Ch. 3

The equilibrium price and quantity are established at the intersection of:

supply and demand curve

The Law of Demand implies that

Consumers will buy more of a product at a low price than a high price. The relationship between quantity and price is inverse.

Decreases in demand _____ equilibrium price and ______ equilibrium quantity.

lower, lower

Increases in supply _____ equilibrium price and ______ equilibrium quantity.

lower, raise

A change in supply is different from a change in quantity supplied because:

quantity supplied is determined by price, changes in supply are caused by changes of determinants.

Decreases in supply _____ equilibrium price and ______ equilibrium quantity.

raise, lower

Increases in demand _____ equilibrium price and ______ equilibrium quantity.

raise, raise

The law of supply states:

Producers will offer more of a product at a high price than a low price. The relationship between price and quantity is direct and graphed as upsloping.

Effective price ceilings produce persistent

Product shortages. government must ration.

Effective price floors produce persistent

Product surpluses

A change in demand is different from a change in quantity demanded because:

Quantity demanded changes occur due to a change in product price. Changes in demand occur due to changes in determinants.

Determinants of Demand: 1) 2) 3) 4) 5)

1) Consumer tastes 2) Number of buyers in market 3) Income of consumers 4) Prices of related goods 5) Consumer expectations

The equilibrium quantity in competitive markets reflects: 1) 2)

1) Least-cost production 2) Allocative efficiency.

Determinants of supply: 1) 2) 3) 4) 5) 6)

1) Resource prices 2) production techniques 3) taxes or subsidies 4) price of other goods 5) producer expectations 6) number of sellers in the market

Demand

A curve representing the willingness of buyers in a specific period to purchase a particular product at various prices.

Supply

A curve showing the amounts of a product that produces are willing to offer in the market at each possible price during a specific period.

Price ceiling

A maximum price set by government designed to help consumers.

Price floor

A minimum price set by government designed to aid producers.

Equilibrium price:

The adjusted price caused by the interaction of market demand and market supply.