ch 2: demand and supply

Question 1

a curve indicating the total quantity of a good all consumers are willing and able to purchase at each possible price, holding the prices of related goods, income, advertising, and other variables constant.

Answer 1

market demand curve

Question 2

As the price of a good rises (falls) and all other things remain constant, the quantity demanded of the good falls (rises)

Answer 2

law of demand

Question 3

Changes in variables other than the price of a good, such as income or the price of another good, lead to a change in demand. This corresponds to a shift of the entire demand curve.

Answer 3

change in demand

Question 3

Changes in the price of a good lead to a change in the quantity demanded of that good. This corresponds to a movement along a given demand curve.

Answer 3

change in quantity demanded

Question 4

A good for which an increase (decrease) in income leads to an increase (decrease) in the demand for that good.

Answer 4

normal good

Question 5

Goods for which an increase (decrease) in the price of one good leads to an increase (decrease) in the demand for the other good.

Answer 5

substitutes

Question 5

A good for which an increase (decrease) in income leads to a decrease (increase) in the demand for that good.

Answer 5

inferior good

Question 6

Goods for which an increase (decrease) in the price of one good leads to a decrease (increase) in the demand for the other good.

Answer 6

complements

Question 7

A function that describes how much of a good will be purchased at alternative prices of that good and related goods, alternative income levels, and alternative values of other variables affecting demand.

Answer 7

demand function

Question 8

A representation of the demand function in which the demand for a given good is a linear function of prices, income levels, and other variables influencing demand.

Answer 8

linear demand function

Question 9

The value consumers get from a good but do not have to pay for.

Answer 9

consumer surplus

Question 10

A curve indicating the total quantity of a good that all producers in a competitive market would produce at each price, holding input prices, technology, and other variables affecting supply constant.

Answer 10

market supply curve

Question 11

Changes in variables other than the price of a good, such as input prices or technological advances, lead to a change in supply. This corresponds to a shift of the entire supply curve.

Answer 11

change in supply

Question 11

Changes in the price of a good lead to a change in the quantity supplied of that good. This corresponds to a movement along a given supply curve.

Answer 11

change in quantity supplied

Question 12

A function that describes how much of a good will be produced at alternative prices of that good, alternative input prices, and alternative values of other variables affecting supply.

Answer 12

supply function

Question 13

A representation of the supply function in which the supply of a given good is a linear function of prices and other variables affecting supply.

Answer 13

linear supply function

Question 14

The amount producers receive in excess of the amount necessary to induce them to produce the good.

Answer 14

producer surplus

Question 15

The maximum legal price that can be charged in a market.

Answer 15

price ceiling

Question 16

The dollar amount paid to a firm under a price ceiling, plus the nonpecuniary price.

Answer 16

full economic price

Question 17

The minimum legal price that can be charged in a market.

Answer 17

price floor

Question 18

the driving forces behind the market economies

Answer 18

supply and demand

Question 19

It is a qualitative forecasting tool you can use to predict trends in competitive markets, including changes in the prices of your firm’s products, related products (both substitutes and complements), and the prices of inputs (such as labor services) that are necessary for your operations.

Answer 19

Supply and demand analysis

Question 20

A rightward shift in the demand curve is called an?

Answer 20

increase in demand

(since more of the good is demanded at each price)

Question 20

Variables other than the price of a good that influence demand are known as?

Answer 20

demand shifters

Question 21

A leftward shift in the demand curve is called a?

Answer 21

decrease in demand

Question 22

affects how much consumers will buy at any price.

Answer 22

income

Question 22

Demand Shifters

Answer 22

1. Income
2. Prices of Related Goods
3. Advertising and Consumer Tastes
4. Population
5. Consumer Expectations
6. Other Factors

Question 23

A good whose demand increases (shifts to the right) when consumer incomes rise is called a?

Answer 23

normal good

Question 24

generally shift the demand curve for a good.

Answer 24

Changes in the prices of related goods

Question 25

often provides consumers with information about the existence or quality of a product, which in turn induces more consumers to buy the product.

Answer 25

informative advertising

Question 26

can also influence demand by altering the underlying tastes of consumers. For example, advertising that promotes the latest fad in clothing may increase the demand for a specific fashion item by making consumers perceive it as “the” thing to buy.

Answer 26

persuasive advertising

Question 27

The demand for a product is also influenced by changes in the size and composition of this

Answer 27

population

Question 28

If consumers expect future prices to be higher, they will substitute current purchases for future purchases. generally occurs when products are durable in nature.

Answer 28

stockpiling

Question 28

Supply Shifters

Answer 28

1. Input Prices
2. Technology or Government Regulations
3. Number of Firms
4. Substitutes in Production
5. Taxes
6. Producer Expectations

Question 29

Changes that make it possible to produce a given output at a lower cost. (e.g. natural disasters)

Answer 29

Technology or Government Regulations

Question 29

As production costs change, the willingness of producers to produce output at a given price changes.

Answer 29

Input Prices

Question 30

As additional firms enter an industry, more and more output are available at each given price.

Answer 30

Number of Firms

Question 30

Many firms have technologies that are readily adaptable to several different products.

Answer 30

Substitutes in Production

Question 31

is a percentage tax; the sales tax is a well-known example. it means “according to the value.”

Answer 31

ad valorem tax

Question 31

is a tax on each unit of output sold, where the tax revenue is collected from the supplier.

Answer 31

excise tax

Question 32

If firms suddenly expect prices to be higher in the future and the product is not perishable, producers can hold back output today and sell it later at a higher price.

Answer 32

Producer Expectations

Question 33

is the area above the supply curve but below the mar- ket price of the good

Answer 33

producer surplus

Question 34

when the supply of goods matches demand,

Answer 34

MARKET EQUILIBRIUM

Question 35

The study of the movement from one equilibrium to another is known as?

Answer 35

comparative static analysis

Question 36

Throughout this analysis, we assume that no legal restraints, such as price ceilings or floors, are in effect and that the price system is free to work to allocate goods among consumers.

Answer 36

comparative static analysis