Economics Chapter 7

According to the law of demand, quantity and price move in the same direction.

False

When people's income goes up, they usually consume less of a good or service

False

process of freely exchanging goods and services between buyers and sellers

market

The quantity demanded of a product is affected by

price

According to the law of supply, higher prices prompt producers to

produce more

economic rule stating that individuals cannot keep buying the same quantity of a product if its price rises while their incomes stay the same

real income effect

amount of satisfaction received from a purchase.

utility

If the price of an item rises, quantity demanded usually

falls

If the price of a product is above its equilibrium price, the result is a

surplus

According to the law of supply, producers are willing to supply more when the price of a good or service goes up.

True

If demand for a good increases and supply does not, the equilibrium price will rise.

True

The substitution effect can decrease the quantity demanded of a good.

True

Rice is what you'll probably end up with these days if your local McDonald's is in Indonesia. With the collapse of the Indonesian currency, the rupiah, in 1998, potatoes...have quintupled in price. That means rice is turning with an increasing frequency as an alternative to the french fry.... It's not hard to fathom why fries are an endangered menu item says Jack Greenberg, CEO of McDonald's: "No one can afford them."

an increase in the price of a substitute.

Demand for one particular brand of coffee is probably

elastic

economic concept dealing with consumers' responsiveness to an increase or decrease in price

elasticity

economic rule stating that the quantity demanded and price move in opposite directions

law of demand

economic rule stating that the additional satisfaction a consumer gets from purchasing one more unit of a product declines with each additional unit purchased

law of diminishing marginal utility

The principle that states that the more you have of something, the less satisfaction you will get from an additional unit is the

law of diminishing marginal utility.

an additional amount of satisfaction

marginal utility

It is always a difficult problem knowing how best to price a product.... Was it best to charge a high price and sell a smaller number...or charge a lower price and aim for volume? [Noumenon Corporation] decided to [test] the market for its new accounting program at different prices. The firm...raised prices in increments of $20 all the way up to $210. They found that total revenue was maximized at a price of $90. As a result of this experiment, they decided to...market the Intuit Accounting program at $89.95, much lower than the prices of competing software programs.

would bring in the most money.