chapter 3

Question 1

Market

Answer 1

large numbers of independently acting buyers and seller come together to buy and sell standardized products

Question 2

demand

Answer 2

A schedule or curve that shows the various amounts of a product that consumers are willing and able to purchase at each of a series of possible prices during a specified period of time

Question 3

law of demand

Answer 3

The principle that, other things equal, an increase in a product’s price will reduce the quantity of it demanded, and conversely for a decrease in price

Question 4

As price falls

Answer 4

quantity demanded rises

Question 5

As price rises

Answer 5

quantity demanded falls

Question 6

what kind of relationship is there between price and quantity demanded

Answer 6

negative or inverse (low of demand)

Question 7

diminishing marginal utility

Answer 7

The principle that as a consumer increases the consumption of a good or service, the marginal utility (satisfaction) obtained from each additional unit of the good or service decreases.

Question 8

Income effect

Answer 8

A change in the quantity demanded of a product that results from the change in real income (purchasing power) caused by a change in the product’s price.

Question 9

substitution effect

Answer 9

suggest that buyers have an incentive to substitute a produce whose price has fallen for other products whose prices have remained the same

Question 10

demand curve

Answer 10

its downward slop reflect the law of demand - people buy more of a product, service, or resource as its price falls

increase in demand- rightward shift

decrease in demand- leftward shift

Question 11

Determinants of demand

Answer 11

1. consumers’ tastes (preferences)
2. the number of buyers in the markets
3. consumers’ incomes
4. The prices of related goods
5. Consumer expectations

Question 12

Number of buyers and how it affects demand

Answer 12

increase buyers: increase in demand

decrease buyers: decrease in demand

Question 13

Normal goods

Answer 13

a good whose consumption increases when income increases and falls when income decreases

Question 14

inferior good

Answer 14

a good or service whose consumption declines as income rises

charcoal grills consumption decreases because you can afford a gas grill

Question 15

substitute good

Answer 15

one that can be used in place of another good

Haagen-dazs ice cream and ben and Jerry’s

Question 16

complementary good

Answer 16

one that is used together with another good

lettuce and salad dressing

Question 17

unrelated goods

Answer 17

independent goods

butter and golf balls

no effect on each other

Question 18

Change in demand

Answer 18

shift of demand curve

Question 19

Change in quantity demanded

Answer 19

movement from point a to b represent change in quantity demanded

Question 20

equilibrium price

Answer 20

price where intentions of buyer and seller match

price at which quantity demanded and quantity supplied are equal

Question 21

equilibrium quantity

Answer 21

quantity at which intentions of buyers and sellers match

quantity at which quantity demanded equals quantity supplied

Question 22

surplus

Answer 22

The amount by which the quantity supplied of a product exceeds the quantity demanded at a specific (above-equilibrium) price

Question 23

shortage

Answer 23

The amount by which the quantity demanded of a product exceeds the quantity supplied at a particular (below-equilibrium) price.

Question 24

rationing of prices

Answer 24

ability of the forces of supply and demand to establish a price at which selling and buying decisions are consistent, so there is no shortage or surplus

Ex:

Question 25

seller's supply curves show a _____relationship between price and quantity supplied

Answer 25

positive

Question 26

market equilibrium generates -productive efficiency-

Answer 26

The production of a good in the least costly way

Question 27

market equilibrium generates -allocative efficiency-

Answer 27

producing the right amount of the product relative to other profits

Question 28

a decrease in demand _____ both equilibrium price and quantity

Answer 28

decreases

Question 29

a decrease in supply ______equilibrium price

Answer 29

increases

Question 30

a decrease in supply ______ equilibrium quantity

Answer 30

decreases

Question 31

price ceiling

Answer 31

a legally established maximum price for a good or service; set at or below the equilibrium price, usually set below ex: rent may cause problems on supply side because owners of apartments might not profit as much off rent money that much

Question 32

price floor

Answer 32

a legally established minimum price for good or service; normally set at at a price above the equilibrium

Question 33

Demand effect on equilibrium price and quantity

Answer 33

a increase in demand increases equilibrium price and quantity; a decrease in demand decreases equilibrium price and quantity

Question 34

supply

Answer 34

A schedule or curve that shows the various amounts of a product that producers are willing and able to make available for sale at each of a series of possible prices during a specified period of time.

Question 35

law of supply

Answer 35

increase in price; increase supply decrease in price; decrease quantity supplied seller has greater incentive when price is increase, so they will supply more products

Question 36

determinants of supply

Answer 36

1. resource prices 2. technology 3. taxes 4. prices of other goods 5. producers expectations 6 number of sellers in the market

Question 37

change in supply

Answer 37

shift of the supply curve; an increase in supply (right) a decrease in supply (left)

Question 38

a change in quantity supplied

Answer 38

movement from a to b cause of movement is a change in price of the specific product considered