CH. 2 Demand, Supply, and Equilibrium Prices

Question 1

Demand

Answer 1

The functional relationship between the price of a good or service and the quantity demanded by consumers in a given time period, all else held constant.

Question 2

Functional Relationship

Answer 2

A relationship between variables, where the value of one variable, determines the value of the other, the dependent variable.

Question 3

(9) Nonprice Factors influencing Demand

Answer 3

1. Tastes and Preferences 2. Income 3. Normal Goods 4. Inferior Goods 5. Prices of related Goods 6. Substitute Goods 7. Complimentary Goods 8. Future Expectations 9. Number of Consumers

Question 4

Normal Good

Answer 4

A good for which consumers will have a greater demand as their incomes increase, all else held constant, and a smaller demand if their incomes decrease.

Question 5

Inferior Goods

Answer 5

A good for which consumers will have a smaller demand as their incomes increase, and greater demand if their incomes decrease, all factors held constant.

Question 6

Substitute Goods

Answer 6

Two goods, X and Y, are substitutes if an increase in the price of a good Y causes consumers to increase their demand for good X or if a decrease in the price of good Y causes consumers to decrease their demand for good X. EX. Bottled Water.

Question 7

Complementary goods

Answer 7

Two goods X and Y are complementary if an increase in the price of good Y cause consumers to decrease their for good X or if a decrease in good Y causes consumers to increase their demand for good X. EX. Peanut butter and Jelly

Question 8

Individual Demand Function

Answer 8

The function that shows the variables that influence the quantity demanded of a particular product by an individual consumer.

Question 9

Market Demand Function

Answer 9

The function that shows that variables that influence the quantity demanded of a particular product by all consumers in the market and is affected by the number of consumers in the market.

Question 10

Demand Curve

Answer 10

The graphical relationship between the price of a good and the quantity consumers demand, with all other factors held constant.

Question 11

Demand Shifters

Answer 11

The variables in a demand function that are held constant when defining a given demand curve, but that would shift the demand curve if their values changed.

Question 12

Negative Relationship (Inverse)

Answer 12

A relationship between two variables, where an increase in the value of one variable causes a decrease in the value of the other variable. (downward sloping line)

Question 13

Change in Quantity Demanded

Answer 13

The change in quantity consumers purchase when the price of the good changes. Movement along the demand curve.

Question 14

Change in Demand

Answer 14

The change in quantity purchased when one or more of the demand shifters change. Shift in the entire demand curve.

Question 15

Horizontal Summation of indv. demand Curves

Answer 15

the process deriving a market demand curve by adding the quantity demanded by each individual at every price to determine the market demend at every price.

Question 16

Linear Demand Function

Answer 16

Demand Function graphed as a straight- line demand curve in which all th terms are either added or subtracted and no terms have exponents other than 1.

Question 17

Supply

Answer 17

The functional relationship between the price of a good or service and the quantity supplied by producers in a given time period. All esle held constant.

Question 18

(5) Nonprice factors unfluencing supply

Answer 18

1. State of technololgy
2. Input prices
3. Prices of Goods related in Production
4. Future Expectations
5. Number of Producers

Question 19

Individual Supply Function

Answer 19

The function that shows the variables that influence the quantity supplied of a particular product by an individual producer.

Question 20

Market Supply Function

Answer 20

The function that shows the variables that influence the quantity supplied of a particular product by all producers in the market and that is thus affected by the number of producers in the market.

Question 21

Supply Curve

Answer 21

The graphical relationship between the prive of a good and the quantity supplied, with all other factors held constant.

Question 22

Supply Shifters

Answer 22

The variables in a supply curve that are held constant, if chsnged would cause the curve to shift.

Question 23

Positive Relationship (Direct)

Answer 23

A relationship between two variables, where an increase in the value of one variable cause an increase in the value of another variable. Upward sloping line.

Question 24

Change in Quantity Supplied

Answer 24

The change in the amount of a good supplied when the price of the good changes. Pictured as movement along the supply curve.

Question 25

Change in Supply

Answer 25

The change in the amount of a good supplied when one or more of the supply shifters change. PIctured as a shift in the entire supply curve.

Question 26

Equilibrium Price

Answer 26

The price when the quantity demanded by consumers equals the quantity supplied by producers.

Question 27

Equilibrium Price

Answer 27

The quantity when the amount of output that the consumers demand is equal to the amount of output that the producers supply.