Question

word bank: inferior, shortage, surplus, up, inelastic, inelastic, decreases, decreases, decrease, increases, increases, increase, complementary, substitute, surplus, down, regressive, progressive, equilibrium, normal, shortage

1. the law of demand states that as the price of a good increases, the quantity demanded ______________.
2. the law of supply states that as the price of a good increases, the quantity supplied ______________.
3. chips and salsa are ____________ products, therefore as the price of chips decreases, the demand for salsa will __________. butter and margarine are __________ products, therefore as the price of butter decreases, the demand for margarine will ____________.
4. if the quantity supplied is greater than the quantity demanded, a ____________ has been created. as a result, the price of the product will go __________. if the quantity demanded is greater than the quantity supplied, a __________ has been created. therefore, the price of the good will go ____________.
5. a price floor (minimum wage), set above the equilibrium, will cause a ____________. a price ceiling (rent control), set below equilibrium will cause a ____________.
6. on the supply and demand graph, the point where supply and demand intersect is called ______________. this is the point where buyers will purchase exactly the same amount as sellers are willing to provide.
7. if income increases, demand for ____________ goods will increase. if income increases, demand for ____________ goods will decrease.
8. technology always ____________ supply, whereas taxes always ____________ supply.
9. in the united states, we have a ______________ tax system. this means that the percentage we pay in taxes increases as income increases.

Explanation:

1. According to the Law of Demand, price and quantity demanded have an inverse relationship. So as price increases, quantity demanded decreases.
2. The Law of Supply states a direct relationship between price and quantity supplied, so as price increases, quantity supplied increases.
3. Chips and salsa are complementary (used together), so lower chip price increases salsa demand. Butter and margarine are substitutes (replace each other), so lower butter price decreases margarine demand.
4. Supply > Demand creates surplus, price goes down. Demand > Supply creates shortage, price goes up.
5. Price floor above equilibrium causes surplus (excess supply). Price ceiling below equilibrium causes shortage (excess demand).
6. The intersection of supply and demand is equilibrium, where quantity demanded = quantity supplied.
7. Normal goods: demand increases with income. Inferior goods: demand decreases with income.
8. Technology improves production, increasing supply. Taxes increase production costs, decreasing supply.
9. Progressive tax: tax rate increases with income (like US income tax structure).

Answer:

1. decreases
2. increases
3. complementary; increase; substitute; decrease
4. surplus; down; shortage; up
5. surplus; shortage
6. equilibrium
7. normal; inferior
8. increases; decreases
9. progressive