Ch. 3 Prices and Interaction of Supply and Demand

Question 1

Perfectly Competitive Market

Answer 1

market that meets the conditions of having (1) many buyers and sellers, (2) all firms selling identical products, and (3) no barriers to new firms entering the market

Question 2

Demand Schedules

Answer 2

tables that show the relation between product pricing and the quantity of the product demanded

Question 3

Quantity Demanded

Answer 3

amount of a good/service that consumers are willing to purchase at a given price

Question 4

Demand Curve

Answer 4

shows relation between price and the quantity demanded

Question 5

Market Demand

Answer 5

demand by all the consumers of a given good or service

Question 6

Law of Demand

Answer 6

states (holding all else constant) when price of a products falls, the quantity of demand will increase; and when the price rises, quantity demand decreases

Question 7

Substitution Effect

Answer 7

quantity demanded changes from a change in price-making the good more or less expensive relative to substitute goods

Question 8

Income Effect

Answer 8

change in quantity demanded of a good that results from a change in the good’s price that increases or decreases a consumer’s purchasing power

Question 9

Purchasing Power

Answer 9

quantity of goods a consumer can buy with a fixed income

Question 10

ceteris paribus condition

Answer 10

“all else equal” - requirement that when analyzing relationship of 2 variables that all else must be constant

Question 11

Variables that Shift Market Demand

Answer 11

income, price of related goods, tastes, population/demographics, expected future prices

Question 12

Normal Goods

Answer 12

good for which the demand increases as income rises and decreases as income falls

Question 13

Inferior Good

Answer 13

good for which demand increases as income falls and decreases as income rises

Question 14

Substitues

Answer 14

goods/services that can be used for the same purpose

Question 15

Complements

Answer 15

goods/services that are used together

Question 16

Demographics

Answer 16

characteristics of a population with respect to age, race, gender

Question 17

Quantity Supplied

Answer 17

amount of a good/service that a firm is willing and able to supply at a given price

Question 18

Supply Curve

Answer 18

shows relation between price and the quantity of product supplied

Question 19

Supply Schedule

Answer 19

table that shows relation between price and quantity supplied

Question 20

Law of Supply

Answer 20

states (holding all else constant) increases in price cause increase in quantity supplied; and decrease in price decreases quantity supplied

Question 21

Variables that Shift Market Supply

Answer 21

prices of inputs, technological changes, prices of related goods and services, number of firms in market, expected future prices

Question 22

Technological Changes

Answer 22

positive or negative change in ability of a firm to produce a given level of output with a given quantity of inputs

Question 23

Market Equilibrium

Answer 23

situation where quantity demanded equals quantity supplied

Question 24

Competitive Market Equilibrium

Answer 24

market equilibrium with many buyers and sellers

Question 25

Surplus

Answer 25

when quantity supplied is greater than quantity demanded

Question 26

Shortage

Answer 26

quantity demanded is greater than quantity supplied