Principles of Economics chapter 3

Question 1

What is a competitive market

Answer 1

A competitive market is a market in which there are many buyers and sellers of the same good or service, none of whom can influence the price at which the good or
service is sold.

Question 2

What is a supply and demand model

Answer 2

The supply and demand model is a model of how a competitive market behaves.

Question 3

What is a demand schedule

Answer 3

A demand schedule shows how much of a good or service consumers will want to buy at different prices.

Question 4

What is quantity demanded

Answer 4

The quantity demanded is the actual amount of a good or service consumers are willing to buy at some specific price.

Question 5

What is a demand curve

Answer 5

A demand curve is a graphical representation of the demand schedule. It shows the relationship between quantity demanded and price.

Question 6

What is the law of demand

Answer 6

The law of demand says that a higher price for a good or service, other things equal, leads people to demand a smaller quantity of that good or service.

Question 7

What is a shift of the demand curve

Answer 7

A shift of the demand curve is a change in the quantity demanded at any given price, represented by the shift of the original demand curve to a new position, denoted by a
new demand curve.

Question 8

What is a movement along the demand curve

Answer 8

A movement along the demand curve is a change in the quantity demanded of a good arising from a change in the good’s price.

Question 9

When are two goods substitutes

Answer 9

Two goods are substitutes if a rise in the price of one of the goods leads to an increase in the demand for the other good.

Question 10

When are two goods complements

Answer 10

Two goods are complements if a rise in the price of one good leads to a decrease in the demand for the other good.

Question 11

When do we have a normal good

Answer 11

When a rise in income increases the demand for a good — the normal case — it is a normal good.

Question 12

When do we have a inferior good

Answer 12

When a rise in income decreases the demand for a good, it is an inferior good.

Question 13

What does a individual demand curve illustrate

Answer 13

An individual demand curve illustrates the relationship between quantity demanded and price for an individual consumer.

Question 14

What is the quantity supplied

Answer 14

The quantity supplied is the actual amount of a good or service people are willing to sell at some specific price.

Question 15

What does a supply schedule show

Answer 15

A supply schedule shows how much of a good or service would be supplied at different prices.

Question 16

What is a supply curve

Answer 16

A supply curve shows the relationship between quantity supplied and price.

Question 17

What is a shift of the supply curve

Answer 17

A shift of the supply curve is a change in the quantity supplied of a good or service at any given price. It is represented by the change of the original supply curve to a new position, denoted by a new supply curve.

Question 18

What is a movement along the supply curve

Answer 18

A movement along the supply curve is a change in the quantity supplied of a good arising from a change in the good’s price.

Question 19

What is an input

Answer 19

An input is a good or service that is used to produce another good or service.

Question 20

What does an individual supply curve illustrate

Answer 20

An individual supply curve illustrates the relationship between quantity supplied and price for an individual producer.

Question 21

What is an equilibrium price, market-clearing price and equilibrium quantity

Answer 21

A competitive market is in equilibrium when price has moved to a level at which the quantity of a good or service demanded equals the quantity of that good or service
supplied. The price at which this takes place is the equilibrium price, also referred to as the market-clearing price. The quantity of the good or service bought and sold at that price is the equilibrium quantity.

Question 22

When is there a surplus of a good

Answer 22

There is a surplus of a good or service when the quantity supplied exceeds the quantity demanded. Surpluses occur when the price is above its equilibrium level.

Question 23

When is there a shortage of the good

Answer 23

There is a shortage of a good or service when the quantity demanded exceeds the quantity supplied. Shortages occur when the price is below its equilibrium level.