Chapter 3:Supply and Demand

Question 1

competitive market

Answer 1

a market that has many buyers and sellers so no single buyer or seller can influence the price.

Question 2

money price

Answer 2

the number of dollars that must be given up it.

Question 3

relative price

Answer 3

ratio of one money price to another.

Question 4

quantity demanded

Answer 4

the amount that consumers plan to buy during a given time period and a particular price.

Question 5

law of demand

Answer 5

states that “other things remaining the same, the higher the price of a good, the smaller the quantity demanded; and the lower the price of a good, the greater is the quantity demanded.

Question 6

substitution effect

Answer 6

a higher relative price raises the opportunity cost of buying a good, so people buy LESS of it.

Question 7

income effect

Answer 7

a higher relative price reduces the amount of good people can buy. usually this effect decreases the amount people buy of the good that rose in price.

Question 8

demand

Answer 8

the entire relationship between the price of a good and the qunatity demanded.

Question 9

demand curve

Answer 9

shows the relationship between the quantity demanded of a good and its price.
negatively sloped

Question 10

change in the quantity demanded

Answer 10

a change in the price of a good/service leads to a ____ and a movement in the demand curve.
higher price=lower quantity demanded

Question 11

change in demand (and a shift in the demand curve)

Answer 11

occurs when any factor that influences buying plans changes, other than the price of the good.
increase in demand=demand curve shift rightward
decrease in demand=demand curve shift leftward

Question 12

substitute

Answer 12

a good that can be used IN PLACE OF another good

Question 13

complement

Answer 13

a good that is USED WITH another good

Question 14

demand curve shifts with changes in:

Answer 14

prices of related goods
expected future prices
income
expected future income and credit
population
preferences

Question 15

expected future price

Answer 15

if the price of a good is expected to rise in the future, the opportunity cost of buying it now is lower than in the future.

Question 16

for a normal good

Answer 16

an increase in income increases demand and shifts the demand curve rightward

Question 17

for an inferior good

Answer 17

an increase in income decreases demand and shifts the demand curve leftward.

Question 18

population

Answer 18

an increase in population increases demand and shifts the demand curve rightward.

Question 19

quantity supplied

Answer 19

is the amount that producers plan to sell during a given period of time at a particular price.

Question 20

law of supply

Answer 20

“other things remaining the same, the higher the price of a good, the greater is the quantity supplied; and the lower the price of a good, the smaller is the quantity supplied.

Question 21

supply

Answer 21

the entire relationship between the quantity supplied and the price of a good.

Question 22

supply curve

Answer 22

shows the relationship between the price and the quantity supplied.
supply curve is positively sloped

Question 23

change in the quantity supplied

Answer 23

a change in the price of a good leads to _________ and a movement along the supply curve.

Question 24

change in supply

Answer 24

when any factor that influences selling plans other than the price of the good there is a ________ and a shift in the supply curve.
increase in supply=shift in supply curve rightward
decrease in supply=shift in supply curve leftward

Question 25

Supply curve shifts in response to:

Answer 25

``` prices of factors of production prices of related goods produced expected future prices the number of suppliers technology the state of nature ```

Question 26

equilibrium price

Answer 26

price at which the quantity demanded equals the quantity supplied.

Question 27

equilibrium quantity

Answer 27

the quantity bought and sold at the equilibrium price.