Chapter 3

Question 1

MARKET

Answer 1

any institution or mechanism that brings together buyers (demanders) and sellers (suppliers) of a particular good or service

Question 2

DEMAND

Answer 2

a schedule showing the amounts of a good or service that buyers wish to purchase at various prices during some time period

Question 3

Demand Schedule

Answer 3

shows amounts of goods or services that buyers wish to purchase at various prices

Question 4

Demand Curve

Answer 4

a curve illustrating demand

Question 5

LAW OF DEMAND

Answer 5

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 6

DIMINISHING MARGINAL UTILITY

Answer 6

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

Question 7

INCOME EFFECT

Answer 7

a change in the quantity demanded of a product that results from the change in real income caused by a change in the product’s price

Question 8

SUBSTITUTION EFFECT

Answer 8

a change in the quantity demanded of a consumer good that results from a change in its relative expensiveness caused by a change in the product’s price

Question 9

Individual to Market Demand (sum horizontally)

Answer 9

sum of all individual demand curves

Question 10

Change in Demand

Answer 10

of buyers

Tastes

Income

Question 11

NORMAL GOOD

Answer 11

a good or service whose consumption increases when income increases and falls when income decreases, price remaining constant

Question 12

INFERIOR GOOD

Answer 12

a good or service whose consumption declines as income rises, prices held constant

Question 13

Prices of related goods

Answer 13

two categories: substitutes and complements

Question 14

SUBSTITUTES

Answer 14

when a price decrease in one good decreases the demand for another good.

Question 15

COMPLEMENTS

Answer 15

when a price decrease in one good increases the demand of another good.

Question 16

Changes in demand vs changes in quantity demand

Answer 16

Demand=occurs when one or more of the determinants of demand changes. Determinants of demand include consumers preferences, income, and the prices of substitute goods

Quantity Demand=when the price of the good changes

Question 17

SUPPLY

Answer 17

schedule showing the amounts of a good or service that sellers will offer at various prices during some period

Question 18

LAW OF SUPPLY

Answer 18

principle that, other things equal an increase in the price of a product will increase the quantity of it supplied, and conversely for a price decrease

Question 19

Supply Schedule

Answer 19

schedule showing the amounts of a good or service that sellers will offer at various prices during some period

Question 20

Supply Curve

Answer 20

curve illustrating supply

Question 21

Individual Supply to Market Supply (sum horizontally)

Answer 21

sum of individual supply curves

Question 22

Changes in Supply

Answer 22

Resource Prices

Technology

Taxes and Subsidies

Prices of other goods

Producer expectations

Number of sellers

Question 23

Change in Supply vs. change in Quantity Supplied

Answer 23

supply=a shift in the supply curve, due to non-price factors such as the availability of resources.

quantity supplied=reflects a shift along the existing supply curve because of changes in price.

Question 24

Market Equilibrium

Answer 24

When the supply and demand curves intersect

Question 25

EQUILIBRIUM PRICE

Answer 25

price in a competitive market at which the quantity demanded and the quantity supplied are equal, there is neither a shortage nor a surplus, and there is no tendency price to rise or fall

Question 26

EQUILIBRIUM QUANTITY

Answer 26

quantity at which the intentions of buyers and sellers in a particular market match at a particular price such that the quantity demanded and the quantity supplied are equal

Question 27

SHORTAGE

Answer 27

the amount by which the quantity demanded of a product exceeds the quantity supplied at a particular price

Question 28

SURPLUS

Answer 28

the amount by which the quantity supplied of a product exceeds the quantity demanded at a specific price

Question 29

What happens to equlibrium price and quantity for the following? Increase in demand decrease in demand

Answer 29

Increase in demand= Decrease in demand= Increase in supply= decrease in supply= increase in both= decrease in both= increase in one and decrease in the other=

Question 30

PRICE CEILINGS

Answer 30

legally established maximum price for a good or service

Question 31

PRICE FLOORS

Answer 31

legally determined minimum price above the equilibrium price