Homework 3 Microeconomics

According to the Law of Demand, there is an inverse relationship between price and quantity demanded. That is, the demand curve for goods and services slopes downward. why?

When the price of a good increases, consumers' purchasing power falls, and they cannot buy as much of the good as they did prior to the price change

According to the law of supply,

there is a positive relationship between price and quantity supplied as the price of a product increases, firms will supply more of it to the market

According to the law of demand...

there is an inverse relationship between price and quantity

Perfectly Competitive Market

A market that meets the conditions of (1) many buyers and sellers, (2) all firms selling identical products, and (3) no barriers to new firms entering the market

Which of the following events would cause the supply curve to decrease?

An increase in the price of units

In the diagram to the right, point A provides the ___, point B____, and point C ____

equilibrium price market equilibrium equilibrium quantity

The distinction between substitutes and complements is

substitute goods are used for the same purposes while complementary goods are used together

In the diagram to the right when supply increases ____develops at the original price. Equilibrium price will ___ and Equilibrium quantity will ____as a new equilibrium is established

surplus fall rise

The distinction between a normal and inferior good is

when the income increases, demand for a normal good increases while demand for an inferior good falls

Which of the following would cause a shift in the demand curve from point A to point B (shift it to the right)?

All of the Above! A decrease in income (inferior good) An increase in income (normal good) An increase in the price of a substitute good

In general, the term "ceteris paribus" means

all else equal

Market price is determined by

both supply and demand