Chapter 2: Competitive Markets - Demand and Supply (Microeconomics)

Question 1

Demand (Quantity demanded)

Answer 1

The amount of a good or service bought at a given price over a period of time.

Question 2

The Law of Demand

Answer 2

There is a negative casual relationship between quantity demanded and price.

(Casual = not always linear)

Question 3

Income effect

Answer 3

Change in consumption resulting from a change in real income.

Question 4

Substitution effect

Answer 4

The economic understanding that as prices rise (or as income decreases) consumers will replace more expensive items with less costly alternatives.

Question 5

Demand Curve

Answer 5

The amount of a good or service bought at a range of prices over time.

Question 6

Qd =

Answer 6

a-bP

Question 7

A movement along the demand curve is caused by…

Answer 7

Price

Question 8

A shift in the demand curve is caused by…

Answer 8

Non-price factors

Question 9

Autonomous demand

Answer 9

The amount of demand at a price of zero. (x-int)

Question 10

Supply

Answer 10

The amount of a good or service produced at a given price over a period of time.

Question 11

Total Revenue (not the same as profit)

Answer 11

The amount generated of/from sales.

Question 12

TR =

Answer 12

P x Qs

Question 13

Qs =

Answer 13

c + dP

Question 14

Factors affecting supply

Answer 14

• Price
• Cost of production
• Technology
• Price of substitutes
• Systemic
• Taxes and subsidies

Question 15

Taxes

Answer 15

A payment from a firm to a government.

Question 16

Subsidy

Answer 16

A payment from a government to a firm, usually to decrease cost of production.

Question 17

Market Equilibrium

Answer 17

The price and quantity where demand and supply are equal.

Question 18

Excess demand

Answer 18

When demand exceeds supply - “shortage”

Question 19

AR (Average Revenue) =

Answer 19

Price (TR/Q)

Question 20

Consumer surplus (Cs)

Answer 20

Additional benefit gained by those willing to pay a price above equilibrium.

Question 21

Producer surplus (Ps)

Answer 21

Additional benefit gained by those willing to supply at a price below equilibrium.

Question 22

Community (Social) Surplus

Answer 22

Consumer surplus + Producer surplus

Question 23

Where is consumer surplus located on a graph?

Answer 23

Above price, below demand curve.

Question 24

Where is producer surplus located on a graph?

Answer 24

Below price, above supply curve.