Economics Chapter 3

Inferior good

A good for which the demand increases as income falls and decreases as income rises.

Normal good

A good for which the demand increases as income rises and decreases as income falls.

Substitutes

Goods and services that can be used for the same purpose.

C. 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 demand there is an inverse relationship between price and quantity demanded. That​ is, the demand curve for goods and services slopes downward.​ Why? A. When the price of a good​ increases, consumers purchase complementary goods that are now relatively less expensive. B. When price​ increases, quantity demanded increases. C. 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. D. A and C only.

C. the substitution effect is the decrease in quantity demanded because the product is more expensive relative to other goods and the income effect is the decrease in quantity demanded owing to the decline in​ consumers' purchasing power.

An increase in the price of a product causes a decrease in quantity demanded because of the income and substitution effects. More​ specifically, A. the substitution effect is the decrease in quantity demanded because the​ consumers' purchasing power is reduced and the income effect is the decrease in quantity demanded owing to the fact that the product is more expensive relative to other goods. B. the substitution effect is the decrease in quantity demanded because consumer tastes have changed and the income effect is the decrease in quantity demanded because consumer incomes have fallen. C. the substitution effect is the decrease in quantity demanded because the product is more expensive relative to other goods and the income effect is the decrease in quantity demanded owing to the decline in​ consumers' purchasing power. D. the substitution effect is the decrease in quantity demanded because there are fewer consumers and the income effect is the decrease in quantity demanded because consumer incomes failed to increase.

B. ceteris paribus condition.

Economists refer to the necessity of holding all variables other than price constant in constructing a demand curve as the A. income effect. B. ceteris paribus condition. C. substitution effect. D. law of demand.

Complements

Goods and services that are used together.

D. the quantity demanded of a product is inversely related to its price.

The law of demand is the assertion that A. the quantity demanded of a product is directly related to its price. B. changes in price and changes in quantity demanded move in the same direction. C. the demand for a product is negatively related to its price. D. the quantity demanded of a product is inversely related to its price.

D. all of the above.

When economists speak of a shortage​, they mean a situation in which A. the market price is below the equilibrium price. B. some consumers are unable to make a purchase at the current price C. the quantity demanded exceeds quantity supplied. D. all of the above. E. A and B only.

Shortage

When the quantity demanded is greater than the quantity​ supplied, there is a _____ in the market.

Surplus

When the quantity supplied is greater than the quantity​ demanded, there is a _____ in the market.

C. ​false: decreases in price affect the quantity​ demanded, not demand.

​"An increase in supply decreases the equilibrium price. The decrease in price increases​ demand." The statement is A. ​false: increases in supply increase price. Decreases in price increase demand. B. ​true: increases in supply decrease price. Decreases in price increase demand. C. ​false: decreases in price affect the quantity​ demanded, not demand. D. ​false: increases in supply decrease price.