2.1-2.6 Summative

Question 1

demand

Answer 1

consumer’s willingness and ability to pay a sum of money for a good or service at a given time

Question 2

utility

Answer 2

the theory based on looking at demand in terms of satisfaction an individual receives from consuming a good or service

Question 3

marginal utility

Answer 3

calculates the consumer’s satisfaction from last unit of the good or service

Question 4

the law of diminishing utility

Answer 4

states that for each extra unit of a good is consumed by a customer, the marginal utility they receive from consuming a good falls

Question 5

quantity demanded

Answer 5

represents how many goods or services a consumer willing to pay at a given specific price

Question 6

substitute goods

Answer 6

the goods that consumers see as essentially the same or similar

Question 7

complement goods

Answer 7

two or more goods that can be purchase together with another good

Question 8

normal good

Answer 8

goods that have a positive relationship between income and demand

Question 9

necessity goods

Answer 9

goods that consumers need to sustain their lives

Question 10

luxury goods

Answer 10

goods that the demand increases more than proportionally as income rises

Question 11

inferior goods

Answer 11

goods that have a negative relationship between income and demand

Question 12

supply

Answer 12

a willingness and ability of suppliers to produce goods at a given time, ceteris paribus

Question 13

market equilibrium

Answer 13

occurs where demand equal supply and the market-clearing price and output are established

Question 14

surplus

Answer 14

when supply exceeds demand

Question 15

shortage

Answer 15

when demand exceeds supply

Question 16

the rationing function of price

Answer 16

when there is a shortage of a product, price will rise and discourage some customers from buying the product

Question 17

allocative efficiency

Answer 17

when the quantity of resources allocated to a market maximizes the community surplus

Question 18

producer surplus

Answer 18

the difference between the price the producer is willing to sell their goods and the market price of the good

Question 19

consumer surplus

Answer 19

the difference between the price the consumers are willing to pay for a good and the market price

Question 20

social surplus

Answer 20

the total benefits gained by sellers and buyers in a market

Question 21

Price Elasticity of Demand

Answer 21

the responsiveness of quantity demanded for a good to change in its price

Question 22

elasticity

Answer 22

measures how consumers and producers respond to changes in variables that affect demand and supply

Question 23

price elastic demand

Answer 23

when the PED value is greater than 1 and a change in price leads to a proportionally greater change in quantity demanded

Question 24

price inelastic demand

Answer 24

when the PED value is less than 1 and when a change in the price of good leads to less than a proportionate change in quantity demanded

Question 25

perfect inelastic

Answer 25

when a change in the price of a product will have no effect on the quantity demanded

Question 26

perfectly elastic

Answer 26

when the response to price is complete and infinite

Question 27

Price Elasticity of Supply

Answer 27

measures the responsiveness of quantity supplied to changes in price

Question 28

Income Elasticity of Demand

Answer 28

measures the relationship between changes in household incomes and changes in the quantity demand for a good or service

Question 29

revenue

Answer 29

a value of income a business receives from selling a good