Chapter 3

Question 1

Competitive market

Answer 1

A market where many sellers and buyers, so no single buyer can influence price

Question 2

Money price

Answer 2

Dollars given up in exchange for good or service

Question 3

Relative price

Answer 3

Ratio of price of one good or service compared to another good or service price

Question 4

If you demand something, then you…

Answer 4

1. Want it
2. Can afford t
3. Plan to buy it

Question 5

Wants

Answer 5

Unlimited desires or wishes for goods or serviices

Question 6

Quantity demanded

Answer 6

Amount of good or service consumers plan to buy at a given time

Question 7

Law of demand

Answer 7

Other things remaining same, higher price of good, smaller quantity demanded, lower price of good, greater quantity demanded

Question 8

Reasons why a higher price reduces quantity demanded

Answer 8

Substitution effect
Income effect

Question 9

Income effect

Answer 9

When price rises, other things remaining same the price rises relative to income

Question 10

Substituton effect

Answer 10

When price of good rises, other things remaining the same, its opportunity cost rises. Other goods can be used in their place

Question 11

Change in demand

Answer 11

Occurs when factors other than the price changes

Question 12

6 main factors that bring changes in demand

Answer 12

1. price of related goods
2. expected future prices
3. Income
4. Expected future income or credit
5. population
6. preferences

Question 13

Complement

Answer 13

Good used in conjunction with another good

Question 14

Change in quantity demanded

Answer 14

When change in quantity demanded occurs, there is movement along the curve
When price of good changes but no other influence on buying plans change

Question 15

Change in demand

Answer 15

Entire curve shifts
Price stays same but all other influences on buying plans change

Question 16

If a firm supplies a good or service the firm…

Answer 16

1. Has resources and technology to produce it
2. Can profit from producing it
3. Plans to produce and sell it

Question 17

Quantity supplied

Answer 17

Amount producers plan to sell during given time period at a particular price

Question 18

Supply

Answer 18

Refers to entire relationship between prce of a good and quantity supplied of it

Question 19

Law of supply

Answer 19

Other things remaining the same, higher the price of a good, greater the quantity supplied, lower the price of a good the smaller is the quantity supplied

Question 20

Quantity supplied

Answer 20

Refers to a point on a supply curve, quantity supplied at a price

Question 21

Minimum supply price

Answer 21

A minimum supply price curve, a curve where someone is willing to sell
Lowest price is the marginal cost

Question 22

6 main factors to change in supply

Answer 22

1. Prices of resources and other inputs
2. Prices of related goods produced
3. Expected future prices
4. Number of suppliers
5. Technology
6. State of nature

Question 23

Change in quantity supplied

Answer 23

Movement along supply curve
If only price changes and all other factors stay same

Question 24

Change in supply

Answer 24

Shift of supply curve
When all factors but price changes
Supply increases, curve shift right, when decreases shift left

Question 25

Equilibrum quantity

Answer 25

Quantity bought and sold n equilibrium price

Question 25

Equilibrum price

Answer 25

Price which quantity demanded equals quantity supplied
When price balances buying plans and selling plans