CHAPTER 3

Question 1

Market

Answer 1

group of buyers and sellers with the potential to trade with each other.
economy is the collection of markets.

Question 2

product market

Answer 2

market in which firms sell goods and service to households

Question 3

resource market

Answer 3

market in which households that own resources sell them to firms

Question 4

draw circular flow model of economy

Answer 4

check

Question 5

Imperfectly competitive market

Answer 5

markets where individual buyers or sellers can control or influence the price
ex) Microsoft

Question 6

perfectly competitive market

Answer 6

buyers and sellers confronted with a market price can do little or nothing about.
ex) standardized product - wheat

Question 7

Quantity Demanded

Answer 7

number of units that all buyers in a market would choose to buy over a given time period, given the constraints they face

–> tells us how much households would choose to buy taking account the opportunity cost of their decisions.

Question 8

constraints of buyer

Answer 8

limited spending power –> OC

Question 9

Law of Demand

Answer 9

As the price of a good increases, and everything else remains the same, the quantity demanded decreases

Question 10

Demand Schedule

Answer 10

list of quantities demanded at different prices, ceteris paribus

Question 11

demand curve

Answer 11

relationship between the price of a good and the quantity demanded

Question 12

Shift and movement along demand curve

Answer 12

change in price - movement along

all other variables other than price - shifts

Question 13

Change in quantity demanded vs change in demand

Answer 13

Qd - movement along curve

change in demand - shift of curve

Question 14

diff btw Qd and demand

Answer 14

Demand is the quantity of a good or service that consumers are willing and able to buy at given prices during a period of time. whole curve

Quantity demanded is the amount of a good or service people will buy at a particular price at a particular time. point in curve

Question 15

Factors that shift the demand curve

Answer 15

Income - the amount that a person/firm makes over a particular period
normal and inferior good

wealth - the amount that a person/firm owns, at a particular time, minus amount owned

price of related goods
substitute and complement goods

population

expected price

tastes

gov. subsidy and tax

Question 16

Normal Good

Answer 16

A good that people demand more as income rises

Question 17

Inferior Good

Answer 17

A good that people demand less as income rises

Question 18

Substitute

Answer 18

A good that replaces another good.

Increase in price of substitute increases demand

Question 19

Complement

Answer 19

A good that goes together with another good

Increase in price of complement decreases demand

Question 20

Quantity Supplied

Answer 20

number of units of a good that all sellers in the market would choose to sell over some time period, given the constraints they face(cost of producing and selling)

Question 21

goal of suppliers

Answer 21

to maximise profit

Question 22

availability vs demand

Answer 22

availability doesn’t change the demand curve, but will affect price of good and amount ultimately bought –> movement along demand curve

Question 23

Quantity supplied is hypothetical

Answer 23

no assumption about firm’s ability to sell the good.

Hypothetical Q - how much would suppliers sell, given their constraints, if they were able to sell all that they wanted

Question 24

Quantity supplied depends on price

Answer 24

assume all other than price stays constant

Question 25

law of supply

Answer 25

when the price of a good rises, ceteris paribus, the quantity of good supplied will rise

Question 26

supply curve

Answer 26

upwards sloping relationship btw price of good and quantity supplied ceteris paribus

Question 27

Factors that shift the supply curve

Answer 27

Input prices - all that is needed to produce goods and services.

price of alternatives - Alternate supply/ market - market/supply other than the one analyzed in which same good is sold.

increase in price of alternative decreases supply
decrease in price of alternative increases supply

technology

of firms

expected price

change in weather and natural events

government tax and subsidies

Question 28

Equilibrium price and quantity

Answer 28

values for price and quantity in the market that once achieved, will remain constant until supply/demand curve shifts.

Question 29

Price below equilibrium

Answer 29

Excess demand. buyers compete and offer higher price. less demanded and more supplied when price rise

Question 30

price above equilibrium

Answer 30

excess supply. sellers compete to sell more, price decrease.