Ch 3 Supply and Demand

Question 1

Seller’s surplus

Answer 1

The difference between the price received by the seller and his or her reservation price

Question 2

Economic efficiency

Answer 2

A condition that occurs when all goods and services are produced and consumed at their respective socially optimal levels

Question 3

Equilibrium

Answer 3

A balanced or unchanging situation in which all forces at work within a system are canceled by others

Question 4

Excess supply

Answer 4

The amount by which quantity supplied exceeds quantity demanded when the price of the good exceeds the equilibrium price

Question 5

Excess demand

Answer 5

The amount by which quantity demanded exceeds quantity supplied when the price of a good lies below the equilibrium price

Question 6

Price ceiling

Answer 6

A maximum allowable price, specified by law

Question 7

Supply curve

Answer 7

A graph or schedule showing the quantity of a good that sellers wish to sell at each price

Question 8

Market

Answer 8

The market for any good consists of all buyers or sellers of that good

Question 9

Demand curve

Answer 9

A schedule or graph showing the quantity of a good that buyers wish to buy at each price

Question 10

Change in the quantity supplied

Answer 10

A movement along the supply curve that occurs in response to a change in price

Question 11

Income effect

Answer 11

The change in the quantity demanded of a good that results because a change in the price of a good changes the buyer’s purchasing power

Question 12

Change in the quantity demanded

Answer 12

A movement along the demand curve that occurs in response to a change in price

Question 13

Buyer’s surplus

Answer 13

The difference between the buyer’s reservation price and the price he or she actually pays

Question 14

Total surplus

Answer 14

The difference between the buyer’s reservation price and the seller’s reservation price

Question 15

Buyer’s reservation price

Answer 15

Th largest dollar amount the buyer would be willing to pay for a good

Question 16

Change in demand

Answer 16

A shift of the entire demand curve

Question 17

Normal good

Answer 17

A good whose demand curve shifts rightward when the incomes of buyers increase and leftward when the incomes of buyers decrease

Question 18

Change in supply

Answer 18

A shift of the entire supply curve

Question 19

Complements

Answer 19

Two goods are complements in consumption if an increase in the price of one causes a leftward shift in the demand curve for the other (or if a decrease causes a rightward shift)

Question 20

Inferior good

Answer 20

A good whose demand curve shifts leftward when the incomes of buyers increase and rightward when the incomes of buyers decrease

Question 21

Seller’s reservation price

Answer 21

The smallest dollar amount for which a seller would be willing to sell an additional unit, generally equal to marginal cost

Question 22

Substitution effect

Answer 22

The change in the quantity demanded of a good that results because buyers switch to or from substitutes when the price of the good changes

Question 23

Market equilibrium

Answer 23

Occurs in a market when all buyers and sellers are satisfied with their respective quantities at the market price

Question 24

Equilibrium quantity

Answer 24

The values of price and quantity for which quantity suppled and quantity demanded are equal

Question 25

Substitutes

Answer 25

Two goods are substitutes in consumption if an increase in the price of one causes a rightward shift in the demand curve for the other (or if a decrease causes a leftward shift)

Question 26

Equilibrium price

Answer 26

The values of price and quantity for which quantity supplied and quantity demanded are equal

Question 27

Efficiency

Answer 27

A condition that occurs when all goods and services are produced and consumed at their respective socially optimal levels

Question 28

Cash on the table

Answer 28

Economic metaphor for unexploited gains from exchange

Question 29

Socially optimal quantity

Answer 29

The quantity of a good that results in the maximum possible economic surplus from producing and consuming the good