Econ CH. 3

Question 1

perfectly competitive market

Answer 1

1. many buyers and sellers
2. all firms selling identical products
3. no barriers to new firms entering the market

Question 2

market demand

Answer 2

demand by all consumers of a given good or service.

- investigating how buyers behave

Question 3

demand schedule

Answer 3

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

Question 4

demand curve

Answer 4

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

Question 5

ceteris paribus “all else equal” condition

Answer 5

requirement that when analyzing the relationship between two variables such as price and quantity demanded - other variables must be held constant

Question 6

quantity demanded

Answer 6

amount of a good/service that a consumer is willing and able to purchase at a given price

Question 7

law of demand

Answer 7

rule that states 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 8

what explains the law of demand?

Answer 8

1. consumers substitute towards the good when the price has fallen.
2. consumers have more purchasing power; increase in income

Question 9

substitution effect

Answer 9

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 10

income effect

Answer 10

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

Question 11

a change in something other than PRICE that AFFECTS demand causes the entire demand curve to shift

Answer 11

A shift to the RIGHTis an INCREASE in demand.

A shift to the LEFT is a DECREASE in demand

Question 12

as the demand curve shifts, the quantity demanded will change even if the price doesn’t

Answer 12

quantity demanded changes at every price

Question 13

variables that shift market demand

Answer 13

income
prices of related goods
tastes
population and demographics
future prices

Question 14

income demand

Answer 14

increase in income increases demand if product is normal, decreases demand if product is inferior

Question 15

prices of related goods in demand

Answer 15

increase in price of related good increases demand if products are substitutes, decreases demand if products are complements

Question 16

normal goods

Answer 16

goods for which the demand increases as income rises and decrease as income falls

ex: new clothes, vacations, restaurant meals

Question 17

inferior goods

Answer 17

goods for which the demand increases as income falls and decreases as income rises