Chapter 6 - Supply & Demand

Question 0

Law of demand

Answer 0

As price increases, quantity demanded decreases and visa versa

Question 1

Demand

Answer 1

Willingness and ability of a person to buy an item

Question 2

3 factors that cause Quantity Demanded

Answer 2

1. The necessity of the item - how essential is the good/service?
2. Real income effect - amount of goods/services you can buy ($)
3. Substitution effect - substituting a comparable product at a cheaper price

Question 3

Elastic and inelastic demand

Answer 3

Responsiveness to changes

• Elastic: demand changes substantially
• Inelastic: demand changes unsubstantially

Question 4

Voluntary exchange

Answer 4

Working out of the terms between buyer and seller. Transaction

Question 5

Utility

Answer 5

Power that a good has to SATISFY a want or need

Question 6

Another name for elastic demand

Answer 6

Price elasticity of demand

Question 7

Law of supply

Answer 7

At higher profits, a larger quantity of a given item will be produced and visa versa

Question 8

Equilibrium price

Answer 8

Point at which supply and demand meet

Question 9

Surplus

Answer 9

Greater amount supplied than demanded of a product

Question 10

Shortage

Answer 10

Greater amount demanded than supplied of a product

Question 11

What is the difference between quantity demanded and change in demand?

Answer 11

Quantity demanded is the amount of demand based on the CHANGE in PRICE while the change in demand is the demand of an item based on the SAME PRICE

Question 12

Quantity demanded

Answer 12

The amount of demand based on a CHANGE in PRICE. (Single curve)

Question 13

Change in demand

Answer 13

The demand of an item based on the SAME PRICE (Different curve)

Question 14

Quantity supplied

Answer 14

Amount of supply provided by producers at a given price (SAME supply curve)

Question 15

Change in supply

Answer 15

A shift in the entire curve based on a change in supply at the same price (DIFFERENT curve)

Question 16

3 factors that cause a change in supply

Answer 16

1. Cost of production
2. Effect of technology
3. Entrance/Exit of competition

Question 17

3 factors that cause a shift it demand

Answer 17

1. Change in income
2. Tastes and preferences
3. Related goods - substitution and complementary

Question 18

3 factors that cause elastic demand

Answer 18

1. Is the item a necessity?
2. Is there a substitute?
3. How much income is spent on item?