Chapter 3 - Supply and Demand

Question 1

Demand

Answer 1

Amount of some good or service consumers are willing and able to purchase at each price

Question 2

Quantity demanded

Answer 2

Total units purchased at a set price

Question 3

A rise in price does what to quantity demanded?

Answer 3

Decreases demand

Question 4

A fall in price does what to quantity demanded?

Answer 4

Increases demand

Question 5

Law of demand

Answer 5

Relationship between price and quantity demanded

Question 6

Demand schedule

Answer 6

Shows quantity demanded at each price

Question 7

Demand curve

Answer 7

Shows quantity demanded at each price on a graph. Slope down from left to right

Question 8

Supply

Answer 8

Amount of some good or service a producer is willing to supply at each price

Question 9

Quantity supplied

Answer 9

Total units sold at a set price

Question 10

A rise in price does what to quantity supplied?

Answer 10

Increases supply

Question 11

A fall in price does what to quantity supplied?

Answer 11

Decreases supply

Question 12

Law of supply

Answer 12

Relationship between price and quantity supplied

Question 13

Supply schedule

Answer 13

Shows quantity supplied at each price

Question 14

Supply curve

Answer 14

Shows quantity supplied at each price on a graph. Slopes upward from left to right

Question 15

Equilibrium price

Answer 15

When both charted on a graph together, where supply and demand curves intersect. Where customers and producers agree.

Question 16

Surplus

Answer 16

Excess supply, usually above equilibrium price

Question 17

Shortage

Answer 17

Excess demand, usually below equilibrium price

Question 18

Ceteris Paribus

Answer 18

“All other things being equal.” A supply or demand curve is only affected by two variables (in a perfect scenario)

Question 19

6 factors that shift demand curves

Answer 19

1. Income
2. Changes in preferences
3. Aging population
4. Changes in expectations of prices
5. Substitution price changes
6. Complements price changes

Question 20

Inferior goods

Answer 20

A product whose demand falls when income rises and vice versa

Question 21

Substitute

Answer 21

Similar goods, that if one has a lower price, the other will not sell as well. Good A sells for $100 so Good B won’t sell for $120

Question 22

Complements

Answer 22

Different goods, that if one sells, usually so does the other. Good A is peanut butter and Good B is bread

Question 23

Shift in demand

Answer 23

A change in an economic factor, other than price, causes a different quantity to be demanded at every price

Question 24

Shift in supply

Answer 24

A change in an economic factor, other than price, causes a different quantity to be supplied at every price

Question 25

4 factors that shift supply curves

Answer 25

1. Conditions for production
2. Input pricing
3. Technology improvements
4. Taxes and regulations

Question 26

What is the four step process?

Answer 26

1. Draw a model of before the economic event took place
2. Decide if event changes demand or supply
3. Decide whether this change shifts the curve to the left or right
4. Identify the new equilibrium and compare to the original

Question 27

2 kinds of price controls

Answer 27

Price ceiling and price floor

Question 28

Price floor

Answer 28

Keeps a price from falling below a certain level. It if is set above the equilibrium price, quantity supplied will exceed quantity demanded, and surpluses will result.

Question 29

Price ceiling

Answer 29

Keeps a price from rising above a certain level. If it is set below the equilibrium price, quantity demanded will exceed quantity supplied, and shortages will result.

Question 30

Consumer surplus

Answer 30

Amount people would have been willing to pay minus amount they actually paid

Question 31

Producer surplus

Answer 31

Amount a seller is paid for something minus actual cost of the thing

Question 32

Social surplus

Answer 32

Consumer surplus plus producer surplus

Question 33

Deadweight loss

Answer 33

The loss in social surplus that occurs when the economy produces at an inefficient quantity

Question 34

What is Alfred Marshall’s famous quote?

Answer 34

Asking whether supply or demand determined a price was like arguing “whether it is the upper or the under blade of a pair of scissors that cuts a piece of paper.” Both blades of the demand and supply scissors are always involved