1. Substitution effect
Other things remaining the same, as the price (opportunity cost) of a good rises, people buy
less of that good and more of its substitutes.
2. Income effect
Other things remaining the same, as the price rises and people’s income remains unchanged,
people must decrease the quantities demanded of the good.
4. What is the difference between a change in the demand and a change in the quantity
demanded of a good?
A.
-The demand for a good (D) is the entire relationship between all possible prices and the
quantities that people demand at every possible price.
-The demand is represented by the demand curve.
-If the demand increases the demand curve shifts to the right.
-If the demand decreases, the demand curve shifts to the left.
- Many factors cause the demand for a good to increase or decrease, these factors include:
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1. The price of a substitute in consumption has a positive relationship with the
demand for a good. For example if the price of coke increases, the demand for Pepsi
increases; and if the price of coke decreases, the demand for Pepsi decreases.
2. The price of a complement in consumption has a negative relationship with the
demand for a good. For example if the price of CDs increases, the demand for CD
players decreases, and if the price of CDs decreases, the demand for CD players
increases.
3. Income has a positive relationship with the demand for normal goods and a negative
relationship with the demand for inferior goods. For example if income increases the
demand for normal and good quality coffee increases and the demand for low quality
coffee decreases.
4. The numbers of buyers and preferences have a positive relationship with the
demand for a good. For example a decrease in the number of buyers or a decrease in
preferences decrease the demand for sport cars.
5. Expected future prices of a good by consumers have a positive relationship with the
demand for a good. For example if buyers expect the price of a computer will
decrease in the future, the demand now for computers decreases; and if buyers expect
the price of a computer will increase in the future, the demand now for computers
increases.
B.
-The quantity demanded (QD) of a good is a point on the demand curve.
- A change in the quantity demanded is a movement from one point to another on the same
curve.
-An increase in the price of the good itself causes a movement up on the demand curve
and a decrease in the quantity demanded. For example if the price of orange per kilo
increases the quantity demanded of oranges decreases.
-A decrease in the price of the good itself causes a movement down on the demand curve
and an increase in the quantity demanded. For example if the price of orange per kilo
decreases the quantity demanded of oranges increases.
6. The Supply
Supply equation= Qs = C + D P
-The supply curve or schedule shows the entire relationship between the price of a good
and the quantity supplied of the same good.
-The supply curve shows us the minimum-supply price at which suppliers are willing to
sell one more unit. The demand curve shows us the maximum price consumers are
willing to pay for additional unit (marginal benefit).
-The quantity supplied of a good or service is the amount that producers (sellers-suppliers)
plan to sell during a given period at a particular price.
-According to the law of supply, other things remaining the same, the higher the price of a
good, the higher is the quantity supplied; and the lower the price of a good, the lower is
the quantity supplied.
- There are three conditions for the supply of a good. The firm must:
5. have the resources and technology to produce it,
6. be able to profit from producing it, and
7. plan to produce it and sell it.
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