Chapter 3

Question 1

Define competitive market

Answer 1

has many buyers and sellers of the same good or service, none of whom can influence the price

Question 2

define supply and demand model

Answer 2

model of how a competitive market behaves

Question 3

what are the 5 key elements of a supply and demand model

Answer 3

The demand curve, the supply curve, factors that shift the demand and supply curve, the market equilibrium, changes in the market equilibrium

Question 4

define demand schedule

Answer 4

a table showing how much of a good or service consumers will want to buy at different prices

Question 5

define demand curve

Answer 5

shows the quantity demanded at various prices

Question 6

define quantity demanded

Answer 6

quantity that buyers are willing to purchase at a particular price

Question 7

define the law of demand

Answer 7

a higher price for a good leads people to demand a smaller quantity of that good.

Question 8

a rightward shift of the demand curve means an __________ in demand

Answer 8

increase

Question 9

a leftward shift of the demand curve means a ________ in demand

Answer 9

decrease

Question 10

what is the different between movement along the vs shift in demand

Answer 10

Along: when price alone changes, there is a movement along a demand curve
Shift: people are buying more or less at every price

Question 11

what are the 5 factors that shift the demand curve

Answer 11

1. changes in the prices or related goods or services.
2. Changes in income
3. changes in taste
4. changes in expectations
5. changes in the number of consumers

Question 12

two goods are compliments when

Answer 12

a decrease in the price of one good leads to an increase in the demand for the other (or vice versa).

Question 13

the effect of changes in income on demand depend on the nature of the good in question. What are the two?

Answer 13

a normal good and an inferior good

Question 14

A ________ good: demand increases when income increases

Answer 14

normal

Question 15

An ____________ good: demand decreases when income increases.

Answer 15

inferior

Question 16

changes in taste include

Answer 16

seasonal changes or fads have predictable effects on demand

Question 17

If consumers have a choice about the timing of a purchase, they buy accordingly to __________

Answer 17

expectations

Question 18

describe how demand is effected by changes in the number of consumers

Answer 18

as the population of an economy changes, the number of buyers of a particular good also changes, thereby changing its demand

Question 19

define supply schedule

Answer 19

shows how much of a good or service would be supplied at different prices

Question 20

define supply curve

Answer 20

shows the quantity supplied at various prices

Question 21

define quantity supplied

Answer 21

quantity that producers are willing and able to sell at a particular price

Question 22

a rightward shift of the supply curve means an _________ in supply

Answer 22

increase

Question 23

a leftward shift of the supply curve means a ___________ in supply

Answer 23

decrease

Question 24

what are the 5 things that shift supply

Answer 24

1. changes in input price
2. changes in the prices of related goods or services
3. changes in technology
4. changes in expectations
5. changes in the number of producers

Question 25

does supply increase or decrease when an increase in the price of an input makes the production more costly for sellers

Answer 25

supply decreases

Question 26

does supply increase or decrease when A fall in the price of an input makes the production less costly for sellers.

Answer 26

supply increases

Question 27

Inputs used in production have opportunity costs. Sellers will choose to use inputs whose profit is the ________.

Answer 27

highest

Question 28

describe how change in technology changes supply

Answer 28

New, better technology enables producers to spend less on inputs, yet still produce the same amount of output. Supply increases.

Question 29

describe how changes in expectations shift supply

Answer 29

The expectation of a higher price for a good in the future decreases the current supply of the good—if sellers can store the good (and vice versa).

Question 30

describe how changes in number or producers shift supply

Answer 30

As producers enter and exit the market, the overall supply changes. Entry implies more sellers in the market, increasing supply. Exit implies fewer sellers in the market, decreasing supply

Question 31

when is the market in equilibrium? related to Qs, Qd

Answer 31

When Qs = Qd at a certain price. That is, the amount consumers would purchase at this price is matched exactly by the amount producers wish to sell.

Question 32

describe a surplus

Answer 32

There is a surplus of a good when the quantity supplied exceeds the quantity demanded. Surpluses occur when the price is above its equilibrium level. Surpluses do not last: sellers will reduce price so they can move goods off the shelves.

Question 33

describe shortage

Answer 33

There is a shortage when the quantity demanded exceeds the quantity supplied. Shortages occur when the price is below its equilibrium level. Shortages do not last: sellers will realize that they can charge higher prices.

Question 34

An increase in demand leads to a movement along the supply curve to a _________ equilibrium price and _________ equilibrium quantity

Answer 34

higher, higher

Question 35

An increase in supply leads to a movement along the demand curve to a ________ equilibrium price and ________ equilibrium quantity.

Answer 35

lower, higher

Question 36

If the decrease in demand is relatively larger than the increase in supply, the equilibrium price and quantity _____.

Answer 36

fall

Question 37

If the increase in supply is large relative to the decrease in demand, the equilibrium quantity ______ as the equilibrium price _____

Answer 37

rises, falls

Question 38

simultaneous shifts in demand and supply: demand increases and supply increases

Answer 38

quantity increases, but price change is ambiguous

Question 39

simultaneous shifts in demand and supply: demand increases and supply decreases

Answer 39

price increases, but quantity change is ambiguous

Question 40

simultaneous shifts in demand and supply: demand decreases and supply increases

Answer 40

prices decreases, but quantity change is ambiguous

Question 41

simultaneous shifts in demand and supply: demand decreases and supply decreases

Answer 41

quantity decreases, but price change is ambiguous

Question 42

give an example of substitutes

Answer 42

its an either or decision. If we usually by apples, but they are expensive we can buy pears because their cheaper. When substitute product becomes cheaper demand increases

Question 43

surplus means excess ________

Answer 43

supply

Question 44

shortage means excess _______

Answer 44

demand

Question 45

market equilibrium is a situation where nobody has an ...

Answer 45

incentive to do something different

Question 46

when demand increases what happens to the equilibrium quantities

Answer 46

price increases and quantity increases

Question 47

when demand decreases what happens to the equilibrium quantities

Answer 47

price decreases and quantity decreases

Question 48

when supply increases what happens to the equilibrium quantities

Answer 48

price decreases and quantity increases

Question 49

when supply decreases what happens to the equilibrium quantities

Answer 49

price increases and quantity decreases