Demand, Supply and market equilibrium in Perfect competition

Question 1

When there is specialization ?

Answer 1

There must be exchange trough markets.

Question 2

A firm ?

Answer 2

An organization that transforms resources (inputs) into products (outputs).

Firms are the primary producing unit in a market economy.

Question 3

All firms exist to ?

Answer 3

Transform resources into things that people want.

Question 4

An entrepreneur is ?

Answer 4

A person who organized, manages, and assumes the risks of a firm, taking a new idea or product and turning it into a successful business.

Question 5

Households are ?

Answer 5

The consuming units in an economy.

Question 6

Product or output markets ?

Answer 6

Markets in which goods and services are exchanged.

Firms supply and household demand.

Question 7

Input or factor markets ?

Answer 7

Markets in which resources used to produce products are exchanged.

Question 8

A capital market ?

Answer 8

An input market in which households supply their savings for interest or for claims to future profits, to firms that demand funds to buy capital goods.

Question 9

A Labor market ?

Answer 9

An input market in which households supply work for wages to firms that demand labor.

Question 10

A land market ?

Answer 10

An input market in which households supply land or other real property in exchange for rent.

Question 11

Factors of production ?

Answer 11

The inputs into the production process, land, labor and capital are 3 key factors of production.

Question 12

Input and output market are connected ?

Answer 12

Trough the behavior of both firms and households.

Question 13

Price are determined by ?

Answer 13

The interaction between demanders and suppliers

Question 14

The Quantity Demanded ?

Answer 14

The amount of a product that a household would buy in a given period if it could buy all it wanted to the current market place.

Question 15

Changes in the price of a product affect ?

Answer 15

The quantity demanded per period

Question 16

Changes in factors, like income or preferences affect ?

Answer 16

Demand !

Question 17

A demand schedule ?

Answer 17

A table showing how much of a given product a household would be willing to buy at different prices.

Question 18

A demand curve ?

Answer 18

A graph illustrating how much of a given product a household would be willing to buy at different prices.

Question 19

The law of demand ? (Marshall, 1890)

Answer 19

The negative relationship between price and quantity demanded: As price falls, quantity demanded increases. As prices rises, quantity demanded decreases.

Question 20

Demand in a given period is ?

Answer 20

Limited, even at a zero price.

Question 21

The income ?

Answer 21

The sum of all household’s wages, interests payments, rents and other forms of earnings in a given period of time.
It’s a flow measure.

Question 22

Wealth or net worth ?

Answer 22

The total value of what a household own minus what it owes.

It’s a Stock measure.

Question 23

Normal goods are ?

Answer 23

Goods for which demand goes up when income is higher and for which demand goes down when income is lower.

Question 24

Inferior goods are ?

Answer 24

Goods for which demands tend to fall when income rises.

Question 25

Substitutes ?

Answer 25

Goods that can serve as replacements for one another; when the price of one increases, demand for the other goes up.

Question 26

Perfect substitutes ?

Answer 26

Are identical products.

Question 27

Complementary goods ?

Answer 27

Are goods that “go together”, a decrease in the price of one results in an increase in demand for the other, and vice versa.

Question 28

A shift of a demand curve is ?

Answer 28

The change that takes place in a demand curve corresponding to a new relationship btw quality demanded of a good and price of that food.

The shift is brought about by a change in the original conditions.

Question 29

A movement along a demand curve is ?

Answer 29

The change in quantity demanded brought about by change in price.

Question 30

Wren income increases ?

Answer 30

The demand for inferior goods shifts to the left and the demand for normal goods shift to the right.

Question 31

Change in price of a good or service ?

Answer 31

Change in quantity supplied.

Movement along a supply curve.

Question 32

Change in costs, inputs prices, technology, or prices of related goods and services

Answer 32

Change in supply.

Shift of supply curve.

Question 33

A market supply ?

Answer 33

The sum of all that is supplied each period by all producers of a single product.

Question 34

The equilibrium ?

Answer 34

The condition that exists when quantity supplied and quantity demanded are equal. At equilibrium, there is no tendency for price to change.

Question 35

Excess demand/Shortage ?

Answer 35

The condition that exists when quantity demanded exceeds quantity supplied at the current price.

Question 36

Excess supply/Supply ?

Answer 36

The condition that exists when quantity supplied exceeds quantity demanded at the current price.