Chapter 4

Question 1

market

Answer 1

a group of buyers and sellers of a particular good or device

• buyers determine demand
• sellers determine supply

Question 2

competitive market

Answer 2

is a market in which there are many buyers and sellers so that each has negligible (insignificant) impact on the market price

Question 3

perfect competition

Answer 3

• products are the same
  
  • numerous buyers and sellers so that each has no influence over price
  • buyers and sellers are price takers

Question 4

Monopoly

Answer 4

one seller, and that seller controls the price

Question 5

Oligopoly

Answer 5

• few sellers
  - not always aggressive competition
  - example. Airline routes are an example. If a route between two cities is serviced by only two or three carriers, the carriers may avoid rigorous competi- tion so they can keep prices high.

Question 6

monopolistic competition

Answer 6

• many sellers
  - slightly differentiated products
  - each seller may set price for its own product

Question 7

quantity demanded

Answer 7

is the amount of a good that buyers are willing and able to purchase

Question 8

law of demand

Answer 8

is the claim that, other things equal, the equality demanded of a good falls when the price of the good rises

Question 9

demand schedule

Answer 9

is a table that shows the relationship between the price of the good and the quantity demanded

Question 10

demand curve

Answer 10

a graph of the relationship between the price of a good and the quantity demanded

Question 11

market demand

Answer 11

refers to the sum of all individual demands for a particular good or service

Question 12

shifts in the demand curve:

Answer 12

• consumer income
• prices of related goods
• tastes
• expectations
• number of buyers

Question 13

normal good

Answer 13

a good for which an increase in income leads to an increase in demand (and vice versa)

Question 14

inferior good

Answer 14

a good for which an increase in income leads to a decrease in demand (and vice versa)

Question 15

substitutes

Answer 15

when a fall in the price of one good reduces the demand for another good

Question 16

complements

Answer 16

when a fall in the price of one good increases the demand for another good

Question 17

quantity supplied

Answer 17

is the amount of a good that sellers are willing and able to sell

Question 18

law of supply

Answer 18

the quantity supplied of a good rises when the price of good rises

Question 19

supply schedule

Answer 19

is a table that shows the relationship between the price of the good and the quantity supplied

Question 20

supply curve

Answer 20

graph of the relationship between the price of a good and the quantity supplied

Question 21

market supply

Answer 21

refers to the sum of all individual supplies for all the sellers of a particular good or service

Question 22

shifts in the supply curve

Answer 22

• input prices
• technology
• expectations
• number of sellers

Question 23

equilibrium

Answer 23

the price has reached the level where quantity supplied equals quantity demanded

Question 24

equilibrium price

Answer 24

the price that balances quantity supplied and quantity demanded
- where the supply and demand curves intersect

Question 25

surplus

Answer 25

when price is greater than equilibrium price then quantity supplied is greater than quantity demanded

Question 26

equilibrium quantity

Answer 26

quantity supplied and the quantity demanded

Question 27

shortage

Answer 27

price < equilibrium price then quantity demanded > quantity supplied

Question 28

law of supply and demand

Answer 28

the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance