Chapter 3

Question 1

firm

Answer 1

An organization that transforms resources into products. Firms are the primary producing units in a market economy.

Question 2

entrepreneur

Answer 2

A person who organizes, manages, and assumes the risks of a firm, taking a new idea or a new product and turning it into a successful business.

Question 3

households

Answer 3

The consuming units in an economy.

Question 4

product/output markets

Answer 4

The markets in which goods and services are exchanged

Question 5

input/factor markets

Answer 5

The markets in which the resources used to produce goods and services are exchanged.

Question 6

labor market

Answer 6

The input/factor market in which households supply work for wages to firms that demand labor

Question 7

capital market

Answer 7

The input/factor market in which households supply their savings, for interest or for claims to future profits, to firms that demand funds to buy capital goods.

Question 8

land market

Answer 8

The input/factor market in which households supply land or other real property in exchange for rent.

Question 9

factors of production

Answer 9

The inputs into the production process. Land, labor, and capital are the three factors of production.

Question 10

quantity demanded

Answer 10

The amount of a product that a household would buy in a given period if it could buy all it wanted at the current market price.

Question 11

demand schedule

Answer 11

Shows how much of a given product a household would be willing to buy at different prices for a given time period.

Question 12

demande curve

Answer 12

A graph illustrating how much of a given product a household would be willing to buy at different prices.

Question 13

law of demand

Answer 13

The negative relationship between price and quantity demanded: Ceteris paribus, as price rises, quantity demanded decreases, vice versa.

Question 14

income

Answer 14

The sum of all a household’s wages, salaries, profits, interest payments, rents, and other forms of earnings in a given period of time. It’s a flow measure.

Question 15

wealth/net worth

Answer 15

The total value of what a household owns minus what is owes. It’s a stock measure.

Question 16

normal goods

Answer 16

Goods for which demand goes up when income is higher and for which demand goes down when income is lower.

Question 17

inferior goods

Answer 17

Goods for which demand tends to fall when income rises.

Question 18

substitutes

Answer 18

Goods that can serve as replacements for one another; when the price of one increases, demand for the other increases.

Question 19

complementary goods

Answer 19

Goods that “go together”; a decrease in the price of one results in an increase in the demand for the other and vice versa.

Question 20

shift of a demand curve

Answer 20

Brought about by a change in the original conditions

Question 21

movement along the demand curve

Answer 21

The change in quantity demanded broth about by a change in price.

Question 22

supply schedule

Answer 22

Shows how much of a product firms will seek at alternative prices.

Question 23

quantity supplied

Answer 23

The amount of a particular product that a firm at a particular price during a given time period

Question 24

law of supply

Answer 24

The positive relationship between price and quantity of goods supplied.

Question 25

market supply

Answer 25

The sum of all that is supplied each period by all producers of a single product.

Question 26

price rationing

Answer 26

The evening out of surpluses/shortages through market price.