Chapter 3: Market Demand and Supply; Chapter 4: Markets in Action

Question 1

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.

Answer 1

The law of demand

Question 2

• 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?

Answer 2

Market demand

Question 3

Change in quantity demanded: define.

Answer 3

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.

Question 4

How is a change in quantity demanded represented graphically?

Answer 4

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.

Question 5

Change in demand: define.

Answer 5

An increase or a decrease in the quantity demanded at each possible price based on a change in a nonprice determinant.

Question 6

How is change in demand represented graphically?

Answer 6

Changes in nonprice determinants can produce only a SHIFT in the demand curve along the horizontal access.

Question 7

What are 5 nonprice determinants of demand?

Answer 7

Number of buyers, tastes and preferences, income, expectation of buyers, prices of related goods

Question 8

What goods are jointly consumed with another good?

Answer 8

Complementary goods

Question 9

What goods compete with each other for consumer purchases?

Answer 9

Substitute goods

Question 10

What would happen to the demand/price for a good if its complementary good’s price increased?

Answer 10

The demand/price for the first good would decrease (inverse relationship for price changes of complementary goods)

Question 11

There is a direct result between a price change for one good and the demand for its “competitor” good. Which concept is being described?

Answer 11

Substitute goods

Question 12

The relationship between ranges of possible prices and quantities supplied is what?

Answer 12

The law of supply

Question 13

How would you construct a market supply curve?

Answer 13

By adding together the individual supply curves on the horizontal axis of all firms in an economy.

Question 14

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?

Answer 14

Normal good

Question 15

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?

Answer 15

Normal goods

Question 16

There is an inverse relationship between changes in income and its demand curve (as income rises, demand decreases, etc.) What goods are being described?

Answer 16

Inferior goods

Question 17

What is an example of an inferior good?

Answer 17

Used vehicle
Discount clothing
Generic brnads

Question 18

What is it called when consumers anticipate a future price change (price decrease, like a sale) and increase the demand?

Answer 18

Expectation of buyers

Question 19

What is a movement between points along a stationary supply curve, ceteris paribus?

Answer 19

A change in quantity supplied

Question 20

If the supply curve shifted leftward or rightward based on a change in a nonprice factor, what would be happening?

Answer 20

A change in supply

Question 21

If a resource price was increased, would this decrease or increase supply?

Answer 21

Decrease (inverse relationship)

Question 22

Is sellers anticipated a price increase for their product and reserved that product to increase profits, what nonprice determinant would they be operating under?

Answer 22

Expectations

Question 23

What happens when the opportunity cost of producing a new product increases?

Answer 23

The seller may shift resources from producing the old good to instead producing the new to yield a higher profit.

Question 24

An arrangement in which buyers and sellers interact to determine the price and quantity of goods and services exchanged. What is being described?

Answer 24

A market

Question 25

Quantity supplied is greater than the quantity demanded. What is this?

Answer 25

A surplus

Question 26

Quantity supplied is less than the quantity demanded. What is this?

Answer 26

A shortage

Question 27

If both quantity demanded and quantity supplied are equal, what exists?

Answer 27

Equilibrium

Question 28

_________ loss is the net loss of consumer and producer surplus from underproduction or overproduction of a product

Answer 28

Deadweight

Question 29

With an upward-sloping supply curve, which of the following is true?

Answer 29

An increase in price results in an increase in quantity supplied

Question 30

Which of the following results from an increase in the price of a one-week vacation at beach resorts on the coast of Mexico?

Answer 30

An increase in the demand for vacations at resorts on Caribbean islands

Question 31

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.

Answer 31

An inverse

Question 32

A curve that is derived by summing horizontally individual DEMAND curves is called: _________

Answer 32

Market demand

Question 33

A leftward shift in the demand curve is called: _________

Answer 33

A decrease in demand

Question 34

Under the law of demand, any increase in price will cause ________ in quantity demanded (movement between points along a stationary demand curve)

Answer 34

A decrease

Question 35

Increase in _________ causes both the equilibrium price and the equilibrium quantity to increase (a rightward shift)

Answer 35

Demand

Question 36

A curve that is derived by summing horizontally individual SUPPLY curves is called: _________

Answer 36

Market supply

Question 37

To construct a market supply curve, would you vertically or horizontally sum all the prices at various quantities that might prevail in the market?

Answer 37

Horizontally

Question 38

True or false: A movement between points along a stationary supply curve, ceteris paribus, is called a change in quantity demanded

Answer 38

False; it is an INCREASE in quantity supplied

Question 39

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

Answer 39

True

Question 40

True or false: A new equilibrium with a lower price and a lower quantity is created by a decrease in demand

Answer 40

True

Question 41

True or false: A new equilibrium with a lower price and a higher quantity is created by an increase in supply

Answer 41

True

Question 42

What happens when a price ceiling is established below the market equilibrium?

Answer 42

A shortage

Question 43

If the cost of producing a good rises for sellers, then how will this affect the market equilibrium for that good?

Answer 43

Price will rise and quantity will fall

Question 44

What occurs when market equilibrium results in too few or too many resources used in the production of a good or service?

Answer 44

Market failure

Question 45

What are 4 contributers of market failure?

Answer 45

1. Lack of competition
2. Externalities (people affected are called third parties; i.e., pollution to the environment
3. Public goods (no way to bar people from consuming the good or service)
4. Income inequality