2.5-The interaction of markets Flashcards
What is the definition of a market?
A market is a place where buyers and sellers come together to exchange goods and services.
True or False: A perfectly competitive market has many buyers and sellers.
True
What does the law of demand state?
The law of demand states that as the price of a good falls, the quantity demanded rises, and vice versa.
Fill in the blank: The point at which the demand and supply curves intersect is called the _______.
equilibrium
What is the definition of supply?
Supply is the total amount of a good or service that producers are willing and able to sell at a given price.
What happens to supply when there is an increase in production costs?
Supply decreases.
Multiple Choice: Which of the following factors can shift the demand curve to the right?
An increase in consumer income.
True or False: A decrease in the price of a substitute good will lead to an increase in demand for the original good.
False
What is a price ceiling?
A price ceiling is a maximum price set by the government that can be charged for a good or service.
What is a price floor?
A price floor is a minimum price set by the government that must be paid for a good or service.
Fill in the blank: When demand exceeds supply, a _______ occurs.
shortage
What is consumer surplus?
Consumer surplus is the difference between what consumers are willing to pay and what they actually pay.
What is producer surplus?
Producer surplus is the difference between what producers are willing to accept for a good and the market price.
Multiple Choice: Which of the following is NOT a characteristic of perfect competition?
Product differentiation.
True or False: In a monopoly, there is only one seller in the market.
True
What is the role of prices in a market economy?
Prices signal information to buyers and sellers and allocate resources efficiently.
What is the definition of elasticity of demand?
Elasticity of demand measures how much the quantity demanded of a good responds to a change in price.
Fill in the blank: If demand is elastic, a price increase will lead to a _______ in total revenue.
decrease
What does it mean if a good is considered a luxury good?
A luxury good is one for which demand increases more than proportionately as income rises.
Multiple Choice: Which of the following describes a shift in the supply curve?
A change in the cost of production.
True or False: A decrease in consumer preferences for a good will shift the demand curve to the left.
True
What is market failure?
Market failure occurs when the allocation of goods and services is not efficient.
Fill in the blank: Externalities can be _______ or _______.
positive; negative
What is the concept of marginal utility?
Marginal utility is the additional satisfaction or benefit gained from consuming one more unit of a good or service.
