1.2 How markets work Flashcards
(35 cards)
What is a market?
A market is a place where buyers and sellers come together to exchange goods and services.
What does ‘demand’ refer to in economics?
Demand refers to the quantity of a good or service that consumers are willing and able to purchase at different prices.
True or False: An increase in price usually leads to a decrease in the quantity demanded.
True
What is ‘supply’ in economic terms?
Supply is the quantity of a good or service that producers are willing and able to sell at different prices.
What is the law of demand?
The law of demand states that, all else being equal, as the price of a good decreases, the quantity demanded increases, and vice versa.
What does a rightward shift in the demand curve indicate?
A rightward shift in the demand curve indicates an increase in demand at all price levels.
What is ‘market equilibrium’?
Market equilibrium is the state where the quantity demanded equals the quantity supplied at a particular price.
True or False: A surplus occurs when quantity supplied exceeds quantity demanded.
True
What is a ‘shortage’ in a market?
A shortage occurs when the quantity demanded exceeds the quantity supplied at a given price.
What is the effect of a leftward shift in the supply curve?
A leftward shift in the supply curve indicates a decrease in supply at all price levels.
Multiple Choice: Which of the following factors can cause a shift in the demand curve? A) Consumer preferences B) Price of substitutes C) Income levels D) All of the above
D) All of the above
What is a ‘price ceiling’?
A price ceiling is a maximum price set by the government, above which a good or service cannot be sold.
What is a ‘price floor’?
A price floor is a minimum price set by the government, below which a good or service cannot be sold.
True or False: Price ceilings can lead to shortages.
True
What role do ‘substitutes’ play in demand?
Substitutes are goods that can replace each other; an increase in the price of one can lead to an increase in demand for the other.
What is ‘elasticity of demand’?
Elasticity of demand measures how much the quantity demanded of a good responds to a change in its price.
Fill in the blank: If the elasticity of demand is greater than 1, the demand is considered ______.
elastic
What does ‘inelastic demand’ mean?
Inelastic demand means that the quantity demanded changes little when the price changes.
Multiple Choice: What is likely to happen to the supply of a good if production costs decrease? A) Supply decreases B) Supply increases C) No change D) Supply becomes elastic
B) Supply increases
What is the ‘law of supply’?
The law of supply states that, all else being equal, as the price of a good increases, the quantity supplied increases, and vice versa.
What is ‘consumer surplus’?
Consumer surplus is the difference between what consumers are willing to pay for a good and what they actually pay.
What is ‘producer surplus’?
Producer surplus is the difference between what producers are willing to accept for a good and the actual price they receive.
True or False: An increase in consumer income will always increase the demand for inferior goods.
False
What is a ‘normal good’?
A normal good is a good for which demand increases as consumer income rises.
