Chapter 3

Question 1

Markets

Answer 1

bring buyers and sellers together, in/not in person, standardized products bought and sold

Question 2

Demand curve represents

Answer 2

various amounts consumers are willing to and able to purchase a given product at specific price

Question 3

Demand is associated with (4)

Answer 3

other things equal, a specific time frame, individual demand and market demand

Question 4

describe the demand graph

Answer 4

price on y axis, quantity on x, decreasing curve, inverse relationship

Question 5

Law of Demand

Answer 5

negative/inverse relationship, price falls quantity rises

Question 6

supporting factors of law of demand (3)

Answer 6

diminishing marginal utility, Income/substitution effect,

Question 7

diminishing marginal utility

Answer 7

goods and services satisfaction decrease as product is bought repeatedly

Question 8

Income effect

Answer 8

price of g/s fall=consumer quantity rises with fixed income

Question 9

Substitution effect

Answer 9

consumers look for substitute products that are similar and are a better deal

Question 10

Market Demand

Answer 10

combination of all the individual buyers demands

Question 11

When would the demand curve shift

Answer 11

results in a full shift if a determinate other than price were to change

Question 12

Determinants of Demand (5)

Answer 12

consumers tastes, number of buyers, income, price of related goods, consumer expectations

Question 13

Normal Good

Answer 13

demand varies directly with money income

Question 14

inferior good

Answer 14

goods for which demand varies inversely with income

Question 15

increasing income effect on goods

Answer 15

increase demand for the better quality good and less for the less quality so it helps normal

Question 16

decreasing income effect on goods

Answer 16

decreases demand for better quality but raises demand for less quality so it helps inferior

Question 17

Substitute good

Answer 17

goods and service that can be used in place of each other ex butter and margine,

Question 18

complementary goods

Answer 18

goods and services used together ex phone and cell service

Question 19

unrelated goods

Answer 19

products unrelated, ex apple and car, increase or decrease of p have no effect

Question 20

Consumers expectations effect on demand

Answer 20

consumers predictions and expectations of products can shift demand curve in both directions ex they think price will go up=buy now, price will decline=save

Question 21

Shift of the whole demand curve is caused by

and is also called

Answer 21

determinant factor other than price

change in demand

Question 22

shift along the demand curve is caused by

and is also called

Answer 22

price changes of product

change in quantity demanded

Question 23

how demand increases by shifting to the right

Answer 23

favourable taste, increase #buyers, increase income, decrease inferior good, increase substitute, decrease complementary, consumer predicts high price in future

Question 24

Supply

Answer 24

amounts that producers are willing and able to produce/make available for sale at specific price

Question 25

Supply curve graph described

Answer 25

price on y axis, quantity supplied on x-axis, direct relationship (producer/firm view)

Question 26

Law of Supply

Answer 26

direct relationship, price is revenue!!, offer more product at high price than low to gain revenue

Question 27

Market Supply

Answer 27

total supply of all markets

Question 28

Consumer view

Answer 28

higher price we buy less

Question 29

Producer/firm view

Answer 29

higher price we supply more for revenue

Question 30

Determinants of Supply shifts (6)

Answer 30

factor price, technology, taxes and subsidies, price of other goods, producer expectations, #of buyers

Question 31

shift of supply curve is caused by | and is also called

Answer 31

change in determinant other than price | change in supply

Question 32

shift along supply curve and is also called

Answer 32

change in price of product being supplied | change in quantity of supply

Question 33

Equilibrium

Answer 33

QD=QS intensions of buyers and producers the same

Question 34

equilibrium price

Answer 34

price at which QD=QS

Question 35

Surplus

Answer 35

QS>QD

Question 36

define Rationing Function of prices

Answer 36

ability of competitive forces of demand, and supply to establish a price at which selling and buying decisions are consistent. push for equilibrium

Question 37

explain the meaning behind rationing function of prices

Answer 37

buyers who are willing and able to pay eqbm price will obtain product. those who cannot and will not do not obtain product. same for sellers only those who sell at eqbm will sell and those that don't sell at eqbm price will not sell

Question 38

Efficient Allocation

Answer 38

Production and Allocative Efficiency

Question 39

Production Efficiency

Answer 39

production of any good in least costly way while prodicing max quantity of goods

Question 40

Allocative Efficiency

Answer 40

producing goods and services highly valued by society

Question 41

how is equilibrium price changed

Answer 41

changes in shift of demand or supply curve

Question 42

Demand is also marginal

Answer 42

benefit of good

Question 43

supply is also marginal

Answer 43

cost of good

Question 44

Complex cases

Answer 44

when s and d change, effect is combination of individual effects and eqbm p and q may be predicted

Question 45

Government setting prices example

Answer 45

Price Ceiling, Price Floor

Question 46

Price Ceiling

Answer 46

legally establish maximum price for good and service, often creates a shortage

Question 47

price ceiling and shortage

Answer 47

if price ceiling is lower than original price to allow more people to buy, so a shortage is created

Question 48

price ceiling alternate rationing system

Answer 48

standing in line, coupons,

Question 49

what is the issue of counteracting price ceiling shortages

Answer 49

since consumers are willing to pay higher then government price, incentive under the table deals occur

Question 50

Price Floor

Answer 50

legally established price above equilibrium, leads to surplus

Question 51

price floor problems

Answer 51

society devotes to many resources to the price floor, inefficient produces do not exist in market, without price floor, higher cost producers don't make profit

Question 52

counteract price floor

Answer 52

government could buy surplus, or allow producers to take some of their inputs out of production

Question 53

Shortage

Answer 53

QS < QD