Midterm 1: Chapter 3

Question 1

What is a perfectly competitive market

Answer 1

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

Question 2

what is the Demand Schedule

Answer 2

the relationship between the price and the quantity demanded for a product

Question 3

What is quantity demanded

Answer 3

amount of good or service that a consumer is willing to purchase at a given price

Question 4

What does a Demand curve show

Answer 4

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

Question 5

What is Market demand

Answer 5

demand by all consumers for a given good or service

Question 6

Law of Demand

Answer 6

Inverse relationship between price and quantity demanded

Question 7

What is Substitution effect

Answer 7

when a good is more or less expensive to relative to other goods seen as substitutes

Question 8

Income Effect

Answer 8

effect in the good’s price in relation to the consumers purchasing power

Question 9

Difference between shift and movement along curve

Answer 9

Shift is referred to as increase/decrease in demand

movement is referred to as increase/decrease in quantity demanded

Question 10

What are Variables that shift Market demand

Answer 10

1. Income 2. Prices of related goods 3. Tastes 4. Pop and demographics 5. Expected future prices

Question 11

Normal Good vs Inferior Good

Answer 11

When income rises increase in demand for normal goods (plane tickets)
When income decreases increase in demand for inferior goods (spam)

Question 12

What are complements

Answer 12

Goods and services that are used together

Question 13

What is quantity supplied

Answer 13

Amount of a good/service that a firm is wiling to and able to supply at a given price.
when price rises, more profitable to produce more goods

Question 14

Supply Schedule

Answer 14

relationship between price level and supply

Question 15

What is the Law of Supply

Answer 15

Price and supply are proportional - increase in price causes increase in supply demanded and opposite

Question 16

Variables that Shift Market Supply

Answer 16

1. Price of inputs (oil) 2. Technology 3. Price of substitutes in production 4. # of firms in market (increase in firms cause shift to right)
2. expected future prices

Question 17

What is Market Equilibrium

and when is it competitive?

Answer 17

When quantity demanded is equal to quantity
supplied
competitive when there’s many buyers and sellers

Question 18

Surplus

Answer 18

When the quantity supplied is greater than quantity demanded

Question 19

Shortage

Answer 19

Quantity demanded is greater than the quantity

supplied

Question 20

Ambiguous Case when both curves shift

Answer 20

When two curves shift but you can’t determine if either the price or q demanded went up (one goes up other is indeterminable)