exam 1 chapter 3:

Question 1

What is a demand curve?

Answer 1

A function that shows the quantity demanded at different prices.

Question 2

What is Quantity demanded?

Answer 2

The quantity that buyers are willing and able to buy at a particular price.

Question 3

What explains how prices are determined?

Answer 3

Supply and demand, as they are able to generate the equilibrium for the market.

Question 4

How to read a demand curve horizontally vs. Vertically?

Answer 4

horizontal: At a given price how many people are willing to buy.
vertical: What are people willing to pay at a given price.

Question 5

Sellers –>?

Answer 5

Supply.

Question 6

Buyers –>?

Answer 6

Demand.

Question 7

What is the law of demand?

Answer 7

• Consumers will buy more of a given product at a lower price.
• When the price is high, consumers will use it only in its most valuable uses. ( to fill their car for a necessary trip)
• When the price for a good is low, individuals will use the good in its less valued form.

Question 8

What is the wealth effect?

Answer 8

when prices are too high for an item you have to buy less.

Question 9

What is the substitution effect?

Answer 9

When prices for an item get too high, you have to find somewhere else to go.

Question 10

What is equilibrium in a supply and demand curve example?

Answer 10

this is the price where the quantity supplied is equal to the quantity demanded.

Question 11

What is the independent variable in a supply and demand graph?

Answer 11

Price, and it is on the Y-axis.

Question 12

What is a normal good?

Answer 12

With an increase in salary, you buy more goods.

home renovations.

Question 13

What is an inferior good?

Answer 13

You buy less of a product as your income increases.

ramen

Question 14

What is a consumer surplus?

Answer 14

This is the consumer’s gain from an exchange; it is the difference between the maximum price a consumer is willing to pay and what they actually payed for the good.

Question 15

What is a total consumer suplus?

Answer 15

The area beneath the demand curve, but above the supply curve. this is typically the far left area on the graph.
(this would be a situation in which not many people were in the market and the price was very favorable.)

Question 16

How do you calculate the total consumer surplus, given that the demand curve is at $30 and you only ended up paying 10$ (which would equate to a demand of 70)

Answer 16

2

Question 17

How does an increase in the demand for a product effect the demand curve?

Answer 17

• It pushes the demand curve further to the right.
• At each price people are willing to buy more
• At each quantity people are willing to pay more.

Question 18

How does an increase in demand effect quantity and price?

Answer 18

At higher prices or as you move vertically on a supply/demand curve, It indicates that the buyer is willing to pay an increased price for the same quantity of good.

As you move lower and to the right: it indicates that you would be willing to buy more at the same price.

Question 19

How is a decrease in the demand curve represented?

Answer 19

The demand curve shifts to the left.

• At each price, people are willing to buy less.
• At each quantity people are willing to pay a lower price.

Question 20

Which of the following if increased may push the demand curve to the left:

1. ) income
2. ) population
3. ) price of substitutes
4. ) price of complements
5. ) expectations
6. ) Tastes

Answer 20

1. ) income, if it is an inferior good.
2. ) a decrease in the price for a substitute will decrease the demand for the product at hand.
3. ) An increase in the price for the product at hand and a decrease in its complement will shift that product to the left and increase the demand for it’s complement
4. ) The expectation of an increase in a future supply will drive the demand curve to the left.
5. ) Tastes driven by fads or advertising can shift the curve an number of ways.

Question 21

What is a supply curve?

Answer 21

A function that shows the quantity supplied at differing prices.

Question 22

Quantity Supplied?

Answer 22

The quantity that sellers are willing and able to sell at a particular price.

Question 23

What is the law of supply?

Answer 23

• As the price increases it becomes more profitable to extract the product from more costly sources.
• As the price rises, the quantity supplied increases.

Question 24

What is a producer surplus?

Answer 24

The producers gain or the difference between the market price and the minimum price at which a producer would be willing to sell a particular quantity.

• Lets say the producer is willing to sell his product for 4$, but ends up selling it for 10$.

Question 25

What is a total producer surplus?

Answer 25

The area above the supply curve and below the price.

Question 26

What is the effect of the supply curve shifting to the right?

Answer 26

- At each price, producers are willing to sell more. | - At each quantity, producers are willing to sell for lesss.

Question 27

What are the effects of the supply curve shifting to the left?

Answer 27

- At each price the seller will offer less. | - At each quantity the seller is charging a higher amount.

Question 28

What factors shift the supply curve?

Answer 28

1. ) Technological innovations and changes in the price of inputs. 2. ) Taxes and subsides. 3. ) expectations 4. ) Entry or exit of producers 5. ) Changes in opportunity costs.

Question 29

How does an increase in opportunity costs affect the supply curve?

Answer 29

It drives the supply curve up and to the left.

Question 30

If the supply and demand curve move in opposite directions, what do u know?

Answer 30

You know it either creates a surplus or a shortage. Surplus/Shortage.

Question 31

If the supply and demand curve moves in the same direction, what do u know?

Answer 31

you know quantity.