Quiz 3

Question 1

Demand Schedule

Answer 1

Lists the quantity of a good (G) that buyers are willing to purchase at different prices (P)

Question 2

Demand Curve

Answer 2

A graph of the Demand Schedule showing the quantity of a good that buyers wish to buy at each price.

Question 3

Demand Equation

Answer 3

An algebraic expression of the demand schedule

Question 4

Buyers Reservation Price

Answer 4

The largest dollar amount a buyer is willing to pay for a good

Question 5

Law of Demand

Answer 5

P and Q are inversely related (i.e. when price goes up, quantity demand goes down, and vice versa)

Question 6

Market Demand Curve

Answer 6

A curve that shows the total quantity of goods that all consumers are willing and able to purchase at each possible price while holding the prices of related goods, income, advertising, and other variables constant.
(Downward sloping)

Question 7

Change in Quantity Demand

Answer 7

Change in Price (P) of a good leads to a change in the Quantity Demand of that good. MOVE ALONG the demand curve

Question 8

Change in Demand

Answer 8

A change in any other variable, other than price, of a good (income, price of related goods, advertising, etc., i.e. a change in a ceteris paribus variable) will cause the demand curve to SHIFT if it causes a change in the demand of the good

Question 9

Supply Schedule

Answer 9

Lists the quantity (Q) of a good that suppliers/producers are willing to produce at different prices (P)

Question 10

Supply Curve

Answer 10

A graph of the supply schedule showing the quantity of a good or service that sellers wish to sell at each price

Question 11

Sellers Reservation Price

Answer 11

The smallest dollar amount for which a seller would be willing to sell an additional unit, generally equal to marginal cost. Assume goal is to maximize profits (total revenue – total costs)

Question 12

Law of Supply

Answer 12

P and Q are directly related (i.e., when price goes up!quantity supplied goes up and vice versa) Producers offer more of a good, service, or resource for sale as its price rises.

Question 13

Change in Quantity Supplied

Answer 13

MOVEMENT ALONG the supply curve due to a change in the price of the good supplied

Question 14

Change in Supply

Answer 14

A SHIFT in the supply curve. Events that increase the willingness and ability of a firm to supply output would increase the supply. These cause an outward, rightward, or downward shift. Events that decrease the willingness and ability of a firm to supply output would decrease the
supply. These cause an inward, leftward, or upward shift

Question 15

What are the 5 Steps for Surplus?

Answer 15

1. Qs > Qd 2. Hurts Suppliers 3. Suppliers bid prices down 4. P decreases => Qs decreases, Qd increases

Question 16

What are the 5 steps for Shortage?

Answer 16

Qs < Qd 2. Hurts Consumers 3. Consumers bid prices up 4. P increases => Qs increases, Qd decreases

Question 17

What are price controls?

Answer 17

Government set prices prevent the market from reaching equilibrium price and quantity. An equilibrium P is not always a “fair” price. They may be higher or lower than what society deems “fair”. The government can and does impose price controls in markets where prices
are considered a “problem.” Price Floors and Price Ceilings

Question 18

What is a price floor?

Answer 18

A government mandated level below which price can’t go. Create artificial surplus. EX: minimum wage. Effects: higher prices paid by consumers while purchasing less

Question 19

What is a price ceiling?

Answer 19

A maximum allowable price specified by law, a government mandated level above which a price cannot go. EX: interest on a credit card. Effects: artificial shortage, black markets, keeps out monopolies