Chapter Chapter 2 – Economic Models: Trade-offs and Trade

Question 1

law of demand

Answer 1

higher price for a good or a service, other things equal, leads people to demand a smaller quantity of that good or service.

Question 2

Two goods are substitutes if

Answer 2

if a rise in the price of one of the goods leads to an increase in the demand for the other good. For example, coffee and tea.

Question 3

Two goods are complements if

Answer 3

the rise in the price of one of the goods leads to a decrease in the demand for the other good. For example, coffee and sugar.

Question 4

Change in quantity demanded

Answer 4

movement along the curve
(caused by a change in price)

Question 5

Change in demand

Answer 5

shift of the demand curve
(caused by change in income, preference, price of related good)

Question 6

Change in quantity supplied

Answer 6

movement along the curve
(caused by a change in price)

Question 7

Change in supply

Answer 7

shift of the supply curve
(caused by something besides price
f.e. numbers of sellers, income)

Question 8

surplus

Answer 8

quantity supplied exceeds the quantity demanded.

Question 9

shortage

Answer 9

quantity demanded exceed the quantity supplied

Question 10

Positive Relationship

Answer 10

increase in the value of the one variable is associated with an increase in the value of the other variable

Question 11

Negative Relationship

Answer 11

an increase in the value of one variable is associated with a decrease of the value of the other variable