Chapter 4: The Market Forces of Supply and Demand

Question 1

A market must satisfy these 3 conditions to be considered a “perfectly competitive market”

Answer 1

1. the product is identical
2. there are multiple buys and sellers
3. free entry and exit

Question 2

The foreign exchange rate is a perfect example of a

Answer 2

perfectly competitive market

Question 3

the quantity demanded for a good by an individual at different prices is

Answer 3

Individual Demand

Question 4

Determinants of individual demand include:

Answer 4

1. the price of the product
2. income
3. prices of related goods
4. tastes
5. govt policies such as taxes
6. expectations

Question 5

Price ________ as demand _______

Answer 5

decreases, increases

Question 6

the market quantity demanded at different prices is the

Answer 6

Market Demand

Question 7

the market quantity demanded and the price are_________ related

Answer 7

negatively related

Question 8

an increase in price _____________ the quantity demanded

Answer 8

reduces

Question 9

“an increase in the price of a good reduces its market quantity demanded” is the Law of

Answer 9

Demand

Question 10

A market demand curve depicts

Answer 10

the market quantity demanded and different prices, downward sloping

Question 11

a change in price causes a _________ along the demand curve

Answer 11

movement

Question 12

Income determinants of market demand include

Answer 12

Normal Goods and Inferior Gods

Question 13

Price determinants of related goods include

Answer 13

the price of a substitutes, the price of complements, tastes, expectations, govt polices such as taxes, number of buyers

Question 14

a Normal Good is a good for which

Answer 14

other things equal, an increase in income leads to an increase in demand

Question 15

an increase in demand shift the market demand curve to the

Answer 15

right

Question 16

An Inferior good is a good for which

Answer 16

other things equal, an increase in income leads to a decrease in demand

Question 17

a decrease in demand shifts the demand curve to the

Answer 17

left

Question 18

for a Normal Good; if income increases, demand _______ and the demand curve_____________

Answer 18

increases; shifts to the right

Question 19

for a Normal good; if income decreases, demand _______ and the demand curve _____________

Answer 19

decreases; shifts to the left

Question 20

for an Inferior Good; if income increases, demand __________ and the demand curve _____________

Answer 20

decreases; shifts to the left

Question 21

for and Inferior good; if income decreases, demand __________ and the demand curve ______________

Answer 21

increases; shifts to the right

Question 22

people reducing their consumption of margarine as their income increases is an example of

Answer 22

an Inferior Good

Question 23

people consuming more margarine as their income increases is an example of a

Answer 23

Normal Good

Question 24

a change in the price of a product represents a

Answer 24

movement along the demand curve

Question 25

a change in the other determinant of the demand for a product represents a

Answer 25

shift in the demand curve

Question 26

the quantity supplied of a good by an individual produced at different prices is the

Answer 26

Individual Supply

Question 27

Determinants of Individual Supply include;

Answer 27

1. the price of the product
2. input prices
3. technology and technological progress
4. govt policies such as taxes

Question 28

an upward individual supply curve depicts a

Answer 28

positive relationship between the price and an individual quantity supplied

Question 29

the market quantity supplied at different prices is the

Answer 29

Market Supply

Question 30

as price increases, individual or market supply price

Answer 30

increases

Question 31

an increase in an input price ___________the production cost

Answer 31

increases

Question 32

technology determines

Answer 32

the production process used in producing a good

Question 33

Suppose the government imposes a tax on producers producing a product. Producers not only have to pay for all the inputs required in the production, but they also need to pay taxes. Taxes cause a

Answer 33

decrease in profit and reduce supply (The market supply curve shifts to the left)

Question 34

market supply __________ as individual supply ___________

Answer 34

decrease; decrease

Question 35

the market supply shifts to the left if there is an _________ in an input price

Answer 35

increase

Question 36

what was the main reason for the collapse of the soviet union economy?

Answer 36

poor allocation of the resources

Question 37

what determines market equilibrium

Answer 37

market demand and market supply

Question 38

market equilibrium is referred to as

Answer 38

the state of the market in which no further changes will occur

Question 39

at what point is the market equilibrium at

Answer 39

the intersection

Question 40

When market demand=market supply we are at a

Answer 40

equilibrium, no change in price

Question 41

If market demand is less than market supply

Answer 41

we have excess supply, price surplus

Question 42

if market demand is greater than market supply

Answer 42

we have excess supply, price shortage

Question 43

If something happened that affected equilibrium whether it’s an event or catastrophe,etc.The price needs to

Answer 43

adjust for bringing the market to the new equilibrium where demand equals to supply once again.

Question 44

a change in the equilibrium price will lead to

Answer 44

a change in the equilibrium quantity

Question 45

other things equal, the quantity supplied of a good rises when a price of the good rises is the law of

Answer 45

supply