LOS 13-ECON

Question 1

Types of Market

Answer 1

1) Factors of production (factor markets) 2) Services and finished goods (goods market or product market)

Question 2

Firms buyer/Seller

Answer 2

In general, firms are buyers in factor markets and sellers in product markets

Question 3

Intermediate Goods

Answer 3

Goods which are used in the production of final goods

Question 4

Capital Market

Answer 4

Where Firms raise money for investments by selling debt (borrowing) or seeling equities (claims to ownership) as well as markets where these debt and equity claims are subsequently traded

Question 5

Demand function

Answer 5

QD = f(Price of Good X, Income, Price of Good Y)

Question 6

Complement

Answer 6

An increase in the price of X will lead to decrease in price of Y (X and Y has inverse or negative relationship)

Question 7

Substitute

Answer 7

An increase in the price of X will lead to increase in price of Y (X and Y has direct or positive relationship)

Question 8

Law of Demand

Answer 8

The quantity demanded typically increases at lower prices; downward sloping curver

Question 9

Supply function

Answer 9

Qs = f(Selling Price, Cost of Production)

Question 10

Cost of Production

Answer 10

f(technology, cost of labor, cost of other inputs in production)

Question 11

Law of Supply

Answer 11

Greater quantity is supplied at higher prices is referred to as the law of supply; upward sloping curve

Question 12

Movement along the curve

Answer 12

when increase (decrease) in market price leads to 1) decrease (increase) in quantity demanded or 2) increase (decrease) in quantity supplied

Question 13

Shift of the curve (1)

Answer 13

When change occurs in one of the independent variables other than price

Question 14

Shift of the curve (2)

Answer 14

An increase (decrease) in income or the price of a substitute will increase (decrease) demand, while an increase (decrease) in the price of a complement will decrease (increase) demand

Question 15

Shift of the curve (3)

Answer 15

Increase in demand (shift right-P?,Q?) or supply (shift right-P?,Q?); Decrease in demand (shift right-P?,Q?) or supply (shift right-P?,Q?)

Question 16

Slope of the supply curve

Answer 16

Co-efficient of independent variable (QS). Ex: PS = (Coeff*QS) + Y intercept

Question 17

Equilibrium price and Equilibrium quantity

Answer 17

Price at which quantity supplied equals quantity demanded; the point at which supply and demand curve intersects

Question 18

Movements towards equilibrium (Price decline)

Answer 18

If the price is above its equilibrium level, the quantity willingly supplied exceeds the quantity consumers are willing to purchase, and we have excess supply

Question 19

Movements towards equilibrium (Price decline)

Answer 19

Excess supply drives price towards equilibirum (price decline); suppliers reduces production in response to declining prices

Question 20

Movements towards equilibrium (Price increase)

Answer 20

If the price is below its equilibrium level, the quantity demanded at that price exceeds the quantity supplied, and we have excess demand

Question 21

Movements towards equilibrium (Price increase)

Answer 21

Excess demand drives price towards equilibirum (price increase); suppliers increase production in response to increasing prices