Chapter 2: Demand, Supply, and Market Equilibrium

Question 1

Quantity Demanded

Answer 1

The amount of a good or service consumers are willing and able to purchase during a given period of time (week, month, etc.).

Question 2

General Demand Function

Answer 2

The relation between quantity demanded and the six factors that affect quantity demanded.

Question 3

Normal Good

Answer 3

A good or service for which an increase (decrease) in income causes consumers to demand more (less) of the good, holding all other variables in the general demand function constant.

Question 4

Inferior Good

Answer 4

A good or service for which an increase (decrease) in income causes consumers to demand less (more) of the good, all other factors in the general demand function held constant.

Question 5

Substitutes

Answer 5

Two goods are substitutes if an increase (decrease) in the price of one of the goods causes consumers to demand more (less) of the other good, holding all other factors constant.

Question 6

Complements

Answer 6

Two goods are complements if an increase (decrease) in the price of one of the goods causes consumers to demand less (more) of the other good, all other things held constant.

Question 7

Slope Parameters

Answer 7

Parameters in a linear function that measure the effect on the dependent variable of changing one of the independent variables while holding the rest of these variable constant.

Question 8

Direct Demand Function

Answer 8

A table, a graph, or an equation that shows how quantity demanded is related to product price, holding constant the five other variables that influence demand.

Question 9

Demand Schedule

Answer 9

A table showing a list of possible product prices and the corresponding quantities demanded.

Question 10

Demand Curve

Answer 10

A graph showing the relation between quantity demanded and price when all other variables influencing quantity demanded are held constant.

Question 11

Inverse Demand Function

Answer 11

The demand function when price is expressed as a function of quantity demanded.

Question 12

Demand Price

Answer 12

The maximum price consumers will pay for a specific amount of a good or service.

Question 13

Law of Demand

Answer 13

Quantity demanded increases when price falls, and quantity demanded decreases when price rises, other things held constant.

Question 14

Change in Quantity Demanded

Answer 14

A movement along a given demand curve that occurs when the price of the good changes, all else constant.

Question 15

Increase in Demand

Answer 15

A change in the demand function that causes an increase in quantity demanded at every price and is reflected by a rightward shift in the demand curve.

Question 16

Decrease in Demand

Answer 16

A change in the demand function that causes a decrease in quantity demanded at every price and is reflected by a leftward shift in the demand curve.

Question 17

Determinants of Demand

Answer 17

Variables that change the quantity demanded at each price and that determine where the demand curve is located.

Question 18

Change in Demand

Answer 18

A shift in demand, either leftward or rightward that occurs only when one of the five determinants of demand changes.

Question 19

Quantity Supplied

Answer 19

The amount of a good or service offered for sale during a given period of time (week, month, etc.).

Question 20

General Supply Function

Answer 20

The relation between quantity and the six factors that jointly affect quantity supplied.

Question 21

Substitutes in Production

Answer 21

Goods for which an increase in the price of another good causes producers to increase production of the now higher priced good and decrease production of the other good.

Question 22

Complements in Production

Answer 22

Goods for which an increase in the price of one good, relative to the price of another good, causes producers to increase production of both goods.

Question 23

Technology

Answer 23

The state of knowledge concerning the combination of resources to produce goods and services.

Question 24

Direct Supply Function

Answer 24

A table, a graph, or an equation that shows how quantity supplied is related to product price, holding constant the five other variables that influence supply.

Question 25

Determinants of Supply

Answer 25

Variable that cause a change in supply, (i.e., a shift in the supply curve).

Question 26

Changes in Quantity Supplied

Answer 26

A movement along a given supply curve that occurs when the price of a good changes, all else constant.

Question 27

Supply Schedule

Answer 27

A table showing a list of possible product prices and the corresponding quantities supplied.

Question 28

Supply Curve

Answer 28

A graph showing the relation between quantity supplied and price, when all other variables influencing quantity supplied are held constant.

Question 29

Inverse Supply Function

Answer 29

The supply function when price is expressed as a function of quantity supplied.

Question 30

Supply Price

Answer 30

The minimum price necessary to induce producers to offer a given quantity for sale.

Question 31

Increase in Supply

Answer 31

A change in the supply function that causes an increase in quantity supplied at every price, and is reflected by a rightward shift in the supply curve.

Question 32

Decrease in Supply

Answer 32

A change in the supply function that causes a decrease in quantity supplied at every price, and is reflected by a leftward shift in the supply curve.

Question 33

Market Equilibrium

Answer 33

A situation in which, at the prevailing price, consumers can buy all of a good they wish and producers can sell of the good they wish.

Question 34

Equilibrium Price

Answer 34

The price at which Qd=Qs

Question 35

Equilibrium Quantity

Answer 35

The amount of a good bought and sold in market equilibrium.

Question 36

Excess Supply (Surplus)

Answer 36

Exists when quantity supplied exceeds quantity demanded.

Question 37

Excess Demand (Shortage)

Answer 37

Exists when quantity demanded exceeds quantity supplied.

Question 38

Market Clearing Price

Answer 38

The price of a good at which buyers can purchase all they want and sellers can sell all they want at that price. This is another name for the equilibrium price.

Question 39

Economic Value

Answer 39

The maximum amount any buyer in the market is willing to pay for the unit, which is measured by the demand price for the unit of the good.

Question 40

Consumer Surplus

Answer 40

The difference between the economic value of a good (its demand price) and the market price the consumer must pay.

Question 41

Producer Surplus

Answer 41

For each unit supplied, the difference between market price and the minimum price producers would accept to supply the unit (its supply price).

Question 42

Social Surplus

Answer 42

The sum of consumer surplus and producer surplus, which is the area below demand and above supply over the range of output produced and consumed.

Question 43

Qualitative Forecast

Answer 43

A forecast that predicts both the direction and the magnitude of the change in an economic variable.

Question 44

Quantitative Forecast

Answer 44

A forecast that predicts both the direction and the magnitude of the change in an economic variable.

Question 45

Indeterminate

Answer 45

Term referring to the unpredictable change in either equilibrium price or quantity when the direction of change depends upon the relative magnitudes of the shifts in the demand and supply curves.

Question 46

Ceiling Price

Answer 46

The maximum price the government permits sellers to charge for a good. When this price is below equilibrium, a shortage occurs.

Question 47

Floor Price

Answer 47

The minimum price the government permits sellers to charge for a good. When this price is above equilibrium, a surplus occurs.