WEEK 3

Question 1

firm

Answer 1

• organization that transforms resources (inputs) into products (outputs)
• producing units in an economy

Question 2

entrepreneur

Answer 2

person who

• Organises
• Manages
• Assumes risk of firm

takes new idea/product and turns it into successful business

Question 3

households

Answer 3

consuming units in an economy

Question 4

product/output markets

Answer 4

markets in which goods/services are exchanged

Question 5

factor/input markets

Answer 5

markets in which resources used to produce goods and services are exchanged

Question 6

circular flow diagram

Answer 6

Question 7

land market

Answer 7

input market in which households supply land in exchange for rent

Question 8

labor market

Answer 8

market in which households supply work to firms in exchange for labor

Question 9

capital market

Answer 9

market in which households supply savings to firms to invest in exchange for interest or future profits

Question 10

What do firms determine?

Answer 10

types and quantities of

• outputs supplied
• inputs demanded

Question 11

What do households determine?

Answer 11

types and quantities of

• products demanded
• inputs supplied

Question 12

What are the factors of demand?

Answer 12

1. Price of product
2. Available income
3. Amount of accumulated wealth
4. Price of other products
5. Taste and preferences
6. Expectations of future
   
   • income
   • wealth
   • prices

Question 13

quantity demanded

Answer 13

amount of a product that a household is willing and able to buy in a given period at the current market price

Question 14

What is the difference between

1. movement of quantity demanded/supplied
2. shift in demand/supply?

Answer 14

1. movement of quantity demanded/supplied caused by change in price
2. shift in demand/supply caused by change in non-price determinants

Question 15

demand schedule (curve)

Answer 15

(graph showing) how much of a given product a household would be willing to buy at different prices for a given period

Question 16

law of demand

Answer 16

• as price increases, quantity demanded decreases
• as price decreases, quantity demanded increases
• ceteris paribus

Question 17

Why does the demand curve cross the x-axis?

Answer 17

• time limitations
• diminishing marginal utility

Question 18

Why does the demand curve cross the y-axis?

Answer 18

limited income/wealth

Question 19

income

Answer 19

sum of

1. Wages
2. Salaries
3. Profit
4. Interest payments
5. Rent

and other forms of earnings in a given time

Question 20

wealth/net worth

Answer 20

total value of what a household owns minus what it owes

Question 21

Is

1. income
2. wealth

a stock or flow measurement?

Answer 21

1. flow
2. stock

Question 22

normal goods

Answer 22

goods for which when

• income increases, demand increases
• income decreases, demand decreases

Question 23

inferior goods

Answer 23

goods for which when income increases, demand decreases

Question 24

substitutes

Answer 24

• goods that can serve as replacements for one another
• when the price of good A increases, demand for good B increases

Question 25

perfect substitutes

Answer 25

identitical products

Question 26

complements

Answer 26

* goods that 'go together' * when the price of good A decreases, demand for good B increases

Question 27

market demand

Answer 27

sum of all goods/services demanded per period by all households in the market for a specific good/service

Question 28

quantity supplied

Answer 28

amount of a particular product that a firm is willing and able to offer for sale at a particular price in a given period

Question 29

supply schedule (curve)

Answer 29

(graph) table showing how much of a product firms will sell at different prices in a given period

Question 30

law of supply

Answer 30

* increase in price, increase in quantity supplied * decrease in price, decrease in quantity supplied * ceteris paribus

Question 31

market supply

Answer 31

sum of everything supplied by all producers of a product in a given period

Question 32

equilibrium

Answer 32

* quantity demanded = quantity supplied * no tendency for price to change

Question 33

shortage

Answer 33

condition that exists when quantity demanded exceeds quantity supplied at the current price

Question 34

surplus

Answer 34

condition that exists when quantity supplied exceeds quantity demanded at the current price

Question 35

1. consumer surplus 2. producer surplus

Answer 35

1. difference between the maximum price a person is willing and able to pay and the current market price 2. difference between the current market price and the cost of production for the firm

Question 36

deadweight loss

Answer 36

total loss of producer and consumer surplus due to under or overproduction

Question 37

determine Q and P when 1. increase in demand, increase in supply 2. decrease in demand, decrease in supply 3. increase in demand, decrease in supply 4. decrease in demand, increase in supply

Answer 37

1. increase in Q, cannot determine P 2. decrease in Q, cannot determine P 3. increase in P, cannot determine Q 4. decrease in P, cannot determine Q