MMacroeconomics chapter 3

Question 1

demand curve

Answer 1

A function that shows the quantity demanded at different prices.

Question 2

Quantity demanded

Answer 2

The quantity that buyers are willing and able to buy at a particular price.

Question 3

How is a demand curve read horizontally?

Answer 3

At a given price, how much are people willing to buy?

Question 4

How is a demand curve read vertically?

Answer 4

What are people willing to pay for a given quantity?

Question 5

Is a demand curve negativity or positively sloped?

Answer 5

negatively

Question 6

Law of demand:

Answer 6

the lower the price , the greater the quantity demanded

Question 7

Demand summarizes how consumers choose to use a good in relation to what?

Answer 7

their preferences, the possibilities for substitution

Question 8

consumer surplus

Answer 8

The consumer’s gain from exchange; difference between the maximum price a consumer is willing to pay for a certain quantity and the market price

Question 9

total consumer surplus

Answer 9

The area beneath the demand curve and above the price.

Question 10

An increase in the demand shift the demand curve to the right or left?

Answer 10

right

Question 11

What happens when the demand curve shifts to the right?

Answer 11

At each price, people are willing to buy more.
– At each quantity, people are willing to pay a higher price.

Question 12

when there is a decrease in demand does the curve shift to the right or left?

Answer 12

left

Question 13

what happens when the demand curve shifts to the left

Answer 13

– At each price, people are willing to buy less.
– At each quantity, people are willing to pay a lower price.

Question 14

what are 6 examples of factors that can change demand

Answer 14

1. Income
2. Population
3. Price of substitutes
4. Price of complements
5. Expectations
6. Tastes

Question 15

how does income affect demand

Answer 15

When people get richer, they buy more stuff.
* When an increase in income increases the demand for a good, it is a normal good.
* Most goods are normal goods.
* When an increase in income decreases the demand for a good, it is an inferior good.

Question 16

if iPads are a normal good, when incomes increase, the demand curve for iPad will:
a. Shift to the right.
b. Shift to the left.
c. Not change.

Answer 16

a. Shift to the right.

Question 17

how does population affect demand?

Answer 17

An increase in population will increase demand generally.
* A shift in subpopulations will change the demand for specific goods and services

Question 18

how does prices of substitutes affect demand

Answer 18

A substitute is a good that can be consumed instead of another good.
* A decrease in the price of a substitute will decrease
demand for the other good.

Question 19

if orange juice and apple juice are substitutes, an increase in the price or orange juice will:
a. Increase demand for apple juice.
b. Decrease demand for apple juice.
c. Not affect demand for apple juice.

Answer 19

a.) increase demand for apple juice

Question 20

how does prices of complements affect demand?

Answer 20

Complements are things that go well together.
* A drop in the price of a complement increases demand for the complementary good.

Question 21

how does expectations affect demand

Answer 21

The expectation of a reduction in future supply
increases the demand today

Question 22

How does tastes affect demand?

Answer 22

Changes in tastes caused by fads, fashions, and
advertising can all increase or decrease demand.

Question 23

How is a supply curve read horizontally?

Answer 23

At a given price, how much are suppliers willing to sell?

Question 24

how is a supply curve read vertically?

Answer 24

To produce a given quantity, what price must
sellers be paid?

Question 25

supply curve

Answer 25

A function that shows the quantity supplied at different prices

Question 26

quantify supplied

Answer 26

The quantity that sellers are willing and able to sell at a particular price.

Question 27

producer surplus

Answer 27

The producer’s gain from exchange, or the difference between the market price and the minimum price at which a producer would be willing to sell a particular quantity

Question 28

total producer surplus

Answer 28

The area above the supply curve and below the price.

Question 29

does increase in supply shift the curve to the right or left

Answer 29

right

Question 30

what happens when the supply curve shifts to the right

Answer 30

At each price producers are willing to sell more. – At each quantity, producers are willing to accept a lower price

Question 31

a decrease in supply shifts the curve to the right or left?

Answer 31

left

Question 32

what happens when the supply curve shifts to the left

Answer 32

At each price sellers will offer less. – At each quantity, sellers demand a higher price.

Question 33

what are 5 factors that shift supply?

Answer 33

1. Technological innovations and changes in the price of inputs 2. Taxes and subsidies 3. Expectations 4. Entry or exit of producers 5. Changes in opportunity costs

Question 34

how does technological innovations affect supply shifts

Answer 34

Improvements in technology can reduce costs, thus increasing supply. * A reduction in input prices also reduces costs and thus has a similar effect.

Question 35

how does taxes and subsides affect the supply curve

Answer 35

A tax on output has the same effect as an increase in costs. * A subsidy is the reverse of a tax.

Question 36

how does expectations affect the supply curve

Answer 36

Suppliers who expect prices to increase will store goods for future sale and sell less today. * The expectation of a future price increase therefore decreases current supply. * Supply curve shifts to the left.

Question 37

how does the entry or exit of producers affect the supply curve

Answer 37

The entry of new producers increases supply, shifting the curve down and to the right.

Question 38

how do changes in opportunity costs affect the supply curve?

Answer 38

* An increase in opportunity costs shifts the supply curve up and to the left.

Question 39

Suppose a new technology reduces the time it takes to assemble a car. How would this affect the supply of cars? a. Shift supply to the right. b. Shift supply to the left. c. It would have no effect on supply

Answer 39

a.) shift supple to the right