Economics for Managers Chapter 2

Question 1

Demand

Answer 1

The functional relationship between the price of a good or service and the quantity demanded by consumers in a given time period, all else held constant.

Question 2

Functional Relationship

Answer 2

A relationship between variables, usually expressed in an equation using symbols for the variables, where the value of one variable, the independent variable, determines the value of the other, the dependent variable.

Question 3

Normal Good

Answer 3

A good for which consumers will have a greater demand as their incomes increase, all else held constant, and a smaller demand if their incomes decrease, other factors held constant.

Question 4

Inferior Good

Answer 4

A good for which consumers will have a smaller demand as their incomes increase, all else held constant, and a greater demand if their incomes decrease, other factors held constant.

Question 5

Substitute Goods

Answer 5

Two goods, X and Y, are substitutes if an increase in the price of good Y causes consumers to increase their demand for good X or if a decrease in the price of good Y cases consumers to decrease their demand for good X.

Question 6

Complementary Goods

Answer 6

Two goods, X and Y, are complementary if an increase in the price of good Y causes consumers to decrease their demand for good X or if a decrease in the price of good Y causes consumers to increase their demand for good X.

Question 7

Individual Demand Function

Answer 7

The function that shows, in symbolic or mathematical terms, the variables that influence the quantity demanded of a particular product by an individual consumer.

Question 8

Market Demand Function

Answer 8

The function that shows, in symbolic or mathematical terms, the variable that influence the quantity demanded of a particular product by all consumers in the market and that is thus affected by the number of consumers in the market.

Question 9

Demand Curve

Answer 9

The graphical relationship between the price of a good and the quantity consumers demand with all other factors influencing demand held constant.

Question 10

Demand Shifters

Answer 10

The variables in a demand function that are held constant when defining a given demand curve, but that would shift the demand curve if their values changed.

Question 11

Negative (Inverse) Relationship

Answer 11

A relationship between two variables, graphed as a downward sloping line, where an increase in the value of one variable causes a decrease in the value of the other variable.

Question 12

Change in Quantity Demanded

Answer 12

The change in quantity consumers purchase when the price of the good changes, all other factors held constant, pictured as a movement along a given demand curve.

Question 13

Change in Demand

Answer 13

The change in quantity purchased when one or more of the demand shifters change, pictured as a shift of the entire demand curve.

Question 14

Horizontal summation of Individual Demand Curves

Answer 14

The process of deriving a market demand curve by adding the quantity demanded by each individual at every price to determine the market demand at every price.

Question 15

Linear Demand Function

Answer 15

A mathematical demand function graphed as a straight-line demand curve in which all the terms are either added or subtracted and no terms have exponents other than 1.

Question 16

Supply

Answer 16

The functional relationship between the price of a good or service and the quantity supplied by producers in a given time period, all else held constant.

Question 17

Individual Supply Function

Answer 17

The function that shows, in symbolic or mathematical terms, the variable that influence the quantity supplied of a particular product by an individual producer.

Question 18

Market Supply Function

Answer 18

The function that shows, in symbolic or mathematical terms, the variables that influence the quantity supplied of a particular product by all producers in the market and that is thus affected by the number of producers in the market.

Question 19

Supply Curve

Answer 19

The graphical relationship between the price of a good and the quantity supplied, with all other factors influencing supply held constant.

Question 20

Supply Shifters

Answer 20

The other variables in a supply function that are held constant when defining a given supply curve, but that would cause that supply curve to shift if their values changed.

Question 21

Positive (Direct) Relationship

Answer 21

A relationship between two variables, graphed as an upward sloping line, where an increase in the value of one variable causes an increase in the value of the other variable.

Question 22

Linear Supply Function

Answer 22

A mathematical supply function, which graphs as a straight-line supply curve, in which all terms are either added or subtracted and no terms have exponents other than 1.

Question 23

Change in Quantity Supplied

Answer 23

The change in amount of a good supplied when the price of the good changes, all other factors held constant, pictured as a movement along a given supply curve.

Question 24

Change in Supply

Answer 24

The change in the amount of a good supplied when one or more of the supply shifters change, pictured as a shift of the entire supply curve.

Question 25

Equilibrium Price

Answer 25

The price that actually exists in the market or toward which the market is moving where the quantity demanded by consumers equals the quantity supplied by producers.

Question 26

Equilibrium Quantity (Qe)

Answer 26

The quantity of a good, determined by the equilibrium price, where the amount of output that consumers demand is equal to the amount that producers want to supply.