Chapter 3. Demand, Supply, and Market Equilibrium

The demand for a normal good would likely increase in which of the following cases?

- A decrease in the price of complementary goods - An increase in the number of buyers

Which of the following statements describe the law of demand?

- All other things being equal, as price decrease, quantity demanded increases - All other things being equal, as price increases, quantity demanded decreases

Which of the following are determinants of demand?

- Consumer's tastes - Number of buyers - Consumer's incomes - Prices of related goods - Consumer expectations

If the government of a country subsidizes the production of a good, it:

- Increases supply - Lowers the cost of production

In which of the following situations do governments intervene to prevent prices from rising above or falling below their equilibrium levels?

- Prices are too low for firms - Prices are too high for consumers

Which of the following are determinants of supply?

- Taxes and subsidies - Resource prices - Technology

Which of the following illustrates the relationship between a good and its complement?

- When the price of lettuce increases, the demand for salad dressing decreases - When the price of tuition decreases., the demand for textbooks increases

A change in demand comes from a change in consumers' minds because of _____.

A change in a determinant of demand other than price

The interaction between buyers and sellers determines the equilibrium price and the _____ quantity.

Equilibrium

The willingness and ability of a consumer to buy a normal product falls because of _____.

A fall in income

Which of the following refers to a particular apportionment or mix of goods and services most highly valued by society?

Allocative efficiency

Which of the following exemplifies a change in buyers' tastes?

An increase in demand for digital cameras over 35mm cameras

A price _____ is the maximum legal price a seller may charge for a product or service.

Ceiling

A _____ good is one that is used together with another good.

Complementary

The determinants of demand, other things equal, are assumed to be _____ when a demand curve is drawn or computed.

Constant

The concept of demand can be summarized by a schedule or curve showing the quantity of a product that would be _____.

Consumed at various possible prices

The _____ incurred by firms when producing a good or services arise from the prices of the inputs that are used to produce said good or service.

Cost of production

- Change in the number of buyers is a determinant of market _____. - A normal good is an item for which _____ varies directly with money income. - The law of _____ is illustrated by a downward-sloping curve. - A buyer's intentions or plans in regard to the purchase of a product is known as _____. - A shortage results from an excess of quantity _____.

Demand

At the equilibrium price, quantity _____ equals quantity _____.

Demand; Supply

The basic _____ of _____, or supply shifters, are resource prices, technology, taxes and subsidies, prices of other goods, producer expectations, and the number of sellers in the market.

Determinants, Supply

Consumers experience _____ marginal utility the more they consume of a particular good or service.

Diminishing

_____ _____ is the quantity at which the intentions of buyers and sellers match, so that they quantity demanded and the quantity supplied are equal.

Equilibrium quantity

- As more firms enter an industry, the supply curve shifts to the left. - Changes in the determinants of demand will cause a movement along the demand curve. - In general, a rise in income causes a decrease in demand for most products and a fall in income causes an increase in demand for most products, other things equal.

False

A price _____ is a minimum price fixed by the government, generally imposed above the equilibrium price.

Floor

Producer expectations refer to firms' expectations of _____ for a good or service that they produce.

Future prices

_____ resource prices raise production costs and, assuming a fixed product price, _____ profits.

Higher; Reduce

According to the law of supply, price and quantity supplied have a(n) _____ relationship.

Positive

- When drawing a supply curve, _____ is labeled on the vertical axis. - The only factor that causes a movement along the supply curve is:

Price

A favorable change in consumer tastes and preferences for a product will _____ demand, shifting the demand curve to the _____.

Increase; Right

A vast majority of goods unrelated to one another are called _____ goods.

Independent

"My income increased because of a substantial raise; therefore I decreased my consumption of Spam." This statement best exemplifies the relationship between income and a(n) _____.

Inferior good

Other things equal, when price falls, the quantity demanded rises. This represents the _____ relationship between the price and the quantity demanded.

Inverse

A demand curve shows the _____.

Inverse relationship between price and quantity demanded for a product

if costs of production rise, the producer has an incentive to produce _____ output.

Less

_____ benefit is the additional utility gained from consuming one or more unit of a good or service.

Marginal

The ongoing supply of a good or service by a producer essentially reflects the _____ of producing the good or service.

Marginal cost

The equilibrium price where the quantity demanded equals the quantity supplied is otherwise known as the _____-clearing price.

Market

Upon receiving a substantial raise, Jessie increased her monthly consumption of beef. This information best exemplifies the relationship between income and a(n) _____.

Normal good

Suppose a firm produces soccer balls and volley balls. However, an increase in the price of volley balls entices the firm to produce more volley balls and reduce the production of soccer balls. This substitution in production is caused by a change in _____.

Price of other goods

The supply curve illustrates the relationship between _____.

Product and quantity supplied

When each additional worker of a firm produces less additional output than previously added workers, then the marginal cost of additional units of output _____

Rises

The law of supply states that as price _____, the quantity supplied (Qs) rises; as price _____, the quantity supplied falls.

Rises; Falls

A _____ the demand curve represents a change in demand while a _____ the demand curve represents a change in the quantity demanded.

Shift of; Movement along

When a factor other than price affects consumption of a good or service, the demand curve will _____.

Shift to the right or left

The market supply curve is the horizontal _____ of all the _____ supply curves for a good or service.

Summation; Individual

The supply curve measures quantity _____ on the horizontal axis and ______ on the vertical axis.

Supplied; Price

- Improvements in technology is a determinant of _____. - The price of substitute goods in production is a determinant of _____. - Producer expectations of future prices are a determinant of _____. - The number of sellers or competitors in a market is a determinant or shifter of the _____ curve. - An increase in _____, while holding demand constant, results in a decrease in equilibrium price, but an increase in equilibrium quantity.

Supply