week 2 (chapter 3 and 4)

Question 1

comparative advantage

Answer 1

the ability to produce a good at a lower opportunity cost than another producer

Question 2

absolute advantage

Answer 2

the ability to produce a good using fewer inputs than another producer (ex. time in terms of producing a good)

Question 3

imports

Answer 3

goods produced abroad that are sold domestically

Question 4

exports

Answer 4

goods produced domestically that are sold abroad

Question 5

supply and demand

Answer 5

the market forces that determine the quantity and price of goods bought and sold

Question 6

who influences demand?

Answer 6

buyers as a group determines the demand for the product

Question 7

who influences the supply

Answer 7

sellers as a group determine the supply of a product

Question 8

market

Answer 8

a group of buyers and sellers of a particular good or service

Question 9

competitive market

Answer 9

market that has many different types of buyers and sellers, where each has an very minimal effect on the price

Question 10

monopoly

Answer 10

markets that consist of one seller which controls the price

Question 11

oligopoly

Answer 11

markets that have a small number of producers and sellers that control the prices

Question 12

quantity demanded

Answer 12

amount of goods that buyers are willing and able to purchase at a particular price
- always downward sloping

Question 13

law of demand

Answer 13

the claim that the quantity demanded of a good falls when prices rise

Question 14

market demand

Answer 14

sum of individual demands for a good or service

Question 15

what causes a shift in a demand curve?

Answer 15

1. income
2. prices of related goods
3. expectations
4. number of buyers

Question 16

normal good

Answer 16

if the demand of the good falls when income falls and vice versa
- the more that you get money, you end up buying more or the demand increases
ex. food, clothing, appliances

Question 17

inferior goods

Answer 17

if the demand of the good rises when income falls
ex. instant noodles, store brand products

Question 18

substitutes

Answer 18

an increase in the price of one good leads to an increase in demand for another
ex. sprite and sierra mist, colgate and crest

Question 19

complements

Answer 19

an increase in price of one good leads to a decrease in demand for another
ex. cereal and milk, pancakes and syrup

Question 20

how will the quantity demanded shift?

Answer 20

in price ONLY

Question 21

demand

Answer 21

how much of a good an individual wants to buy over the entire demand line

Question 22

the income effect

Answer 22

the price of the good and the quantity of the good that you are going to buy is directly proportional to the demand of the good
ex. necessities, staple goods
- as your income changes, the quantity of that good will change with the income level

Question 23

luxury goods

Answer 23

when income falls, the demand for the good falls

Question 24

expectations

Answer 24

your expectations about the future may affect your demand for a good or service today
ex. if you expect that your income is going to increase you may spend eating out or on a new device

Question 25

number of buyers

Answer 25

if there are less people, that means that there is going to be more sensitivity (or elasticity) to demand

Question 26

law of supply

Answer 26

the claim that the quantity supplied of a good rises when the price rises

Question 27

quantity supplied

Answer 27

amount of goods that sellers are willing and able to sell
- increases when price increases
- slopes upward

Question 28

market supply

Answer 28

the sum of supplies for all sellers of a good or service

Question 29

what causes a shift in the demand curve?

Answer 29

1. technological innovations
2. input prices
3. taxes and subsidies
4. expectations
5. entry or exit of producers
6. changes in opportunity costs

Question 30

technological innovation

Answer 30

determines how much inputs are required to make a unit of output
- will go to the right
ex. reduction of labor after a mechanized ice cream dispenser

Question 31

input prices

Answer 31

the supply of a good is negatively related to the price of the inputs used to make the good
wages and raw materials
- a fall in the input prices makes production more profitable at each output price, so firms supply a larger quantity at each price

Question 32

taxes and subsidies

Answer 32

a subsidy on production makes sellers willing supply a greater quantity at a given price, or the subsidy allows producer to sell a given quantity at a lower price

tax to producers means an increase in production costs

a subsidy on production lowers costs and increases supply

ex. when the us decreases its cotton subsidies, us cotton supply decreases

Question 33

expectations

Answer 33

a change in producers expectations about profitably will affect supply curve

ex. events in the middle east lead to expectations of higher prices. in response, owners of texas oilfields reduce supply now and save inventory to sell later at the higher price

will shift to the left

Question 34

entry or exit of producers

Answer 34

as producers enter and exit the market, the overall supply changes

entry implies more sellers in the market increasing supply

exit implies fewer sellers in the market decreasing supply

Question 35

change in opportunity costs

Answer 35

inputs used in production have opportunity costs, and sellers will choose to use those inputs where profit is the highest

sellers will supply less of a good if the price of an alternate good using the same inputs rises and vice versa

Question 36

equilibrium

Answer 36

situation in which the market price has reached the level at which quantity demanded equals the quantity supplied

only one price

Question 37

surplus

Answer 37

quantity supplied is greater than quantity demanded
- prices would have to go lower until they reach equilibrium

Question 38

shortage

Answer 38

quantity demanded is greater than quantity supplied
- suppliers would have to ration out their good

Question 39

what happens when an increase in demand happens on a s&d curve?

Answer 39

the equilibrium would change to a higher price and quantity

Question 40

what would happen to a supply and demand curve is there was a decrease in demand?

Answer 40

causes the equilibrium to change to a lower price and lower quantity

Question 41

what would happen to the supply and demand curve if there was an increase in supply?

Answer 41

causes the equilibrium to change to a lower price and higher quantity

Question 42

what would happen if there was a decrease in supply on the supply and demand curve?

Answer 42

causes the equilibrium to change to a higher price and a lower quantity

Question 43

change in supply

Answer 43

shift in the supply occurs occuring because a non price determinant of supply changes

Question 44

change in the quantity supplied

Answer 44

movement along the actual line when price changes

Question 45

change in demand

Answer 45

a shift in the demand curve occurring when a non price determinant of demand changes

Question 46

change in the quantity demanded

Answer 46

a movement along a fixed demand line that occurs when price changes

Question 47

law of supply and demand

Answer 47

the price of any good adjusts to bring the quantity supplied and quantity demanded of that good into balance

Question 48

three steps to analyzing changes in equilibrium

Answer 48

1. decide the determinant of demand or supply
2. see how it shifts the curve
3. use the model to see what happens when it does shift