EKN Chapter 5

Question 1

Demand

Answer 1

A schedule showing the amounts of a good or service that buyers wish to purchase at various prices during some time period.

Question 2

Law of demand

Answer 2

The principle that, other things equal, an increase in a product’s price will reduce the quantity of it demanded, and conversely for a decrease in price.

Question 3

Diminishing marginal utility

Answer 3

The principle that, as a consumer increases the consumption of a good or service, the marginal utility obtained from each additional unit of the good or service decreases.

Question 4

Income effect

Answer 4

A change in the quantity demanded for a product that results from the change in real income(purchasing power) caused by a change in the product’s price.

Question 5

Substitution effect

Answer 5

A change in the quantity demanded of a consumer good that results from a change in its relative expensiveness caused by a change in the product’s price.

Question 6

Demand curve

Answer 6

A curve illustrating demand.

Question 7

Determinants of demand

Answer 7

Factors other than price that determine the quantities demanded of a good or service.

Question 8

Normal goods

Answer 8

A good or service whose consumption increases when income increases and falls when income decreases, price remaining constant.

Question 9

Inferior goods

Answer 9

A good or service whose consumption declines as income rises (and conversely), price remaining constant.

Question 10

Complementary goods

Answer 10

Products and services that are used together. When the price for one falls, the demand for the other increases ( and conversely).

Question 11

Substitute goods

Answer 11

Products or services that can be used in place of each other. When the price of one falls, the demand for the other product falls; conversely, when the price of one product rises, the demand for the other product rises.

Question 12

Change in demand

Answer 12

A change in the quantity demanded of a good or service at every price; a shift of the demand curve to the loft or right.

Question 13

Change in quantity demanded

Answer 13

A change in the amount of a product that consumers are willing and able to purchase because of a change in the product’s price.

Question 14

Supply

Answer 14

A schedule showing the amounts of a good or service that sellers will offer at various prices during some period.

Question 15

Law of supply

Answer 15

The principle that, other things equal, an increase in the price of a product will increase the quantity of it supplied, and conversely for a price decrease.

Question 16

Supply curve

Answer 16

A curve illustrating supply.

Question 17

Determinants of supply

Answer 17

Factors other than price that determine the quantities demanded of a good or service.

Question 18

Change in supply

Answer 18

A change in the quantity supplied of a good or service ate every price; a shift of the supply curve to the left or right.

Question 19

Change in quantity supplied

Answer 19

A change in the amount of a product that producers offer for sale because of a change in the product’s price.

Question 20

Equilibrium Price

Answer 20

The price in a competitive market at which the quantity demanded and the quantity supplied are equal, there is neither a shortage nor a surplus, and there is no tendency for price to rise or fall.

Question 21

Equilibrium quantity

Answer 21

The quantity demanded and supplied at the equilibrium price in a competitive market; the profit-maximizing output of a firm.

Question 22

Surplus

Answer 22

The amount by which the quantity supplied of a product exceeds the quantity demanded at a specific ( above-equilibrium) price

Question 23

Shortage

Answer 23

The amount by which the quantity demanded of a product exceeds the quantity supplied at at particular ( below equilibrium) price.

Question 24

Productive efficiency

Answer 24

The production of a good in a least costly way; occurs when production takes place at the output at which average total cost is a minimum and marginal product per rand’s worth of input is the same for all inputs.

Question 25

Allocative efficiency

Question 25

Price ceiling

Answer 25

A legally established max price for a good or service.

Question 26

Price floor

Answer 26

A legally determined min price above the equilibrium price.

Question 27

Consumer surplus

Answer 27

The difference between the max price a consumer is willing to pay for an additional unit of a product and its market price; the triangular area below the demand curve and above the market price.

Question 28

Producer surplus

Answer 28

The difference between the actual price a producer receives and the min acceptable price; the triangular area above the supply curve and below the market price.

Question 29

Efficiency losses/ Deadweight losses

Answer 29

Reductions in combined consumer and producer surplus caused by an under-or over-allocation of resources to the production of a good or service.