Chapter 4

Question 0

Quantity demanded

Answer 0

The amount of a good that buyers are willing and able to purchase
Central determinant: price

Question 1

Market

Answer 1

Group of buyers and sellers of a particular good/service
Buyers determine demand
Sellers determine supply

Question 2

Law of demand

Answer 2

Other things being equal, when the price of a good increases, quantity demanded decreases and vice versa

Question 3

Demand schedule

Answer 3

Table that shows the relationship between the price of a good and the quantity demanded

Question 4

Demand curve

Answer 4

Graphs demand schedule

Slopes downward bc lower price increases the quantity demanded

Question 5

Market demand

Answer 5

Sum of all individual demands of a particular good/services

Question 6

Market demand curve

Answer 6

Sum of individual horizontal demand curves

Question 7

Increase in demand

Answer 7

Any change that increases the quantity demanded at every price and shifts the demand curve to the right

Question 8

Decrease in demand

Answer 8

Any chance that reduces the quantity demanded at every price and shifts he demand curve to the left

Question 9

Variables that shift the demand curve

Answer 9

1. Income (normal vs inferior goods)
2. Prices of related goods (substitutes vs complements)
3. Tastes (demand more of taste)
4. Expectations (about the future)
5. Number of buyers (more buyers increase quantity demanded)

*curve shifts when there is a change in a relevant variable that isn’t measured on either axis

Question 10

Normal good

Answer 10

As income decreases, demand for the good decreases

Question 11

Inferior good

Answer 11

As income decreases, demand for the good increases (ex: bus vs car)

Question 12

Substitutes

Answer 12

Pairs of goods used in place of each other: a fall in price of one good decreases the demand for the other

Question 13

Complements

Answer 13

Pair of goods used together: when price of one good falls, demand for the other increases

Question 14

Quantity supplied

Answer 14

Amount of good/service that sellers are willing and able to sell

Question 15

Law of supply

Answer 15

Other things equal, when the price of a good rises, quantity supplied rises and vice versa

Question 16

Supply schedule

Answer 16

Table that shows the quantity supplied at each price

Question 17

Supply curve

Answer 17

Graphs supply schedule

Slopes upward bc quantity supplied increases with price

Question 18

Increase in supply

Answer 18

Any change that raises the quantity supplied at every price and shifts the supply curve to the right

Question 19

Decrease in supply

Answer 19

Any change that reduces the quantity supplied at every price and shifts the demand curve to the left

Question 20

Variables that shift the supply curve

Answer 20

1. Input prices (higher input price decreases supply)
2. Technology (raises supply)
3. Expectations (for the future)
4. Number of sellers

Question 21

Equilibrium

Answer 21

Where the supply and demand curves intersect
Equilibrium price
Equilibrium quantity

Question 22

At equilibrium price (market-clearing price)

Answer 22

QS=QD

Quantity that buyers are willing and able to buy exactly balances quantity sellers are willing and able to sell

Question 23

Surplus

Answer 23

Suppliers are unable to sell all that they want to sell at the going price
Solution: cut prices - raise demand - decrease supply

Question 24

Shortage

Answer 24

Demanders are unable to buy all they want at the going price | Solution: increase price - decrease demand - increase supply

Question 25

Why markets are a good way to organize economic activity

Answer 25

Regardless of whether the price starts off too high or too low, the activities of many buyers and sellers automatically push the market toward the equilibrium price

Question 26

Law of supply and demand

Answer 26

The price of any good adjusts to to bring the quantity supplied and the quantity demanded into balance

Question 27

Steps to analyzing changes in equilibrium

Answer 27

1. Decide whether the event shifts the supply or demand curve or both 2. Decide whether it shifts to the left or right 3. Use the supply and demand diagram to determine how the shift change the equilibrium price and quantity