Chapter 3: Demand, Supply, and Market Equilibrium

Question 1

Demand

Answer 1

Schedule or a curve that shows the various amounts of a product that consumers are willing and able to purchase at each of a series of possible prices during a specified period of time

3.1

Question 2

Demand schedule

Answer 2

A table that shows demand for a specific product, and the quantity demanded for each price

3.1

Question 3

Law of demand

Answer 3

There is an inverse relationship between price and quantity demanded. As price goes up, demand goes down.

3.1

Question 4

Diminishing marginal utility

Answer 4

In any specific time period, each buyer of a product will derive less satisfaction from each successive unit of the product consumed.
Ex: the second big Mac will yield less satisfaction to a consumer than the first.

3.1

Question 5

Income effect

Answer 5

A lower price increases the purchasing power of a buyers money income, enabling the buyer to purchase more of the product than before

3.1

Question 6

Substitution effect

Answer 6

At a lower price, buyers have the incentive to substitute what is now a less expensive product for other products that are now relatively more expensive

3.1

Question 7

Demand curve

Answer 7

A curve that reflects the law of demand. Price goes on the vertical axis with the quantity demanded on the horizontal axis.

3.1

Question 8

Determinants of demand

Answer 8

Factors that can and do affect purchases. They are assumed to be constant when a demand curve is drawn.

3.1

Question 9

Normal goods

Answer 9

Products, whose demand varies directly with money income

3.1

Question 10

Inferior goods

Answer 10

Goods whose demand varies inversely with money income. Ex: used clothes at thrift stores

3.1

Question 11

Substitute good

Answer 11

One that can be used in place of another good

3.1

Question 12

Complementary good

Answer 12

One that is used together with another good

Question 13

Independent goods

Answer 13

Goods that are related to one another

Question 14

The seven determinants of demand

Answer 14

1. A favorable change in consumer tastes.
2. An increase in the number of buyers.
3. Rising incomes of the product is a normal good.
4. Falling incomes at the product is an inferior good.
5. An increase in the price of a substitute good
6. A decrease in the price of a complementary good.
7. A new consumer expectation that prices or income will be higher in the future.

3.1

Question 15

Refer to table 3.1 for helpful info on demand

Answer 15

3.1

Question 16

Change in demand

Answer 16

A shift of the demand curve to the right, or to the left. Occurs when a consumers state of mind about purchasing a product has been altered in response to a change in one or more of the determinants of demand.

3.1

Question 17

Change in quantity demanded

Answer 17

A movement from one point to another point on a fixed demand curve

3.1

Question 18

Supply

Answer 18

Schedule or curve showing the various amounts of a product that producers are willing and able to make available for sale at each of a series of possible prices during a specific period

3.2

Question 19

Supply schedule

Answer 19

A table that shows supply for a specific product and the quantity supplied for each price

3.2

Question 20

Law of supply

Answer 20

A positive/direct relationship that prevails between price and quantity supplied. As price rises, quantity supplied rises. And as price decreases, quantity supplied decreases.

3.2

Question 21

Supply curve

Answer 21

A curve that reflects the law of supply with an upward slope curve

3.2

Question 22

The six determinants of supply

Answer 22

1. Resource prices
2. Technology
3. Taxes and subsidiaries
4. Prices of other goods
5. Producer expectations
6. The number of sellers in the market

3.2

Question 23

Refer to table 3.2 for helpful info

Answer 23

3.2

Question 24

Change in supply

Answer 24

A change in the schedule and a shift of the curve

Question 25

Change in quantity supplied

Answer 25

A movement from one point to another on a fixed supply curve.

3.2

Question 26

Equilibrium price

Answer 26

The price where the intentions of buyers and sellers match. Qs=Qd

3.3

Question 27

Equilibrium quantity

Answer 27

The quantity at which the intentions of buyers and sellers match, so that Qs = Qd

3.3

Question 28

Surplus

Answer 28

Excess supply that occurs when Qs > Qd.

3.3

Question 29

Shortage

Answer 29

Qd > Qs, excess demand

Question 30

Productive efficiency

Answer 30

The production of any particular good in the least costly way

3.3

Question 31

Allocative efficiency

Answer 31

The particular mix of goods and services most highly valued by society.

3.3

Question 32

Price ceiling

Answer 32

Sets the maximum legal price a seller may charge for a product or service. Any price above it is illegal

3.3

Question 33

Refer to table 3.3 for helpful info

Answer 33

3.3

Question 34

Price floor

Answer 34

A minimum price fixed by the government. Prices below it are illegal.

3.3