116 terms

Econ 201: Chapter 3

STUDY
PLAY

Terms in this set (...)

Buyers and sellers are brought together in a __________.
competitive market
An inverse relationship between two variables is a(n) __________ relationship.
negative
Diminishing _______ states that, in any specific time period, buyers will derive less satisfaction from each additional unit of the product consumed.
marginal utility
T/F: The law of demand can be supported by the income effect.
True
According to the Law of Demand, when all other things being equal, as price decreases, quantity demanded __________.
increases
According to the Law of Demand, when all other things being equal, as price increases, quantity demanded __________.
decreases
The ________ side of any market specifically refers to demand.
buyer
Demand Curve: The inverse relationship between price and quantity demanded for any product can be represented on a simple graph, in which, by convention, we measure ________ on the horizontal axis and ______ on the vertical axis.
quantity demanded; price
A demanded curve measures quantity ________ on the horizontal axis and ______ on the vertical axis.
demanded; price
A buyer's intentions or plans in regard to the purchase of a product is knowns as ________.
demand
Name the Basic Determinants of Demand:
1. Consumers' tastes (preferences)
2. The number of buyers in the market
3. Consumers' incomes
4. The prices of related goods
5. Consumer expectations
The number of buyers is a determinant of market ______.
demand
Which of the following is a determinant of demand?
A. Income
B. Technology
C. Resource Prices
D. Producer expectations
A. Income
The price of ______ goods is a determinant of demand.
related
T/F: A complementary good is one that is used in place of another good.
FALSE. A complementary good is one that is used together with another good.
Define complementary good:
One that is used together with another good
Define substitute good:
One that can be used in place of another good
The vast majority of goods are not related to one another and are called _________.
independent goods
Markets bring together ______ and _______.
buyers ("demanders"); sellers ("suppliers")
What characteristics are present in the economy's most highly competitive markets?
Markets in which large numbers of independently acting buyers and sellers come together to buy and sell standardized products.
_______ is simple a statement of a buyer's plans, or intentions, with respect to the purchase of a product.
Demand
Why is consumption subject to diminishing marginal utility?
Because successive units of a particular product yield less and less marginal utility, consumers will buy additional units only if the price of those units is progressively reduced.
____________ indicates that a lower price increases the purchasing power of a buyer's money income, enabling the buyer to purchase more of the product than before.
Income effect
_____________ suggests that at a lower price buyers have the incentive to substitute what is now a less expensive product for other products that are now relatively more expensive.
Substitution effect
An increase in the number of buyers in a market is likely to _________ demand.
increase
A decrease in the number of buyers will probably _______ demand.
decrease
___________ goods whose demand varies inversely with money income
Inferior goods
T/F: If demand for a good increases when consumer incomes rise, then the good is considered inferior.
False. Consumers demand less of an inferior good when incomes rise and more of them when incomes fall.
T/F: Consumer expectations are a determinant of supply.
False
Name the Determinants of Supply.
1. Resource Prices
2. Technology
3. Taxes and subsidies
4. Prices of Other Goods
5. Producer Expectations
6. The number of sellers in the market
Which of the following has the greatest effect on the quantity supplied that producers are willing and able to supply?
Price
What is the difference in price and cost?
Cost is not the same as price. Price is the price of a good or service, whereas the cost is the price of the resources used to produce a good. The difference between price and cost is a premium to the seller. The costs of resources affect supply and not quantity supplied.
T/F: In general, a firm will increase output of a good or service if the resource cost of the unit falls.
True. A decrease in resource costs will shift the supply curve to the right. Suppliers will increase the amounts they supply at each price.
Other things equal, firms will produce and offer for sale ______ of their product at a high price than at a low price.
A. The same
B. More
C. None
D. Less
B. More
On a supply curve, _______ is labeled on the vertical axis.
Price
The added cost of producing one more unit of output is called ____________.
marginal cost
If the cost of production rises, the producer has an incentive to produce _____ output.
less
T/F: The price of resources used in the production process help determine the cost of production incurred by firms.
True
What two components does the supply curve illustrate the relationship between?
Price and quantity supplied
The _______ of supply are any factors other than the product's _____ that have an effect on the supply of a good or service and cause the supply curve to shift.
Determinants; price
__________ resource prices raise production costs and, assuming a fixed product price, _____ profits.
Higher; reduce
Improvements in technology are a determinant of ________.
Supply
Define a subsidy.
Government financial assistance for the production of a good which lowers producers' costs and increases supply.
Which of the following are determinants of supply?
A. Price of Product
B. Subsidies
C. Complementary goods
D. Growth in the number of buyers
E. Taxes
B. Subsidies & E. Taxes
Substitution in production is a determinant of ______.
Supply--The higher prices of "other goods" may entice producers to switch production to hose other goods in order to increase profits.
Producer expectations of future prices are a determinant of _________.
supply
T/F: As more firms enter the industry, the supply curve shifts to the left.
False
Products that have decreased demand when consumer incomes rise and increased demand when consumer incomes fall are called _______ goods.
inferior
Market _________ is a schedule or curve showing the carious amounts of a product that producers are willing and able to make available for sale at each possible price during a specific period.
supply
Price and quantity supplied have a(n) ________ relationship.
positive
Price and quantity demanded have a(n) ________ relationship.
negative/inverse/indirect
T/F: Resource costs or changes in these costs to production are responsible for shifts in the supply curve.
True
The supply curve is _________ sloping curve.
an upward
The demand curve is _________ sloping curve.
negative
An increase in business taxes causes ________ in supply and will ________ production costs.
a decrease; increase
The determinant of supply dealing with alternative products that can be produced by firms is called _______________.
price of substitutes in production
________ in supply while holding demand constant results in an increase in equilibrium price, but a decrease in equilibrium quantity.
A decrease/A shift leftward
An increase in supply while holding demand constant results in a(n) _______ in equilibrium prices, but a(n) ________ in equilibrium quantity.
decrease; increase
Government may place legal limits on prices when it is determine ______ for buyers or unfairly _____ for sellers.
high; low
A price ceiling is the maximum legal price a seller may charge for a product or service where a price at or below the ceiling is _________ and a price above the price ceiling is _________.
legal; illegal
A price ________ is a legally mandated price imposed above the price, otherwise known as equilibrium price, what would be established between buyers and sellers in a free market.
floor
The price where the intentions of buyers and seller match is called ________ or _________.
equilibrium price; market-clearing price
A _______ is a minimum price fixed by the government.
price floor
A price at or above the price floor is _____; a price below it is _______.
legal;illegal
A shortage results from an excess of quantity _______.
demanded
Which of the following decrease demand for any good or service?
A. An increase in the number of buyers
B. An unfavorable change in consumer tastes
C. A decrease in the price of a substitute good
D. Consumer expectations that either prices or income will rise in the future
E. Falling incomes and the product is a normal good
B. An unfavorable change in consumer tastes
C. A decrease in the price of a substitute good
E. Falling incomes and the product is a normal good
A decrease in demand while holding supply constant results in _______ in both equilibrium price and quantity.
a decline
What happens to the equilibrium price and the equilibrium quantity if the supply increases and the demand stays constant?
Equilibrium price falls and equilibrium quantity rises
What happens to the equilibrium price and the equilibrium quantity if the supply increases and the demand increases?
The change in equilibrium price is indeterminate and equilibrium quantity rises
What happens to the equilibrium price and the equilibrium quantity if the supply stays constant and the demand decreases?
Equilibrium price falls and equilibrium quantity falls
What happens to the equilibrium price and the equilibrium quantity if the supply increases and the demand decreases?
Equilibrium price falls and the change in quantity is indeterminate
The interaction between buyers and sellers determines the equilibrium price and the equilibrium ________.
quantity
A surge in demand while holding supply constant results in a(n) ________ in both equilibrium price and quantity.
increase
Which of the following refers to a particular apportionment or mix of goods services most highly valued by society?
Allocative efficiency
A surplus is also known as an excess of ________.
Supply
A change in quantity supplied is caused by an increase or decrease in the ________ of the product under consideration and nothing else.
price
The production of a good or service in the least costly way is known as ________ efficiency.
Productive
_________ efficiency refers to the particular mix of goods and services most highly valued by society assuming minimum-cost production.
Allocative
If a decrease in demand is greater than a decrease in supply, equilibrium price will _______.
decrease
Competition among corn producers forces them to use the best technology and right mix of productive resources; otherwise their costs will be too high relative to the market price and they will be unprofitable. This is best described as _________ efficiency.
productive
An increase in the sales, property, or any other tax will ________ production costs and _______ supply.
increase; decrease
A decrease in supply and a simultaneous and proportional decrease in demand will result in a(n) __________ in equilibrium quantity, with no effect on equilibrium price.
decrease
Which of the following is the most important factor for a producer in determining how much of a product to produce?
A. Quantity
B. Price
C. Revenue
D. Cost
B. Price
If the increase in demand is greater than the decrease in supply, the equilibrium quantity will _________.
rise
A change in quantity demanded is caused by an increase or decrease in the _________ of the product under consideration and nothing else.
price
Which o the following would result in a change in supply?
A. An increase in the excise tax on cigarettes.
B. An increase in the number of automobile drivers
C. An increase or decrease in wages.
D. An increase in the number of shoe stores at the local mall
A. An increase in the excise tax on cigarettes.
C. An increase or decrease in wages.
D. An increase in the number of shoe stores at the local mall
The fundamental characteristic of demand, other things equal, is that as the price falls, the quantity demanded for a product ________.
increases
An economic unit, meaning a household, firm or government, should continue to engage in an activity as long as marginal ______ exceeds marginal _______.
benefit; cost
Why does a competitive market allocate society's resources efficiently to a particular product?
To keep costs down
What is productive efficiency?
The production of any particular good in the least costly way.
Which of the following scenarios describe the appropriate effects on equilibrium price and quantity due to a decrease in supply while holding everything else constant?
A. A fishing tax is placed on all shrimp and the equilibrium price of shrimp increases while quantity decreases.
B. An oil spill causes several fisherman to leave the shrimp business and the equilibrium price of shrimp increases while quantity decreases.
C. An oil spill causes consumers to eat less shrimp and the equilibrium price of shrimp increases while quantity increases.
D. An oil spill causes several fisherman to leave the shrimp business and the equilibrium price of shrimp increases while quantity increases.
A. A fishing tax is placed on all shrimp and the equilibrium price of shrimp increases while quantity decreases.
B. An oil spill causes several fisherman to leave the shrimp business and the equilibrium price of shrimp increases while quantity decreases.
An increase in demand while holding supply constant _________ equilibrium price and _______ equilibrium quantity.
raises; raises
Other things equal, the fundamental characteristic of the law of ______ is that as the price falls, the quantity supplied of a product falls.
supply
Government-set prices cause:
A. Environmental protection
B. The elimination of tariffs and quotas
C. Shortages
D. Surpluses
E. Negative side effects
F. Distortion in resource allocation
C. Shortages
D. Surpluses
E. Negative side effects
F. Distortion in resource allocation
If producers expect lower future prices for their goods or services, they will _______ now, illustrated as a shift in the supply curve to the _______.
supply more; right
If the government subsidizes the production of a good, it in effect _______ the producers' costs and ______ supply.
lowers; increases
Choose all of the following that will cause a change in supply, not quantity supplied.
A. Product price
B. Number of Sellers
C. Producer expectations
D. Technology
E. Consumer expectations
B. Number of Sellers
C. Producer expectations
D. Technology
Which of the following recalls the meaning of a change in supply?
A. A movement from one point to another on a fixed curve.
B. A change in the schedule and a shift of the curve.
C. A change in the price of a product and a movement along the curve.
B. A change in the schedule and a shift of the curve.
There is a(n) _________ relationship between the price of a good or service and the quantity demanded for that good or service.
inverse
Which of the following illustrates the relationship between a good and its complement?
A. When the price of tuition decreases, the demand for textbooks increases.
B. When the price of lettuce increases, the demand for salad dressing decreases.
C. When the price of Nike increases, the demand for Reeboks increases.
D. When the price of hamburger decreases, the demand for hotdogs decreases.
A. When the price of tuition decreases, the demand for textbooks increases.
B. When the price of lettuce increases, the demand for salad dressing decreases.
The law of _______ is illustrated by a downward-sloping curve.
demand
The effects on equilibrium price and quantity due to an increase in supply and a proportional and simultaneous increase in demand are shown by:
A. An indeterminate change in equilibrium quantity and an increase in price.
B. A decrease in equilibrium quantity and an indeterminate change in price.
C. An increase in the equilibrium quantity and an indeterminate change in price.
D. A decrease in the equilibrium quantity and an indeterminate change in price.
C. An increase in the equilibrium quantity and an indeterminate change in price.
________ refers to the production of a product, whereas demand refers to the consumption of a product.
Supply
Which of the following decrease demand for any good or service?
A. Falling incomes and the product is a normal good.
B. A decrease in the price of a substitute good.
C. Consumer expectations that either prices or income will rise in the future.
D. An increase in the number of buyers.
E. An unfavorable change in consumer tastes.
A. Falling incomes and the product is a normal good.
B. A decrease in the price of a substitute good.
E. An unfavorable change in consumer tastes.
When the number of sellers or producers in an industry increases, _______ of a particular good or service will ______. When the number of sellers in an industry ______, supply of a particular good or service will _____.
supply; rise; decreases; falls
________ benefit is the additional utility gained from consuming one more unit of a good or service.
Marginal
The ________ is consistent with common sense because people ordinarily do buy more of a product at a lower price.
law of demand
The inverse relationship between price and quantity demanded can be shown graphically by _________ sloping curve.
a downward
At the equilibrium price, quantity _____ equals quantity ______.
supplied; demanded
A normal good is an item for which demand ______ when income rises and ________ when income falls.
increases; decreases
In which of the following situations will quantity supplied exceed the quantity demanded?
A. Below the market price
B. In the imposition of a price floor
C. In the imposition of a price ceiling
D. Where there is an increase in demand while holding supply constant
B. In the imposition of a price floor
Which of the following are reasons for inverse relationship between price and quantity demanded?
A. A lower price increases the purchasing power of a buyer's income, enabling a buyer to purchase more of a product.
B. People ordinarily buy more of a product a low price than at a high price.
C. Consumption is subject to diminishing marginal utility.
D. A lower price represents a low quantity product.
E. A higher price makes it more likely the consumer will substitute another good.
F. Buyers will buy more of a good if their friends are buying it.
A. A lower price increases the purchasing power of a buyer's income, enabling a buyer to purchase more of a product.
B. People ordinarily buy more of a product a low price than at a high price.
C. Consumption is subject to diminishing marginal utility.
E. A higher price makes it more likely the consumer will substitute another good.
If an increase in supply is greater than an increase in demand, the equilibrium price will _________.
fall
A change in _______ refers to a movement along the demand curve in response to changes in the price of a good or service, whereas a change in ________ refers to a shift of the demand curve leftward or rightward in response to anything other than changes in the price of a good or service.
quantity demanded; demand
________ output is where quantity demanded and quantity supplied are equal in a competitive market.
Equilibrium
The only factor that causes movement along the supply curve is:
price