Chapter 3: The Market at Work: Supply and Demand

Question 1

resources are allocated among households and firms with little or no government intervention

Answer 1

market economy

Question 2

phrase coined by Adam Smith to refer to the unobservable market forces that guide resources to their highest-valued use

Answer 2

invisible hand

Question 3

exists when there are so many buyers and sellers that each has only a small or negligible impact on the market price and output

Answer 3

competitive market

Question 4

market in which either the buyer or seller can influence the market price

Answer 4

imperfect market

Question 5

a firm’s ability to influence the price of a good or service by exercising control over its demand, supply, or both

Answer 5

market power

Question 6

exists when a single company supplies the entire market for a good or service

Answer 6

monopoly

Question 7

the amount of a good or service that buyers are willing and able to purchase at the current price

Answer 7

quantity demanded

Question 8

states that, all other things being equal, quantity demanded falls when the price rises, and rises when the price falls

Answer 8

law of demand

Question 9

table that shows the relationship between the price of the good and the quantity demanded

Answer 9

demand schedule

Question 10

graph of the relationship between the prices in the demand schedule and the quantity demanded at those prices

Answer 10

demand curve

Question 11

the sum of all the individual quantities demanded by each buyer in the market at each price

Answer 11

market demand

Question 12

the value of your income expressed in terms of how much you can afford

Answer 12

purchasing power

Question 13

something that consumers buy more of as income rises, holding all other factors equal

Answer 13

normal good

Question 14

purchased out of necessity rather than choice

Answer 14

inferior good

Question 15

two goods that are used together, when the price of one good rises, the demand for the related good goes down

Answer 15

complements

Question 16

two goods that are used in place of each other, when the price of one good rises, the demand for the other good goes up

Answer 16

substitutes

Question 17

the amount of a good or service that producers are willing and able to sell at the current price

Answer 17

quantity supplied

Question 18

states that, all other things being held equal, the quantity supplied of a good rises when the price of the good rises, and falls when the price falls

Answer 18

law of supply

Question 19

a table that shows the relationship between the prices and the quantity supplied at those prices

Answer 19

supply schedule

Question 20

graph of the relationship between the prices in the supply schedule and the quantity supplied at those prices

Answer 20

supply curve

Question 21

the sum of the quantities supplied by each seller in the market at each price

Answer 21

market supply

Question 22

resources used in the production process

Answer 22

inputs

Question 23

payment made by the government to encourage the consumption or production of a good or service

Answer 23

subsidy

Question 24

occurs at the point where the demand curve and supply curve intersects

Answer 24

equilibrium

Question 25

the price at which the quantity supplied is equal to the quantity demanded, also known as the market-clearing price

Answer 25

equilibrium price

Question 26

the amount at which the quantity supplied is equal to the quantity demanded

Answer 26

equilibrium quantity

Question 27

states that the market price of any good will adjust to bring the quantity supplied and the quantity demanded into balance

Answer 27

law of supply and demand

Question 28

occurs whenever the quantity supplied is less than the quantity demanded, also called excess demand

Answer 28

shortage

Question 29

occurs whenever the quantity supplied is greater than the quantity demanded, also called excess supply

Answer 29

surplus