ECON 2020 CERTIFICATION EXAM
QUESTIONS AND VERIFIED
ANSWERS 2026
▶ Why do prices Changes?. Answer: 1. Government action
2. Shift in supply or demand
▶ Equilibrium(E) or Market Clearing Price (MCP). Answer: No shortages,
no surpluses, Qd=Qs, Point in which S/D intersect and P=Qd,Qs.
▶ Price vs cost. Answer: Price is what the buyer and seller agree upon,
cost is all the factors that go into production ie. time, energy, resources,
etc.
▶ Example of surplus. Answer: minimum wage
▶ example of shortage. Answer: rent control
▶ Effect of a price floor. Answer: surplus
▶ effect of a price ceiling. Answer: shortage
▶ what causes a shortage?. Answer: quantity supplied is less than
quantity demanded
▶ what causes a surplus. Answer: quantity supplied is more than quantity
demanded
▶ price elasticity of demand. Answer: Demand is fixed on Q no matter
what happens to price (Inelastic) or Demand is subject to shift according to
P (Elastic)
Remember
E on graph= elastic
I on graph= inelastic
, ▶ Price inelastic supply. Answer: Supply is fixed on Q no matter what
happens to price (Inelastic) or Supply is subject to shift according to P
(Elastic).
▶ Veblen Good. Answer: Luxury Status Symbol good- As P increases so
does D. ie. Picasso Paintings, Phantom Rolls Royce, Heart of the Sea
diamond.
▶ Giffen Good. Answer: Poverty in comparison good- As P increase so
does D but now only in relation to other goods. Ex) As the price of all
groceries increase you may buy more bread rather than meat b/c what you
get back for the same amount spent on bread will last longer than what you
would have spent on meat.
▶ price elasticity of demand. Elastic determinants?. Answer: many
substitutes
luxury goods
large portion of a consumer's budget, because the price change has a
bigger impact on the consumer's overall spending
long run-long period of time to adjust to price change
▶ price elasticity of demand: inelastic determinants?. Answer: Few to none
substitutes
necessities
small portion of a consumer's budget, because the price change has a
smaller impact on the consumer's overall spending
short run-short period of time to adjust to price change
▶ price elasticity of supply: elastic determinants?. Answer: products that
are easy to produce
product that require no special skill or technology, and use easily acquired
skills
▶ price elasticity of supply: inelastic determinants?. Answer: products that
take a long time to produce
products that depend upon techniques, materials, or human skills that are
hard to find or difficult to adjust. suppliers cannot increase production
rapidly and therefore cannot respond rapidly to changes in market prices.
QUESTIONS AND VERIFIED
ANSWERS 2026
▶ Why do prices Changes?. Answer: 1. Government action
2. Shift in supply or demand
▶ Equilibrium(E) or Market Clearing Price (MCP). Answer: No shortages,
no surpluses, Qd=Qs, Point in which S/D intersect and P=Qd,Qs.
▶ Price vs cost. Answer: Price is what the buyer and seller agree upon,
cost is all the factors that go into production ie. time, energy, resources,
etc.
▶ Example of surplus. Answer: minimum wage
▶ example of shortage. Answer: rent control
▶ Effect of a price floor. Answer: surplus
▶ effect of a price ceiling. Answer: shortage
▶ what causes a shortage?. Answer: quantity supplied is less than
quantity demanded
▶ what causes a surplus. Answer: quantity supplied is more than quantity
demanded
▶ price elasticity of demand. Answer: Demand is fixed on Q no matter
what happens to price (Inelastic) or Demand is subject to shift according to
P (Elastic)
Remember
E on graph= elastic
I on graph= inelastic
, ▶ Price inelastic supply. Answer: Supply is fixed on Q no matter what
happens to price (Inelastic) or Supply is subject to shift according to P
(Elastic).
▶ Veblen Good. Answer: Luxury Status Symbol good- As P increases so
does D. ie. Picasso Paintings, Phantom Rolls Royce, Heart of the Sea
diamond.
▶ Giffen Good. Answer: Poverty in comparison good- As P increase so
does D but now only in relation to other goods. Ex) As the price of all
groceries increase you may buy more bread rather than meat b/c what you
get back for the same amount spent on bread will last longer than what you
would have spent on meat.
▶ price elasticity of demand. Elastic determinants?. Answer: many
substitutes
luxury goods
large portion of a consumer's budget, because the price change has a
bigger impact on the consumer's overall spending
long run-long period of time to adjust to price change
▶ price elasticity of demand: inelastic determinants?. Answer: Few to none
substitutes
necessities
small portion of a consumer's budget, because the price change has a
smaller impact on the consumer's overall spending
short run-short period of time to adjust to price change
▶ price elasticity of supply: elastic determinants?. Answer: products that
are easy to produce
product that require no special skill or technology, and use easily acquired
skills
▶ price elasticity of supply: inelastic determinants?. Answer: products that
take a long time to produce
products that depend upon techniques, materials, or human skills that are
hard to find or difficult to adjust. suppliers cannot increase production
rapidly and therefore cannot respond rapidly to changes in market prices.
