Chapter 4: Supply and Demand

Question 1

market=

Answer 1

a group of buyers and sellers

Question 2

2 characteristics of a competitive market

Answer 2

• nobody on their own has a significant impact on the price

- the goods/ services being sold are virtually the same

Question 3

what is a price taker?

Answer 3

a price taker cannot choose the price they buy or sell at

Question 4

quantity demanded=

Answer 4

the amount of a good or service that consumers are willing to buy at a certain price

Question 5

The law of demand states that

Answer 5

as prices rise for a good/service, consumers will demand a lower quantity of it

Question 6

demand curves always have a ___ slope

Answer 6

negative

quantity always falls as price rises

Question 7

market demand=

Answer 7

the sum of the individual’s quantity demanded at each price

Question 8

how do we represent “non-price factors” on a demand curve?

Answer 8

illustrate them by shifting the demand curve

Question 9

“demand increases”=

Answer 9

demand curve has shifted right

Question 10

“quantity demanded increase”=

Answer 10

consumers buy more of a good/ service

- does not mean that the demand curve is shifting right b/c could be due to a decrease in price

Question 11

what are the 5 main non-price factors that can shift a demand curve

Answer 11

1. # of buyers
2. buyers’ income
3. prices of related goods
4. Buyers’ tastes/ preferences
5. buyers’ expectations

Question 12

an increase in the number of buyers will shift the demand curve ___

Answer 12

right

b/c quantity demanded at each price will increase

Question 13

if an increase in income causes increase in demand for a good/ service, that’s called:

Answer 13

normal good
(the normal case)

• eg vacations

Question 14

if an increase in income causes decrease in demand for a good, that’s called:

Answer 14

inferior good

- eg public transit

Question 15

2 goods are ___ if a rise in the price of one causes an increase in demand of the other

Answer 15

substitutes

eg. hotdogs and hamburgers

Question 16

2 good are ___ if the rise in price of one good causes the decrease in demand for the other product

Answer 16

complements

eg hotdogs and ketchup

Question 17

quantity supplied=

Answer 17

the amount of a good/ service sellers are willing to sell at a certain price

Question 18

the law of supply states that

Answer 18

as prices rise for a good/service, quantity supplied by sellers will increase

Question 19

supply curves will always have a ___ slope

Answer 19

positive

Question 20

market supply=

Answer 20

the sum of the individual seller’s quantity supplied at each price

Question 21

what are the 4 main non-price factors that can shift a supply curve?

Answer 21

1. input prices and technology
2. prices of related goods
3. sellers’ expectations
4. number of sellers

Question 22

technological innovation and a fall in input prices would cause the supply curve to shift ___

Answer 22

right

Question 23

2 goods are substitutes in production if:

Answer 23

a seller can produce either good with the same resources

Question 24

2 goods are complements in production if

Answer 24

they’re jointly produced using the same resource

ie. the production of one good automatically causes the production of another good, usually as a byproduct.

Question 25

Many Japanese dishes are based around a combination of rice and fish. If the price of rice falls, we would likely see:

a) the demand curve for rice shift right
b) a rise in the demand for fish.
c) no effect on the demand for either rice or fish since this is a common dish.
d) The demand for both rice and fish will rise.

Answer 25

b) a rise in the demand for fish

* why wouldn’t demand rise for rice as well?

Question 26

Which of the below would NOT shift the supply curve?

a) consumers choosing to buy less of a good.
b) Businesses’ believe the price of the goods they sell will fall.
c) the cost of production for a business has increased due to higher transportation costs.
d) The introduction of a new technology in production.

Answer 26

a) consumers choosing to buy less of a good