Micro Booklet 2

Question 1

Competitive Demand

Answer 1

The relationship between two goods that are substitutes

Question 2

Complements

Answer 2

Goods that are bought and consumed together, such that an increase in the price of one will lead to a fall in the demand for the other (XED is negative)

Question 3

Composite Demand

Answer 3

When a good is demanded for more than one distinct purpose

Question 4

Consumer Surplus

Answer 4

The difference between the market price and the maximum price that a consumer would’ve been willing to pay

Question 5

Contraction of Demand

Answer 5

A movement along the demand curve whereby an increase in price leads to a reduction in quantity demanded

Question 6

Contraction of Supply

Answer 6

A movement along the supply curve whereby a fall in price causes a reduction in quantity supplied

Question 7

Demand

Answer 7

The quantity of a good or service that people are willing to buy at a given price, in a given time period

Question 8

Demand Curve

Answer 8

A graphical representation of the relationship between price and quantity demanded, usually downward-sloping due to law of demand

Question 9

Cross-price Elasticity of Demand

Answer 9

A measure of the responsiveness of the quantity demanded of one good to a change in he price of another good

Question 10

Demand Price Inelastic

Answer 10

Quantity demanded changes less-than-proportionately to a change in price

Question 11

Diminishing Marginal Utility

Answer 11

The consumption of an additional unit of a good yields less utility than the consumption of the previous unit

Question 12

Demand Price Elastic

Answer 12

Quantity demanded changes more-than-proportionately

Question 13

Derived Demand

Answer 13

When a good is in demand as a result of the demand for something else, usually because the first good can be used to produce the second

Question 14

Effective Demand

Answer 14

The willingness to buy, backed by the ability to pay

Question 15

Elasticity

Answer 15

A measure of the responsiveness of one variable to a change in the price of another

Question 16

Excess Demand

Answer 16

The QD exceeds the QS, indicating that the current price is below the equilibrium pride

Question 17

Excess Supply

Answer 17

The QS exceeds the QD, indicating that the current price is larger than the equilibrium price

Question 18

Extension of Demand

Answer 18

A movement along the demand curve whereby a decrease in price causes an increase in QS

Question 19

Extension of Supply

Answer 19

A movement along the supply curve whereby an increase in price causes an increase in QS

Question 20

Income Elasticity of Demand

Answer 20

A measure of the responsiveness of the QD for one good to a change in income

Question 21

Inferior Good

Answer 21

A good for which demand decreases as incomes rise and increases as incomes fall (YED is negative)

Question 22

Joint Demand

Answer 22

The relationship between two goods that are complements

Question 23

Joint Supply

Answer 23

When an increase in the supply of one good leads to an increase in the supply of another

Question 24

Law of Demand

Answer 24

An increase in price will lead to a fall in QD, a fall in price will lead to an increase in QD

Question 25

Less than Proportionate

Answer 25

Changing by a smaller percentage

Question 26

Law of Supply

Answer 26

An increase in price will lead to an increase in QS and a decrease in price will lead to a decrease in QS

Question 27

Luxury Good

Answer 27

A normal good for which demand is income elastic

Question 28

Market

Answer 28

The place where buyers and sellers of a good or service interact for the purposes of exchange

Question 29

Market Forces

Answer 29

The interaction of supply and demand to determine outcomes within a market

Question 30

Market-Clearing Price

Answer 30

The price at which nobody wishes to buy or sell but cannot- there is neither excess demand or supply

Question 31

Market Equilibrium

Answer 31

A situation where the demand for and supply of a good are equal, such that there is no tendency for price or quantity to change

Question 32

More than proportionate

Answer 32

Changing by a larger percentage

Question 33

Normal Good

Answer 33

A good for which demand increases as income rise and decreases as income falls (YED is positive)

Question 34

Price Elasticity of Demand

Answer 34

A measure of the responsiveness of the QD of a good to a change in its price

Question 35

Price Elasticity of Supply

Answer 35

A measure of the responsiveness of QS to a change in price

Question 36

Producer Surplus

Answer 36

The difference between the market price and the minimum price that a seller would have been willing to sell at

Question 37

Substitute

Answer 37

A good that can be used for the same purpose as another, such that an increase in the price of one good leads to an increase in demand for the other

Question 38

Supply

Answer 38

The amount of a good or service that sellers are willing and able to sell at a given price

Question 39

Supply Curve

Answer 39

A graphical representation of the relationship between price and QS, it is usually upward-sloping due to the law of supply