Chpt 3: Where Prices Come From: The Interaction of Demand and Supply

Question 1

Perfectly Competitive Market

Answer 1

A market that meets the conditions of having (1) many buyers and sellers, (2) all firms selling identical products, and (3) no barriers to new firms entering the market.

Question 2

Demand Schedules

Answer 2

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

Question 3

Quantity Demanded

Answer 3

The Amount of a good or service that a consumer is willing and able to purchase at a given price

Question 4

Demand Curve

Answer 4

A curve that shows the relationship between the price of a product and the quantity of the product demanded

Question 5

Market Demand

Answer 5

The demand by all consumers of a given good or service

Question 6

Law of Demand

Answer 6

A rule that states that, holding everything else constant, when the price of a product falls, the quantity demanded of the product will increase, and when the price of a product rises, the quantity demanded of the product will decrease.

Question 7

Substitution Effect

Answer 7

The Change in the quantity demanded of a good that results from a change in price making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power.

Question 8

Income Effect

Answer 8

The change in quantity demanded of a good that results from the effect of a change in price on consumer purchasing power, holding all other factors constant.

Question 9

Ceteris Paribus Condition

Answer 9

(“All else equal”) The requirement that when analyzing the relationship between two variables - such as price and quantity demanded - other variables must be held constant

Question 10

Normal Good

Answer 10

A good for which the demand increases as income rises and decreases as income falls

Question 11

Inferior Good

Answer 11

A good for which the demand increases as income falls and decreases as income rises

Question 12

Substitutes

Answer 12

Goods and services that can be used for the same purpose

Question 13

Complements

Answer 13

Goods and services that are used together

Question 14

Demographics

Answer 14

The characteristics of a population with respect to age, race, and gender

Question 15

Quantity Supplied

Answer 15

The amount of a good or service that a firm is willing and able to supply at a given price

Question 16

Supply Schedule

Answer 16

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

Question 17

Supply Curve

Answer 17

A curve that shows the relationship between the price of a product and the quantity of the product supplied

Question 18

Law of Supply

Answer 18

A rule that states that, holding everything else constant, increases in price cause increases in the quantity supplied, and decreases in price cause decreases in quantity supplied

Question 19

Technological Change

Answer 19

A positive or negative change in the ability of a firm to produce a given level of output with a given quantity of inputs

Question 20

Market Equilibrium

Answer 20

A situation in which quantity demanded equals quantity supplied

Question 21

Competitive Market Equilibrium

Answer 21

A market Equilibrium with many buyers and sellers

Question 22

Surplus

Answer 22

A situation where the quantity supplied is greater than the quantity demanded

Question 23

Shortage

Answer 23

A situation in which the quantity demanded is greater than the quantity supplied

Question 24

Natural Disasters

Answer 24

A hurricane, Flood or similar act of nature that causes damage to stores, factories, or office buildings

Question 25

Pandemic

Answer 25

A situation in which a disease becomes sufficiently widespread as to significantly affect economic activity