Quiz 2 Material

Question 1

Circular Flow Diagram

Answer 1

Question 2

Output Markets

Answer 2

The markets in which goods and services are exchanged

Question 3

Factor markets

Answer 3

The markets in which the resources used to produce goods and services are exchanged. (eg. land, labor, capital)

Question 4

Law of Demand

Answer 4

If other factors are held constand, the quantity of a good demanded will decrease as the price is increased and vice versa

Question 5

Demand Schedule

Answer 5

A table of the quantity demanded of a good at different price levels

Question 6

Diminishing Marginal Utility

Answer 6

As a person increases consumption of a product - while keeping consumption of other products constant - there is a decline in themarginal utility that person derives from consuming each additional unit of that product.

Question 7

Demand Curve Properties

Answer 7

a) Intersects y-axis
b) Intersects x-axis

Question 8

Determinants of Demand

Answer 8

a) Income/ Wealth
b) Tastes/Preferences
c) Price of Related goods
d) Expectations

Question 9

Normal Goods

Answer 9

Any goods for which demand increases when income increases, and falls when income decreases while price remains constant

Question 10

Inferior Goods

Answer 10

Goods that decrease in demand when consumer income rises

Question 11

Substitutes in demand

Answer 11

Two goods that could be used for the same purpose. If the price of one good increases, then demand for thesubstitute is likely to rise.

Question 12

Complements in demand

Answer 12

Goods that are typically used in conjuction with one another. When the price of one good rises, the demand for another good wil fall. However, when the price for a good decreases, the price for another good will rise.

Question 13

Market Demand

Answer 13

The Horizontal sum of individual demands

Question 14

Law of Supply

Answer 14

All else equal, an increase in price results in an increase in quantity supplied

Question 15

Determinants of Supply

Answer 15

• Cost of Production
  
  • Price of inputs
  • Technology
• Price of Related Goods
  
  • Complements in Production
  • Substitutes in Production

Question 16

Complements in production

Answer 16

Complements-in-production are two or more goods that are jointly produced using a given resource. The production of one good automatically triggers the production of another, often as a bi-product. The increase in price of one good will cause the supply of the other good to increase as well.

Question 17

Substitues in production

Answer 17

Substitutes-in-production are two or more goods that can be produced using the same resources. Producing one good prevents sellers from using resources to produce another. As the price of one good rises, it will cause the supply of another good to fall.

Question 18

Equilibrium

Answer 18

The condtion that exists when quantity supplied and quantity demanded are equal. At equilibrium, there is no tendency for price change.

Question 19

Shortage

Answer 19

A shortage exists when quantity demanded exceeds quantity supplied.

Question 20

Surplus

Answer 20

A surplus exists when quantity supplied exceeds quantity demanded. (Not to be confused with consumer surplus, producer surplus, or total surplus)

Question 21

Price ceiling

Answer 21

A maximum price that sellers may charge for a good, usually set by the government

Question 22

Price floor

Answer 22

A minimum price, below which exchange is not permitted

Question 23

Minimum wage

Answer 23

a price floor set on wages

Question 24

Consumer Surplus

Answer 24

The difference between the maximum amount a person is willing to pay for a good and its current market price

Question 25

Producer surplus

Answer 25

The difference between the current market price and the cost of production for the firm

Question 26

Total surplus

Answer 26

Consumer surplus plus producer surplus (maximized at the eqilibrium point under conditions of perfect competition)

Question 27

Deadweight loss

Answer 27

The total loss of producer and consumer surplus from underproduction or overproduction