ECONOMICS Test Study Guide

Unit 3 - How Markets Work

Below is a list of topics that will be covered on the Unit 3 test. Remember, the
unit test is open book and open notes, so feel free to reference this document
along with your unit notes and your course content when answering test
questions.

Circular Flow of the Economy

Who are the economic actors?
What are the two markets?
What flows in those markets?
“Ceteris paribus”
Law of Demand
Income effect
Substitution effect
Changes in Demand
Factors that cause changes
How curves shift
Law of Supply
Changes in Supply
Factors that cause changes
How curves shift
Costs of Production
Fixed
Variable
Marginal
Marginal costs vs. Marginal product
Complements and Substitutes
How each impacts demand
Disequilibrium
The two kinds
How markets react (How supply reacts…how demand reacts)
Classical Economists’ Views of Markets and Government vs. Keynesian
“The Invisible Hand”
Market structures
Perfect competition
Monopoly
Monopolistic competition
Oligopoly

TEST ESSAY QUESTIONS:

1. Price controls on rents are frequently implemented by governments in an
effort to protect renters from high housing prices. Differentiate the type
of price control used from other potential price controls, and then
formulate reasons as to why governments should be careful when
 implementing these types of controls. Terms to include in your response
are price ceiling, price floor, market equilibrium price, and shortages.
2. Compare the major antitrust acts of the United States. Specify the intent
and purpose of each, and draw conclusions about their effectiveness. You
will discuss the following:
i. Sherman Antitrust Act
ii. Clayton Antitrust Act
iii. Federal trade Commission Act
2. Compare monopolistic competition and monopoly.

ADDITIONAL STUDY TIPS

● Try to graph all the possible shifts for each determinant of supply and
demand.
● Rework problems from lessons on your own.
● Make flashcards to test yourself on the different market structures and
laws and regulations.
● Teach a friend or family member how to set up a supply or demand
graph.