CHAPTER 4: The Market Forces of Supply and Demand

Question 1

the forces that make market economies work

Answer 1

supply
demand

Question 2

a group of buyers and sellers of a particular good or service

Answer 2

market

Question 3

perfectly competitive.

To reach this highest form of competition, a market must have two characteristics:

Answer 3

(1) The goods offered for sale are all exactly the same, and

(2) the buyers and sellers are so numerous that no single buyer or seller has any influence over the market price.

Question 3

a market in which there are many buyers and many sellers so that each has a negligible impact on the market price

Answer 3

competitive market

Question 4

Because buyers and sellers in perfectly competitive markets must accept the price the market determines,

Answer 4

price takers

Question 5

Not all goods and services, however, are sold in perfectly competitive markets.
Some markets have only one seller, and this seller sets the price. Such a seller is called a monopoly. Your local cable television company, for instance, may be a monopoly

Answer 5

monopoly

Question 5

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

Answer 5

demand schedule

Question 6

he amount of a good that buyers are willing and able to purchase

Answer 6

quantity demanded

Question 7

the claim that, other things being equal, the quantity demanded of a good falls when the price of the good rises

Answer 7

law of demand

Question 8

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

Answer 8

demand curve

Question 9

To analyze how markets work, we need to determine the _______, the sum of all the individual demands for a particular good or service.

Answer 9

market demand

Question 10

a good for which, other things being equal, an increase in income leads to an increase in demand

Answer 10

normal good

Question 11

a good for which, other things being equal, an increase in income leads to a decrease in demand

Answer 11

inferior good

Question 11

two goods for which an increase in the price of one leads to an increase in the demand for the other

Answer 11

substitutes

Question 12

two goods for which an increase in the price of one leads to a decrease in the demand for the other

Answer 12

complements

Question 13

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

Answer 13

quantity supplied

Question 14

the claim that, other things being equal, the quantity supplied of a good rises when the price of the good rises

Answer 14

law of supply

Question 15

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

Answer 15

supply schedule

Question 16

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

Answer 16

supply curve

Question 17

Any change that raises quantity supplied at
every price, such as a fall in the price of sugar, shifts the supply curve to the right and is called

Answer 17

increase in supply

Question 18

a situation in which the market price has reached the level at which quantity supplied equals quantity demanded

Answer 18

equilibrium

Question 18

any change that reduces the quantity supplied at every price shifts the supply curve to the left and is called

Answer 18

decrease in supply

Question 19

the price that balances quantity supplied and quantity demanded

Answer 19

equilibrium price

Question 20

the quantity supplied and the quantity demanded at the equilibrium price

Answer 20

equilibrium quantity

Question 21

a situation in which quantity supplied is greater than quantity demanded sometimes called excess supply

Answer 21

surplus

Question 22

a situation in which quantity demanded is greater than quantity supplied

Answer 22

shortage

Question 23

the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance

Answer 23

law of supply and demand

Question 24

______ refers to the position of the supply curve, whereas the_______
refers to the amount suppliers wish to sell

Answer 24

supply
quantity supplied