Chapter 3 Vocab - Supply and Demand

Question 1

Define: Demand curve

Answer 1

A function that shows the quantity demanded at different prices

Question 2

Define: Quantity demanded

Answer 2

The quantity that buyers are willing and able to buy at a particular price

Question 3

Define: Consumer surplus

Answer 3

The consumer’s gain from exchange, or the difference between the maximum price a consumer is willing to pay for a certain quantity and the market price

Question 4

Define: Total consumer surplus

Answer 4

The area beneath the demand curve and above the price

Question 5

Formula for calculating consumer surplus

Answer 5

The area of a triangle: 1/2 base x height

Question 6

Define: Normal good

Answer 6

A good for which demand increases when income increases

Question 7

Define: Inferior good

Answer 7

A good for which demand decreases when income increases

Question 8

Effect of price on substitute goods

Answer 8

A decrease in the price of one good leads to a decrease in demand for the other good (and vice versa)

Question 9

Effect of price on complement goods

Answer 9

A decrease in the price of one good leads to an increase in the demand for the other good (and vice versa)

Question 10

Define: Supply curve

Answer 10

A function that shows the quantity supplied at different prices

Question 11

Define: Quantity supplied

Answer 11

The amount of a good that sellers are willing and able to sell at a particular price

Question 12

Define: Producer surplus

Answer 12

The producer’s gain from exchange, or the difference between the market price and the minimum price at which a producer would be willing to sell a particular quantity

Question 13

Define: Total producer surplus

Answer 13

The area above the supply curve and below the price

Question 14

What does a change in demand do to the demand curve?

Answer 14

It shifts the curve in its entirety

Question 15

What does a change in quantity demanded do to the demand curve?

Answer 15

It moves one point on the demand curve along the curve

Question 16

What does a change in supply do to the supply curve?

Answer 16

It shifts the curve in its entirety

Question 17

What does a change in the quantity supplied do to the supply curve?

Answer 17

It moves one point on the supply curve along the curve

Question 18

When the price of a good increases, the quantity demanded ____________. When the price of a good decreases, the quantity demanded ____________.

Answer 18

Decreases, increases

Question 19

When the price of a good increases, the quantity supplied ____________. When the price of a good decreases, the quantity supplied ____________.

Answer 19

Increases, decreases