Chapter 3: Market Demand and Supply; Chapter 4: Markets in Action Flashcards
Which law is described? There is an inverse relationship between the price of a good and the quantity buyers are willing to purchase in a defined time period, ceteris paribus.
The law of demand
- The total amount of goods and services that all consumers are willing and able to purchase at a specific price in a marketplace. What is this concept?
Market demand
Change in quantity demanded: define.
Quantity demanded describes the total amount of goods or services demanded at any given point in time, depending on the price being charged for them in the marketplace.
How is a change in quantity demanded represented graphically?
A change in price on the vertical axis will cause an increase or decrease in quantity demanded (remember: inverse relationship), measured along the horizontal axis. A MOVEMENT.
Change in demand: define.
An increase or a decrease in the quantity demanded at each possible price based on a change in a nonprice determinant.
How is change in demand represented graphically?
Changes in nonprice determinants can produce only a SHIFT in the demand curve along the horizontal access.
What are 5 nonprice determinants of demand?
Number of buyers, tastes and preferences, income, expectation of buyers, prices of related goods
What goods are jointly consumed with another good?
Complementary goods
What goods compete with each other for consumer purchases?
Substitute goods
What would happen to the demand/price for a good if its complementary good’s price increased?
The demand/price for the first good would decrease (inverse relationship for price changes of complementary goods)
There is a direct result between a price change for one good and the demand for its “competitor” good. Which concept is being described?
Substitute goods
The relationship between ranges of possible prices and quantities supplied is what?
The law of supply
How would you construct a market supply curve?
By adding together the individual supply curves on the horizontal axis of all firms in an economy.
If you had an increase in your income and chose to buy a new vehicle instead of a used, what type of good would you be choosing?
Normal good
There is a direct relationship between changes in income and its demand curve (as income goes up, demand goes up, etc.) What types of goods is being described?
Normal goods
There is an inverse relationship between changes in income and its demand curve (as income rises, demand decreases, etc.) What goods are being described?
Inferior goods
What is an example of an inferior good?
Used vehicle
Discount clothing
Generic brnads
What is it called when consumers anticipate a future price change (price decrease, like a sale) and increase the demand?
Expectation of buyers
What is a movement between points along a stationary supply curve, ceteris paribus?
A change in quantity supplied
If the supply curve shifted leftward or rightward based on a change in a nonprice factor, what would be happening?
A change in supply
If a resource price was increased, would this decrease or increase supply?
Decrease (inverse relationship)
Is sellers anticipated a price increase for their product and reserved that product to increase profits, what nonprice determinant would they be operating under?
Expectations
What happens when the opportunity cost of producing a new product increases?
The seller may shift resources from producing the old good to instead producing the new to yield a higher profit.
An arrangement in which buyers and sellers interact to determine the price and quantity of goods and services exchanged. What is being described?
A market
Quantity supplied is greater than the quantity demanded. What is this?
A surplus
Quantity supplied is less than the quantity demanded. What is this?
A shortage
If both quantity demanded and quantity supplied are equal, what exists?
Equilibrium
_________ loss is the net loss of consumer and producer surplus from underproduction or overproduction of a product
Deadweight
With an upward-sloping supply curve, which of the following is true?
An increase in price results in an increase in quantity supplied
Which of the following results from an increase in the price of a one-week vacation at beach resorts on the coast of Mexico?
An increase in the demand for vacations at resorts on Caribbean islands
The law of demand is the principle that there is ________ relationship between the price of a good and the quantity buyers are willing to purchase in a defined time period, ceteris paribus.
An inverse
A curve that is derived by summing horizontally individual DEMAND curves is called: _________
Market demand
A leftward shift in the demand curve is called: _________
A decrease in demand
Under the law of demand, any increase in price will cause ________ in quantity demanded (movement between points along a stationary demand curve)
A decrease
Increase in _________ causes both the equilibrium price and the equilibrium quantity to increase (a rightward shift)
Demand
A curve that is derived by summing horizontally individual SUPPLY curves is called: _________
Market supply
To construct a market supply curve, would you vertically or horizontally sum all the prices at various quantities that might prevail in the market?
Horizontally
True or false: A movement between points along a stationary supply curve, ceteris paribus, is called a change in quantity demanded
False; it is an INCREASE in quantity supplied
True or false: A decrease in supply is a decrease in the quantity supplied at each possible price and is represented by a leftward shift in the entire supply curve
True
True or false: A new equilibrium with a lower price and a lower quantity is created by a decrease in demand
True
True or false: A new equilibrium with a lower price and a higher quantity is created by an increase in supply
True
What happens when a price ceiling is established below the market equilibrium?
A shortage
If the cost of producing a good rises for sellers, then how will this affect the market equilibrium for that good?
Price will rise and quantity will fall
What occurs when market equilibrium results in too few or too many resources used in the production of a good or service?
Market failure
What are 4 contributers of market failure?
- Lack of competition
- Externalities (people affected are called third parties; i.e., pollution to the environment
- Public goods (no way to bar people from consuming the good or service)
- Income inequality
