Chapter 4- The Market Forces of Supply and Demand

complements

two goods for which an increase in the price of one leads to a decrease in the demand for the other (ex: gasoline and cars)

substitutes

two goods for which an increase in the price of one leads to an increase in the price for the other

determinants of demand

- consumer income - prices of related good - tastes - expectations - number of consumers

normal good

a good for which, other things being equal, an increase in income leads to an increase in demand

inferior good

a good in which, other things being equal, an increase in income leads to a decrease in demand (ex: ramen noodles, used cars, instant rice)

supply curve

a graph of the relationship between the price fo a good and the quantity supplied

demand curve

a graph of the relationship between the price of a good and the quantity demanded

markets

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

ceteris paribus

a latin phrase that means that all variables other than the ones being studied are assumed to be constant

competitive market

a market in which there are many buyers and many sellers so that each has negligible impact on the market price

monopoly

a market structure where a single seller or producer assumes a dominant position in an industry or sector

shortage

a situation in which quantity demanded is greater than quantity supplied

surplus

a situation in which quantity supplied is greater than quantity demanded

equilibrium

a situation in which the market price has reached the level at which quantity supplied equals quantity demanded, perfect case scenario

demand schedule

a table that shows the relationship between the price of a good and the quantity demanded

supply schedule

a table that shows the relationship between the price of a good and. the quantity supplied

Which of the following events could cause an increase in the supply of ceiling fans? a) The number of sellers of ceiling fans increases. b) There is an increase in the price of air conditioners, and consumers regard air conditioners and ceiling fans as substitutes. c) There is an increase in the price of the motor that powers ceiling fans. d) All of the above are correct.

a) The number of sellers of ceiling fans increases.

A market is a a) group of buyers and sellers of a particular good or service. b) group of people with common economic characteristics. c) place where buyers and sellers come together to engage in trade. d) place where an auctioneer helps set prices and arrange sales.

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

In markets, prices move toward equilibrium because of a) the actions of buyers and sellers. b) government regulations placed on market participants. c) increased competition among sellers. d) buyers' ability to affect market outcomes.

a) the actions of buyers and sellers.

A decrease in the number of sellers in the market causes a) the supply curve to shift to the left. b) the supply curve to shift to the right. c) a movement up and to the right along a stationary supply curve. d) a movement downward and to the left along a stationary supply curve.

a) the supply curve to shift to the left.

If buyers and sellers in a certain market are price takers, then individually a) they have no influence on market price. b) they have some influence on market price, but that influence is limited. c) buyers will be able to find prices lower than those determined in the market. d) sellers will find it difficult to sell all they want to sell at the market price.

a) they have no influence on market price.

Suppose the incomes of buyers in a market for a particular normal good decrease and there is also a reduction in input prices. What would we expect to occur in this market? a) The equilibrium price would increase, but the impact on the amount sold in the market would be ambiguous. b) The equilibrium price would decrease, but the impact on the amount sold in the market would be ambiguous. c) Both equilibrium price and equilibrium quantity would increase. d) Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.

b) The equilibrium price would decrease, but the impact on the amount sold in the market would be ambiguous.

Today's demand curve for gasoline could shift in response to a) a change in today's price of gasoline. b) a change in the expected future price of gasoline. c) a change in the number of sellers of gasoline. d) All of the above are correct.

b) a change in the expected future price of gasoline.

A leftward shift of a supply curve is called a) an increase in supply. b) a decrease in supply. c) a decrease in quantity supplied. d) an increase in quantity supplied.

b) a decrease in supply.

A higher price for batteries would result in a(n) a) increase in the demand for flashlights. b) decrease in the demand for flashlights. c) increase in the demand for batteries. d) decrease in the demand for batteries.

b) decrease in the demand for flashlights.

The forces that make market economies work are a) work and leisure. b) demand and supply. c) regulation and restraint. d) taxes and government spending.

b) demand and supply.

If the supply of a product increases, we would expect a) equilibrium price to increase and equilibrium quantity to decrease. b) equilibrium price to decrease and equilibrium quantity to increase. c) equilibrium price and equilibrium quantity both to increase. d) equilibrium price and equilibrium quantity both to decrease.

b) equilibrium price to decrease and equilibrium quantity to increase.

If Francis experiences a decrease in his income, we would expect that, as a result, Francis's demand for a) each good he purchases will remain unchanged. b) normal goods will decrease. c) luxury goods will increase. d) inferior goods will decrease.

b) normal goods will decrease.

Ford Motor Company announces that it will offer $3,000 rebates on new Mustangs starting next month. As a result of this information, today's demand curve for Mustangs a) shifts to the right. b) shifts to the left. c) shifts either to the right or to the left, but we cannot determine the direction of the shift from the given information. d) will not shift; rather, the demand curve for Mustangs will shift to the right next month.

b) shifts to the left.

Suppose there is an earthquake that destroys several corn canneries. Which of the following would not be a direct result of this event? a) Sellers would decrease their ability to produce and sell as much as before at each relevant price. b) The supply would decrease. c) Buyers would not be willing to buy as much as before at each relevant price. d) The equilibrium price would rise.

c) Buyers would not be willing to buy as much as before at each relevant price.

A table that shows the relationship between the price of a good and the quantity demanded of that good is called a(n) a) price-quantity table. b) complementary table. c) demand schedule. d) equilibrium schedule.

c) demand schedule.

A likely example of complementary goods for most people would be a) hamburgers and hot dogs. b) lawnmowers and automobiles. c) hamburgers and French fries. d) Dr. Pepper and Pepsi.

c) hamburgers and French fries.

With respect to the variables price and quantity demanded, a) price and quantity demanded are independent of each other. b) price is the dependent variable and quantity demanded is the independent variable. c) price is the independent variable and quantity demanded is the dependent variable. d) price and quantity demanded are both dependent variables, since both depend on the actions of buyers and sellers.

c) price is the independent variable and quantity demanded is the dependent variable.

Other things equal, when the price of a good rises, the a) quantity demanded of the good increases. b) supply increases. c) quantity supplied of the good increases. d) demand curve shifts to the left.

c) quantity supplied of the good increases.

If buyers today become more willing and able than before to purchase larger quantities of Vanilla Coke at each price of Vanilla Coke, a) we will observe a movement downward along the demand curve for Vanilla Coke. b) we will observe a movement upward along the demand curve for Vanilla Coke. c) the demand curve for Vanilla Coke will shift to the right. d) the demand curve for Vanilla Coke will shift to the left.

c) the demand curve for Vanilla Coke will shift to the right.

Which of the following events could shift both the demand curve and the supply curve for a good? a) A technological advance pertaining to the production of the good is observed. b) Incomes of all buyers of the good increase. c) The number of sellers of the good increases. d) Everyone revises upward their expectation of next month's price of the good.

d) Everyone revises upward their expectation of next month's price of the good.

Which of the following events would cause a movement upward and to the right along the supply curve for tomatoes? a) The number of sellers of tomatoes increases. b) There is an advance in technology that reduces the cost of producing tomatoes. c) The price of fertilizer decreases, and fertilizer is an input in the production of tomatoes. d) The price of tomatoes rises.

d) The price of tomatoes rises.

An increase in the price of oranges would lead to a) an increased supply of oranges. b) a reduction in the prices of inputs used in orange production. c) an increased demand for oranges. d) a movement up and to the right along the supply curve for oranges.

d) a movement up and to the right along the supply curve for oranges.

The line that relates the price of a good to the quantity demanded of that good is called the a) demand schedule, and it usually slopes upward. b) demand schedule, and it usually slopes downward. c) demand curve, and it usually slopes upward. d) demand curve, and it usually slopes downward.

d) demand curve, and it usually slopes downward.

The unique point at which the supply and demand curves intersect is called a) market harmony. b) coincidence. c) cohesion. d) equilibrium.

d) equilibrium.

A market demand curve represents a) the fact that the level of income is inversely related to quantity demanded. b) how quantity demanded changes when the number of buyers changes. c) the sum of all prices that individual buyers are willing and able to pay for each possible quantity of the good. d) how much of a good all buyers are willing and able to buy at each possible price.

d) how much of a good all buyers are willing and able to buy at each possible price.

If car manufacturers begin utilizing new labor-saving technology on their assembly lines, we would not expect a) a smaller quantity of labor to be used. b) the supply of cars to increase. c) costs to the firm to fall. d) individual car manufacturers to move up and to the right along their individual supply curves.

d) individual car manufacturers to move up and to the right along their individual supply curves.

The sum of all individual demand curves for a product is called a) total demand. b) consumption demand. c) aggregate demand. d) market demand.

d) market demand.

An increase in the price of rubber coincides with an advance in the technology of tire production. As a result of these two events, a) the demand for tires increases and the supply of tires decreases. b) the supply of tires decreases and the demand for tires is unaffected. c) the supply of tires increases and the demand for tires is unaffected. d) none of the above is necessarily correct.

d) none of the above is necessarily correct.

When constructing a demand curve, a) demand is on the vertical axis and quantity is on the horizontal axis. b) price is on the horizontal axis and quantity is on the vertical axis. c) price is on the vertical axis and demand is on the horizontal axis. d) price is on the vertical axis and quantity demanded is on the horizontal axis.

d) price is on the vertical axis and quantity demanded is on the horizontal axis.

A downward-sloping demand curve reflects a) the idea that the demand for the good in question is decreasing as time goes by. b) the idea that there are fewer suppliers of the good as time goes by. c) the idea that there exists a substitute for the good in question and the price of that substitute is decreasing. d) the law of demand.

d) the law of demand.

perfectly competitive

in order to be the market must have two characteristics 1) the goods offered for sale are all exactly the same 2) the buyers and sellers are numerous that no single buyer or seller has any influence over the market

quantity demanded

the amount of a good that buyers are willing and able to purchase

quantity supplied

the amount of a good that sellers are willing and able to sell

law of supply

the claim that other things being equal, the quantity supplied fo a good rises when the price of the good rises

law of supply and demand

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

law of demand

the claim that, other things being equal, the quantity demanded of a good falls when the price of the good rises

equilibrium price

the price that balances quantity supplied and quantity demanded

equilibrium quantity

the quantity supplied and the quantity demanded at the equilibrium price