Chapter 5

Question 1

Demand (D)

Answer 1

Represents the consumer side of the market. The quantity of a product that people are willing to buy at a certain
price

Question 2

The Law of Demand

Answer 2

States that the higher the price of a product, the less

people will demandthat product (the higher the price, the lower the quantity demanded).

Question 3

Consumers’ demand for a good or service depends on::

Answer 3

Price of the good or service
o Price of substitute or complimentary items
o Consumers’ income
o Future expectations about either income or price
o Taste or preference for the good or service

Question 4

Supply (S)

Answer 4

Represents the business side of the market. The quantity of particular good and services that producers and sellers
are willing to supply to the market when receiving a certain price. There is a direct relationship between the price of a good and service and the
quantity offered for sale.

Question 5

The Law of Supply

Answer 5

States that as prices rise, the quantity supplied by producers tends to increase; as prices fall, the quantity supplied tends to decrease.

Question 6

Equilibrium

Answer 6

When the amount of goods being supplied is exactly the same as the amount of
goods being demanded (i.e. when the supply and demand lines cross)

Question 7

Disequilibrium

Answer 7

Occurs whenever the price or quantity is not equal.

Question 8

What happens when a price is set too high or above equilibrium?

Answer 8

Excess supply (surplus) will be created.

Question 9

Shortage

Answer 9

Because price is so low, too many consumers want the good whileproducers are not making enough of it