Chapter 3 - Supply and Demand

Question 1

What is the Market Price?

Answer 1

• the price at which sellers and buyers conduct transactions

Question 2

What would be a perfectly competitive market?

1.
2.
3.
4.

Answer 2

• every buyer pays and every seller charges the
  same market price
• no buyer or seller is big enough to influence that market price
• all sellers sell an identical good or service
• because buyers and sellers must accept the market price as given, they are often called “ price takers”

Question 3

What is Quantity Demand?

Answer 3

• amount of a good that buyers are willing to purchase at a given price

Question 4

What is Demand Schedule?

Answer 4

• a table that reports the quantity demanded at different prices, holding all else equal

Question 5

What is the Law of Demand?

Answer 5

• the claim that, other things equal, the quantity demanded of a good falls when the price of the good rises

Question 6

When does the demand curve shift?

1.
2.
3.
4.
5.

Answer 6

• tastes and preference
• income and wealth
• availability and prices of related goods (substitutes, complements)
• number and scale of buyers
• buyer´s expectations about the future

Question 7

What is the law of dominishing marginal utility?

Answer 7

• relation between utility and quantity of a commodity
• consumptions increases, marginal utility increases less and less

Question 8

What is the quantity supplied?

Answer 8

• the amount of a good that sellers are willing to sell at a given price

Question 9

What is the supply schedule?

Answer 9

• a table that reports the quantity supplied at different prices

Question 10

What is the supply curve?

Answer 10

• plots the quantity supplied at different prices

Question 11

What is the law of supply?

Answer 11

• the supply curve has a positive slope – the higher the price, the larger the supply of goods

Question 12

When does the supply curve shift?

1.
2.
3.
4.

Answer 12

• input prices
• technology
• number and scales of sellers
• sellers expectations about the future

Question 13

What isa the competitive equilibirum?

Answer 13

• the point at which the market comes to an agreement
  about what the price will be and how much will be exchanged at that price

Question 14

What is…

1. the equilibrium price?
2. the equilibrium quantity?

Answer 14

1. the price that balances quantity supplied and quantity demanded
2. the quantity supplied and the quantity demanded at the equilibirum price

Question 15

What is Excess demand?

Answer 15

• occurs when consumers want more than suppliers provide at a given price
• results in a shortage