Chapter 3

Question 1

Demand

Answer 1

A relationship between the price of a good and the quantity that consumers are willing and able to pay during a given period (o.t.c.)

Question 2

Law of Demand

Answer 2

The quantity of a good demanded during a given period relates inversely to its price (o.t.c.)

Question 3

Substitution Effect of a Price Change

Answer 3

When the price of a good falls, consumers substitute that good for other goods, which become relatively more expensive

Question 4

Money Income

Answer 4

The number of dollars a person receives per period, such as $400 per week

Question 5

Real Income

Answer 5

Income measured in terms of the goods and services it can buy

Question 6

Income Effect of a Price Change

Answer 6

A fall in the price of a good increases consumer’s real income making consumers more able to purchase goods; for a normal good, the quantity demanded increases

Question 7

Normal Good

Answer 7

A good, such as new clothes for which demand increases, or shifts rightward, as consumer incomes rise

Question 8

Demand Curve

Answer 8

A curve showing the relation between the price of a good and the quantity demanded during a given period (o.t.c.)

Question 9

Quantity Demanded

Answer 9

The amount demanded at a particular price, as reflected by a point on a given demand curve

Question 10

Market Demand

Answer 10

Sum of the individual demands of all consumers in the market

Question 11

Inferior Good

Answer 11

A good, such as used clothes, for which demand decreases, or shift leftward, as consumer income rise

Question 12

Substitutes

Answer 12

Goods, such as Coke and Pepsi, that are related in such a way that an increase in the price of one shifts the demand for the other rightward

Question 13

Complements

Answer 13

Goods, such as milk and cookies, that are related in such a way that an increase in the price of one shifts the demand for the other leftward

Question 14

Tastes

Answer 14

Consumer preferences; likes and dislikes in consumption; assumed to be constant along a given demand curve

Question 15

Movement along a Demand Curve

Answer 15

Change in quantity demanded resulting from a change in the price of a good

Question 16

Shift of a Demand Curve

Answer 16

Movement of a demand curve right or left resulting from a change in one of the determinants of demand other than the price of the good

Question 17

Supply

Answer 17

A relationship between the price of a good and the quantity that producers are willing and able to sell during a given period (o.t.c.)

Question 18

Law of Supply

Answer 18

The quantity of a good supplied during a given period is usually directly related to its price (o.t.c.)

Question 19

Supply Curve

Answer 19

A curve showing the relation between the price of a good and the quantity supplied during a given period

Question 20

Quantity Supplied

Answer 20

The amount offered for sale at a particular price, as reflected by a point on a given supply curve

Question 21

Individual Supply

Answer 21

The supply of an individual producer

Question 22

Market Supply

Answer 22

The sum of individual supplies of all producers in the world

Question 23

Relevant Resources

Answer 23

Resources used to produce the good in question

Question 24

Alternative Goods

Answer 24

Other goods that use some or all of the same resources as the good in question

Question 25

Movement Along a Supply Line

Answer 25

Change in quantity supplied resulting from a change in the price of the good (o.t.c.)

Question 26

Shift of a Supply Curve

Answer 26

Movement of a supply curve left or right resulting from a change in one of the determinants of supply other than the price of the goods

Question 27

Transactions Costs

Answer 27

The costs of time and information required to carry our market exchange

Question 28

Surplus

Answer 28

At a given price, the amount by which quantity supplied exceeds quantity demanded; a surplus usually forces the price down

Question 29

Shortage

Answer 29

At a given price, the amount by which quantity demanded exceeds quantity supplied; a shortage usually forces the price up

Question 30

Equilibrium

Answer 30

The condition that exists in a market when the plans of buyers match those of sellers, so quantity demanded equals quantity supplied and the market clears

Question 31

Disequilibrium

Answer 31

The condition that exists in a market when the plans of buyers do not match those or sellers; a temporary mismatch between quantity supplied and quantity demanded as the market seeks equilibrium

Question 32

Price Floor

Answer 32

A minimum legal price below which a good or service cannot be sold; to have an impact, a price floor must be set above the equilibrium price

Question 33

Price Ceiling

Answer 33

A maximum legal price above which a good or service cannot be sold; to have an impact, a price ceiling must be set below the equilibrium price