APPECO Midterms

• What does the Law of Demand state?

  If the price of a product decreases, the quantity demanded will increase, ceteris paribus.
• What does "ceteris paribus" mean in the context of the Law of Demand?

  It means that other factors like income, consumer preferences, and prices of related goods remain constant.
• What happens to quantity demanded as the price of a good increases?

  The quantity demanded decreases, holding other factors constant.
• What is the definition of supply?

  Supply is the quantity of a commodity that producers are willing and able to sell at various prices over a certain period.
• What is the definition of demand?

  Demand is the quantity of a commodity that consumers are willing and able to purchase at various prices during the same period.
• What does the Law of Supply state?

  If the price of a product increases, the quantity supplied will increase, ceteris paribus.
• What happens to quantity supplied as the price of a good increases?

  The quantity supplied increases, holding other factors constant.
• How does a government subsidy for electric cars affect demand?

  It reduces the overall price, leading to an increase in demand for electric vehicles.
• What was the effect of increased demand for face masks during the COVID-19 pandemic?

  Manufacturers increased production to meet demand, encouraged by higher prices.
• Why do companies produce more holiday decorations as Christmas approaches?

  Due to the expectation of high demand.
• What happens to the supply of holiday decorations after the Christmas season passes?

  The supply decreases as prices drop.
• What will cocoa farmers likely do if the price of cocoa rises due to increased global demand for chocolate?

  They will likely plant more cocoa trees to increase supply.
• What is the effect of a gym reducing its membership fees on demand?

  More people will join, leading to an increase in demand for memberships.
• What happens to demand for air conditioning units during the summer if prices rise?

  Fewer people are willing to purchase them.
• What happens to demand for air conditioning units when sales or discounts are offered during the offseason?

  Demand increases as people buy them at reduced prices for future use.
• What is the equilibrium price?


  The price at which the quantity of a commodity supplied equals the quantity demanded.
• What is the equilibrium quantity?

  The amount of a good or service bought and sold at the equilibrium price.
• What happens to equilibrium price and quantity when supply or demand changes?

  They will adjust accordingly.
• How does an increase in consumer income affect demand for most basic commodities?

  Demand typically increases.
• How do substitute and complement goods influence demand?

  The availability and prices of related goods can influence demand.
• How do changes in consumer preferences affect demand?

  Changes in taste or trends affect demand.
• What happens to demand if consumers expect prices to rise in the future?

  Demand might increase in the present.
• How do changes in production costs affect supply?

  Changes in the cost of inputs affect supply.
• How can improvements in technology affect supply?

  They can increase supply by making production more efficient.
• What impact do natural events have on supply?

  They can disrupt supply chains.
• How can government policies affect supply?

  Taxes, subsidies, and regulations can increase or decrease supply.
• What is a price ceiling?

  A maximum price set by the government, intended to make goods more affordable but can lead to shortages.
• What is a price floor?

  A minimum price, often used in agriculture, which can lead to surpluses if set above the equilibrium price.
• What are the key factors that can influence demand?

  • Income Levels
  • Substitute and Complement Goods
  • Consumer Preferences
  • Expectations of Future Prices
• What are the key factors that can influence supply?

  • Production Costs
  • Technology
  • Natural Events
  • Government Policies
• What is the exchange rate?

  It serves as the basic link between the local and the overseas market for various goods, services, and financial assets.
• Why is the exchange rate important?

  It affects inflation and expectations about future price movements.
• How do exchange rate movements impact the country's external sector?

  They affect foreign trade.
• In what way does the exchange rate affect foreign debt servicing?

  It affects the cost of servicing principal and interest payments on the country’s foreign debt.
• What historical agreement is associated with the dollar as an internal currency?

  The 1944 Bretton Woods Agreement.
• What happened to the Bretton Woods Agreement?


  It eventually fell apart.
• What are the options for exchange rate systems after the fall of the Bretton Woods Agreement?


  • Fixed Rates: Value determined by the central bank.
  • Floating Rates: Determined by market forces of supply and demand.
  • Managed Rates: A mix of both fixed and floating rates.
• What defines fixed exchange rates?

  The value of the currency is determined by the nation's central bank and held in place by central bank actions.
• How are floating exchange rates determined?

  By market forces of supply and demand.
• What are managed exchange rates?


  A mix of both fixed and floating rates.