Chapter 4(supply and demand)

Question 1

What is the Study of supply and demand?

Answer 1

the study of how people react to changes in prices and external shocks

Question 2

demand

Answer 2

how buyers behave and interact with sellers

Question 3

supply

Answer 3

how sellers behave and interact with buyers

Question 4

market

Answer 4

the medium through which buyers and sellers interact using prices

Question 5

competitive market

Answer 5

a market in which there are so many buyers and sellers that no one player has the power to significantly affect the price

Question 6

perfectly competitive market

Answer 6

a market in which there are so many buyers and sellers that no one player has the power to affect the price at all. In other words, all buyers and sellers are price takers

Question 7

quantity demanded

Answer 7

the amount of a good that buyers are willing and able to purchase at a given price

Question 8

law of demand

Answer 8

the idea that the quantity demanded of a good falls when the price rises

• higher price, less you buy
• lower price, more you buy

Question 9

demand schedule

Answer 9

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

Question 10

demand curve

Answer 10

a graph of the relationship between the price of a good and the quantity demanded

Question 11

individual demand

Answer 11

quantity each buyer is willing and able to purchase at any given price
-quantity on x axis, price on y axis

Question 12

market demand

Answer 12

the summation of all individual demands

Question 13

what are 5 things that can shift the demand curve?

Answer 13

1) Income
2) price of related goods
3) tastes/preferences
4) expectations
5) number of buyers

Question 14

inferior good

Answer 14

good in which an increase in income = a decrease in demand (ex: taco bell only eat when broke)

Question 15

normal good

Answer 15

good in which an increase in income = increase in demand (ex: demand more sirloin when richer)

Question 16

substitutes

Answer 16

2 goods in which an increase in the price of one caused an increase in the demand for the other (ex: hot dogs and hamburgers)

Question 17

compliments

Answer 17

goods used 2gether: increase in the price of one = decrease in the demand of the other (ex: hot dogs and hot dog buns)

Question 18

an increase in demand causes the demand curve to shift ___

Answer 18

right

Question 19

a decrease in demand causes the demand curve to shift___

Answer 19

left

Question 20

What is the difference in the changes of a demand curve if the demand increases or if the quantity demanded increases

Answer 20

• demand increases: shift entire curve right

- quantity demanded increases: movement along demand curve

Question 21

quantity supplied

Answer 21

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

Question 22

law of supply

Answer 22

the idea the the quantity supplied of a good rises when the price (producers want to sell more when the price is high and less when the price is low)

Question 23

supply schedule

Answer 23

a table that shows the relationship between the price of a good and the quantity supplied

Question 24

supply curve

Answer 24

a graph of the relationship between the price of a good and the quantity supplied

Question 25

individual supply

Answer 25

quantity each seller is willing and able to sell at any given price

Question 26

market supply

Answer 26

the summation of all individual supply

Question 27

what 4 things can shift supply curve?

Answer 27

1) input prices (cost of inputs used for production) 2) technology 3) expectations (ex: think price of an input will go up, supply less 4) number of sellers

Question 28

an increase in supply shift the supply curve___and a decrease in supply shifts the supply curve___

Answer 28

- right | - left

Question 29

how does and increase in quantity supplied effect the supply curve?

Answer 29

it causes a movement along the curve

Question 30

equilibrium

Answer 30

when quantity demanded is equal to quantity supplied

Question 31

equilibrium quantity

Answer 31

the quantity demanded and quantity supplied at the equilibrium

Question 32

equilibrium price

Answer 32

the price at which quantity demanded and quantity supplied are equal

Question 33

surplus

Answer 33

situation in which quantity supplied is greater than quantity demanded

Question 34

shortage

Answer 34

situation in which quantity demanded is greater than quantity supplied

Question 35

a price above the equilibrium price causes a ___

Answer 35

surplus

Question 36

a price below the equilibrium price cases a ___

Answer 36

shortage

Question 37

how does a change in price effect the supply and demand curves?

Answer 37

movement along the curves