Market forces of Supply and Demand Flashcards
Market
A market is any arrangement that enables buyers and sellers to get information and do business with each other.
Competitive Market
A market with many buyers and sellers, so no single buyer or seller can influence the price.
Opportunity Cost
The value of the highest-valued alternative forgone when making a decision.
What does the Law of Demand state?
As the price of a good rises, the quantity demanded decreases, and vice versa, holding all other factors constant.
Substitution Effect
When the price of a good rises, consumers switch to a cheaper substitute, increasing the quantity demanded of the substitute.
Income Effect
When the price of a good rises, purchasing power decreases, leading to a reduction in the quantity demanded.
What does a demand curve show?
The relationship between the price of a good and the quantity demanded when other influences remain constant.
What does the Law of Supply state?
As the price of a good rises, the quantity supplied increases, and vice versa, holding other factors constant.
What is marginal benefit?
The additional benefit derived from consuming one more unit of a good.
What is market equilibrium?
The price at which the quantity demanded equals the quantity supplied.
In a competitive market:
a) There is only one seller.
b) Buyers and sellers can both influence the price.
c) No single buyer or seller can influence the price.
d) Sellers set the price.
c) No single buyer or seller can influence the price.
The opportunity cost of an action is:
a) The monetary cost of that action.
b) The value of the next best alternative forgone.
c) The price you pay for it.
d) The time spent on that action.
b) The value of the next best alternative forgone.
According to the Law of Demand, if the price of a good increases:
a) The quantity demanded increases.
b) The quantity demanded decreases.
c) The demand curve shifts to the right.
d) Supply will decrease
b) The quantity demanded decreases.
The substitution effect occurs because:
a) The good becomes more expensive relative to substitutes.
b) Consumers’ income rises.
c) The price of complementary goods increases.
d) The demand for the good decreases.
a) The good becomes more expensive relative to substitutes.
A movement along the demand curve represents:
a) A change in demand.
b) A change in the quantity demanded due to a price change.
c) A shift in demand due to changes in factors other than price.
d) An increase in supply.
b) A change in the quantity demanded due to a price change.
If the price of a resource rises, the supply of goods that use that resource:
a) Increases.
b) Decreases.
c) Remains constant.
d) Is unaffected.
b) Decreases.
What is the relationship between the price of a good and the quantity supplied according to the Law of Supply?
a) Positive.
b) Negative.
c) Inverse.
d) Constant.
a) Positive.
A decrease in supply causes:
a) A rise in both price and quantity.
b) A fall in price and rise in quantity.
c) A rise in price and fall in quantity.
d) No change in price or quantity.
c) A rise in price and fall in quantity.
Which factor is NOT one of the determinants of demand?
a) Price of substitutes.
b) Preferences.
c) Technology.
d) Income.
c) Technology.
Market equilibrium occurs when:
a) Quantity demanded exceeds quantity supplied.
b) Quantity supplied exceeds quantity demanded.
c) Quantity demanded equals quantity supplied.
d) Price is too high for consumers.
c) Quantity demanded equals quantity supplied.
