Chapter 2 Supply, Demand, And Markets

Question 0

Each additional unit of a good produces less utility than the previous unit

Answer 0

Law of diminishing marginal utility

Question 1

“All else remaining equal” change one variable at a time

Answer 1

Cetaris Paribus

Question 2

People only demand a greater quantity of a good if price decreases

Answer 2

Law of demand

Question 3

Demand

Answer 3

Set of conditions that explain why people do or do not want to buy a product or service

Question 4

Expectations

Answer 4

Depending on what people expect to happen they may pay either more or less for a good

Question 5

Substitutes

Answer 5

When goods are substitutes for one another

Consumers will but the cheaper good

Question 6

Compliments

Answer 6

Goods that are directly related to one another

If price of one good increases it’s compliment will do the same

Question 7

Law of increasing costs

Answer 7

Extra output of a good can only occur at higher prices because inputs needed are becoming more scarce or that output is occurring at a lower efficiency

Question 8

Law of supply

Answer 8

Companies will only supply extra units of output if the market price increases

Question 9

Input goods

Answer 9

Used to make all goods or services
Generally drives the production costs
Can be land labor or capital prices

Question 10

Related outputs

Answer 10

Two or more goods that use the same inputs for production

Question 11

Equilibrium

Answer 11

State of natural balance

Question 12

Surplus

Answer 12

When quantity supplied is greater than the quantity demanded

Question 13

Shortage

Answer 13

When the quantity demanded is greater than the quantity supplied

Question 14

Price ceiling

Answer 14

Maximum prices that the government sets for certain products that society perceives to be too expensive

Question 15

Price floor

Answer 15

When the government sets prices on something that must be accepted as an absolute minimum

Question 16

Allocative efficiency

Answer 16

The output of each product at which it’s marginal cost and marginal benefit is equal

Question 17

Prices as rationing tools

Answer 17

The ability to establish a price at which selling and buying decisions are consistent

Question 18

Dictate where to allocate resources

Answer 18

Prices

Question 19

What are the determinates of demand

Answer 19

Change in income
Change in population
Expectations
Preferences
Substitutes
Compliments

Question 20

What are the determinates of supply

Answer 20

Number of firms
Input costs
Technology
Business environment
Related outputs

Question 23

Effects of a price floor

Answer 23

Decrease quantity demanded
Increase the quantity supplied
Leads to surplus

Question 24

What are the effects of a price ceiling

Answer 24

Increases quantity demanded
Decreases quantity supplied
Black markets and waiting lists develop

Question 25

Goals of any market

Answer 25

Allow PRICE to determine output
ALLOCATE the proper amount of resources to the economic activity
If supply or demand curves Shift, ALTER the LAND LABOR CAPITAL devoted to the market

Question 26

What if a good or service was so vital that we had to GUARANTEE access or output? How would we do this?

Answer 26

Government price controls

Question 27

Outcomes of a price ceiling

Answer 27

Shortages
Black markets
Waiting lines

Question 28

Outcomes of a price floor

Answer 28

Surplus
Misallocation of resources
Use of TAX dollars

Question 29

What is the problem with price ceilings and floors?

Answer 29

In either case, price signals are distorted. This causes INEFFICIENT resource allocation