slide 3

Question 1

define market

Answer 1

any arrangement where buys and sellers do business with each other

Question 2

define competitive market

Answer 2

market that has many buyers and sellers

Question 3

define demand and how it can be represented

Answer 3

demand can be shown in a table (demand schedule) or a graph (demand curve)

demand is the entire relationship between the price of good and the quantity demanded of the good

Question 4

define quantity demanded

Answer 4

the amount of goods a consumer is willing to buy at a specific price

Question 5

what is the law of demand

and what influences the law of demand

Answer 5

as the price falls the quantity demand rises

as prices rise the quantity demand falls

1. common sense, if things are more expensive i want less
2. consumption is subject to diminishing marginal benefit
3. income and substitution effects

Question 6

what is income effect

what is substitution effect

Answer 6

income effect: prices increase in costs but income is fixed, so I can no longer afford it. The quantity demanded decreases.

substitution effect: as prices rise, consumers will seek out an alternative, so the demand for that good will decrease

Question 7

true or false: the demand curve is the exact same thing as the marginal benefit curve

Answer 7

true, the willingness to pay is the marginal benefit

Question 8

what will cause a curve to shift, and how do you determine where the curve will shift to

Answer 8

when something other than price influences buying plans

if there is an increase, shift right
if there is a decrease, shift left

Question 9

what are some main factors that change demand

Answer 9

• change in price of substitute
• change in price of compliment
• expected future prices
• change in income
  -expected future income and credit
• population
  -preferences

Question 10

what is the difference between substitute and compliment

Answer 10

substitute: a good that can replace another good

compliment: goods that are used in conjunction with another

Question 11

what’s the difference between normal and inferior good

Answer 11

normal good: demand increased as income increased

inferior good: demand decreased as income increased

Question 12

what will cause a shift on the original curve, what will cause a whole new curve

Answer 12

if price is affected we move on the original curve, if anything but price happens we will create a new curve

Question 13

define demand and how it can be represented

Answer 13

supply can be shown in a table or a graph

supply is the entire relationship between quantity supplied and the price of the good

Question 14

define quantity demanded

Answer 14

the amount
that producers plan to sell at a particular price during a particular time period

Question 15

what is the law of supply

Answer 15

as the price rises, the quantity supplied rises. And as the price falls, the quantity supplied falls

Question 15

producers are only willing to sell goods when ____?

or what is the lowest possible price

Answer 15

when they can at least cover their marginal cost of production

Question 16

true or false: As the quantity produced increases, marginal cost increases

Answer 16

true

Question 17

what are some main factors that change supply

Answer 17

• prices of production factors
  -prices of a substitute in production (the supply will increase if the price of substitute decreases, just use sub to make product instead)
• goods are compliments in productions (supply of good increases if price of compliment goes up)
• expected future prices
• number of suppliers (more suppliers = more supply)
• technology (advanced = make more)
• state of nature (in draught = no crops)

Question 18

what is equillibrium

Answer 18

when the price balances the plans of buyers and sellers, when supply = demands

Question 19

true or false: price is not a regulator of supply and demand

Answer 19

false

Question 20

define surplus and shortage

Answer 20

surplus: quantity supplied exceeds the quantity demanded

shortage: quantity demanded exceeds the quantity supplied

Question 21

what happens at prices above and below the equilibrium price

Answer 21

above: surplus & prices will decrease

below: shortage & prices will increase

Question 22

The competitive market generates both productive efficiency and allocative efficiency

what does this mean

Answer 22

productive efficiency:
lowest-cost production

allocative efficiency:
producing the right amount of the product relative to other products