Demand, Supply, and Market Equilibrium

The supply curve is __ sloping curve

An Upward

When the price of a product falls, demand for its substitute will

Decrease

The determinants of the supply of a good are any factors other than the product's ___ that cause the supply curve of the good to shift.

Price

What drawing a supplied curve, __ Is labeled on the vertical axis

Price

True or false: The las of demand can be supported by the income effect

True

Black Markets

an illegal market that breaks government rules on prices or sales

Allocative efficiency

the particular mix of goods and services most highly valued by society. (Minimum-cost production assumed).

Price ceiling

A legally established maximum price for a good or service. Normally set at a price below the equilibrium price. (Shortage).

Price floor

A legally established minimum price for a good, or service. Normally set at a price above the equilibrium price. (Surplus)

The equilibrium price where the quantity demanded equals the quantity supplied is otherwise known as the ____ ___ price

Market clearing

On a simple supply model, a change in quantity supplied is illustrated by a __ and change in supply is illustrated by a

Movement along the supply curve; shift of the supply curve.

A decrease in equilibrium price and indeterminate result on the equilibrium quantity is a result of which of the following?

An increase in supply and a simultaneous decrease in demand

Which of the following causes consumers to buy larger quantities of a product at each possible price?

An increase in the number of buyers

Which of the following would likely increase demand for a normal good

An increase in the number of buyers A decrease in the price of a complementary good.

Which of the following factors increase the demand for any good or service?

An increase in the number of buyers An increase in the price of a substitute good A rise in consumer income if the product is a normal good

Diminishing marginal utility

Decrease in satisfaction or usefulness from having one more unit of the same product

Determinants of Supply

Also referred to as supply shifters. Resource prices, Technology, Taxes and subsidies, Prices of Other goods, Producer expectations, Number of sellers.

Which statement about supply and means is true?

An increase in consumer income is likely to increase the demand for a normal good

Which of the following exemplifies a change in buyer's tastes?

An increase in demand for digital cameras over 35mm cameras.

Law of Supply

As price rises, the quantity supplied rises; as price falls, the quantity supplied falls.

True or false: resource costs or change in these costs to production are responsible for shifts in the supply curve

True

Equilibrium price

(Market clearing price) is the price where the intentions of buyers and sellers match. QD and QS are equal. There is no shortage or surplus. There is no tendency for price to rise or fall.

Challenging concepts

1. Recognize that if the increase in supply is larger than the decrease in demand, the equilibrium quantity will increase, whereas if the decrease in demand is greater than the increase in supply, the equilibrium quantity will decrease 2. Substitute goods: product or services that can be used in place of another. Complementary good: products and services that are used together. 3. Determinants of demand: consumers tastes, number of buyers, consumer expectations, income, prices of related goods.

Unrelated goods

A change in the price of one has little or no effect on the demand for another. (Independent goods.) Ex: apples and cars.

A decrease in demand while holding supply constant results in __ in both equilibrium price and quantity

A decline

___ while holding demand constant, results in an increase in the equilibrium price of the good, but a decrease in the equilibrium quantity of the good.

A decrease in the supply of a good

Which of the following refer to government financial assistance for the production of a good which lowers producers costs and increases supply

A subsidy

According to the law of demand, which of the following statements are true, all other things being equal?

As price decreases, quantity demanded increases As price increases, quantity demanded decreases

Supply increase; Demand decrease

Both changes decrease price, the net result is a price DROP greater then that resulting from either change alone. The direction of the change in equilibrium quantity depends on the relative sizes of the changes in S and D. Ex: if the increase in supply is larger than the decrease in demand, the equilibrium quantity will increase Q⬆️; But if the decrease in demand is greater than the increase in supply, the equilibrium quantity will decrease Q⬇️.

Supply decrease; Demand increase

Both changes increase price. Their combined effect is an increase in equilibrium price GRATER than that caused by either change separately. But their effect on equilibrium quantity is indeterminate. It depends, if the decrease in supply is larger than the increase in demand, the equilibrium quantity will decrease Q⬇️. If the increase in demand is greater than the decrease in supply, the equilibrium quantity will increase Q⬆️.

The rationing function of prices refers to the ability of the competitive forces of supply and demand to establish a price at which

Buying and selling decisions are consistemt

How do improvements in productive technology enable firms to produce more units of output.

By utilizing fewer resources, thereby lowering costs

Diminishing marginal ___ states that, in any specific time period, buyers will derive less satisfaction form each additional unit of the product consumed.

Utility

Law of Demand

Ceteris paribus, as price rises, the quantity demanded falls. As price decreases, quantity demanded increases. There is an inverse (negative) relationship between price and quantity demanded.

In the market place, what is a good that is used together with another good?

Complementary good.

An unfavorable change in consumers taste and preferences for a product will __ demand, which is illustrated as a shift of the demand curve to the __

Decrease, left

An increase in business taxes causes a __ in supply and will __ production costs.

Decrease; decrease

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

Diminishing

According to the law of supply, price and quantity supplied have a __ relationship

Direct

The interaction between buyers and sellers determines the equilibrium price and the __ quantity

Equilibrium

Which of the following shows the effects on equilibrium price and quantity due to an increase in supply and a simultaneous decrease in demand?

Equilibrium price falls and the change in equilibrium quantity is indeterminate

Determinants of Demand

Factors other than price that determine the quantities demanded of a good or service. Demand shifters.

If a decline in demand is greater than an increase in supply, the equilibrium quantity will

Fall

True or false: for many people coke and Pepsi are complements

False

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

Future prices

Equilibrium

Graphically, the equilibrium price is indicated by the intersection of the supply curve and the demand curve.

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

Higher; reduce

Which exemplifies a pair of substitute goods?

Hot dogs and hamburgers

Changes in Demand

If the supply of some good is constant and demand increases, the intersection of the lines is higher. Demand increase: P⬆️, Q⬆️ A decrease in demand reduces both equilibrium price and quantity. Demand decrease P⬇️, Q⬇️.

A decrease in supply while holding demand constant results in an __ in equilibrium price, and a __ in equilibrium quantity

Increas; decrease

Other things equal, if consumers believe that gas prices will rise in a week, the demand for gas today will

Increase

In general, what goals the improvement of production techniques help companies to achieve?

Increase supply Lower production costs Use fewer resources per unit of output

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

Increases supply Lowers the cost of production

The determinant of supply dealing with alternative products that can be produced by firms is called

Price of substitutes in production

The production of a good or service in the least costly way in known as __ efficiency

Productive

Competition among corn producers forces them to use the best technology and right mix of productive resources; otherwise their costs will be too high relative to the market price and they will be unprofitable. That is best described as

Productive efficiency

Complementary goods

Products and services that are used together. When the price of one falls, the demand for the other increases (and conversely). Ex: salad and dressing.

Substitute goods

Products or services that can be used in place of another. Ex: Coca Cola and Pepsi

Rationing function of prices

Refers to the ability of the forces of supply and demand to establish a price at which selling and buying decisions are consistent.

The price of ___ is a determinant of demand

Related

Which of the following are determinants of supply?

Resource prices Taxes and subsidies Technology

The prices of the __ used in the production process help determine the costs of production incurred by firms

Resources

If an increase in supply is larger than a decrease in demand the equilibrium quantity will

Rise

A change in __ rather than a change in the quantity supplied, means a change in the schedule or a shift of the supply curve

Supply

A surplus is also known as excess

Supply

Producer expectations of future prices are a determinant of

Supply

The number of sellers or competitors in a market is a determinant or shifter of the __ curve

Supply

The prices of substitute goods in productions is a determinant of

Supply

What determines market price and equilibrium output in a market?

The intersection of buyers and sellers

Which are reasons for changes in buyers tastes?

The introduction of products The results of health studies The development of new technology

Other things equal, which of the following is correct regarding increasing the number of sellers in an industry?

The market supply becomes greater

Production efficiency

The production of any particular good in the least costly way.

Equilibrium quantity

The quantity at which the intentions of buyers and sellers match, so that the quantity demanded equals quantity supplied.

The ability of the competitive forces of supply and demand to establish a price at which selling and buying decisions are consistent is called __

The rationing function of prices

True or false: When the price of one product rises, the demand for its substitute will increase

True

True or false: a surplus is when quantity supplied exceeds quantity demanded

True

A decrease in demand while holding supply of constant results in

a decrease in both equilibrium price and quantity

Demand schedule

A table of numbers showing the amounts of a good or service buyers are willing and able to buy at various prices over a specified period of time.

Which of the following does not exemplify an improvement in technology affecting supply?

Increased subsidies to farmers for producing more corn

Greater resource prices ___ the costs of production, thereby, ___ the incentive fo firms to produce the good at each price

Increases; reducing

If prices for a good or service are expected to increase in the future, demand for that good or service will __ today. If prices are expected to decrease in the future, demand will __ today.

Rise, fall.

The income effect

A lower price increases the purchasing power of a buyer's money income, enabling the buyer to purchase more of the product than before.

Change in demanded

A movement of of an entire demand curve or schedule such that the quantity demanded changes at every particular price. Graphically is a shift of the curve to the right or to the left.

Changes in quantity supply and changes in supply,

A change in quantity supplied is a movement from one pint to another along a fixed supply curve. A change in supply means a change in the schedule and a shift of the curve.

Demand curve

A curve that illustrates the demand for a product by showing how each possible price (on the vertical axis) is associated with a specific quantity demanded (on the horizontal axis). Downward slope.

Marginal Cost

A curve that illustrates the supply for a product by showing how each possible price (on the vertical axis) is associated with a specific quantity supplied (horizontal axis). The upward slope of the curve reflects the law of supply.

Which of the following statements are true?

A decrease in consumers income would decrease de demand for a normal good. An increase in the price of a normal good would decrease the quantity demanded of the good.

The inverse relationship between price and quantity demanded can be graphically illustrated by

A downward sloping curve

Te willingness and ability of a consumer to buy a normal product falls because of __

A fall in income

Inferior goods

A good or service whose consumption declines as income rises, price held constant. Low-end goods (basics).

Normal goods

A good or service whose consumption increases when income increases and falls when income decreases, price remaining constant. High-end goods (luxury)

Which exemplifies a pair of complementary goods?

A hot dog and relish

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

Which of the following are determinants of demand

Consumers income Price of related goods Number of buyers Consumer expectations Consumers tastes

Determinants of Demand

Consumers' tastes, the number of buyers in the market, consumers' incomes, the prices of related goods, and consumer expectations.

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

Costs of production

Supply decrease; Demand decrease

If the decrease in supply is greater than the decrease in demand the equilibrium price will rise. P⬆️. If the decrease in demand is greater than the decrease in demand the equilibrium price will falls. P⬇️ Bot changes make equilibrium quantity fall. Q⬇️

Changes in Supply

If the demand for some good is constant but supply increases, the new intersection of the curves is at a lower equilibrium price but higher equilibrium quantity. S increase: P⬇️, Q⬆️ If supply decreases, equilibrium price rises while equilibrium quantity declines. S decrease: P⬆️, Q⬇️

Supply increase; Demand increase

If the increase in supply is GREATER than the increase in demand, the equilibrium price will fall P⬇️. If the increase in demand is GREATER than the increase in supply, the equilibrium price will will rise P⬆️. The increases in both rise the equilibrium quantity. Q⬆️. The equilibrium quantity will increase by an amount greater than that caused by either change alone.

When the price of coke rises, the demand of Pepsi is likely to

Increase

A favorable change in consumers tastes and preferences a product will ___ increase demand, shifting he demand curve to the __

Increase, right.

In general, a firm will __ the output of a good or service if the price of the good is rising

Increase.

The vast majority of goods that are not related to one another are called

Independent goods

What are two goods called when a change in the price of one good has little or no effect on the demand for the other?

Independent goods

Demand curve show the

Inverse relationship between price and quantity demanded for a product.

Change in quantity demanded

Is a movement from one point to another point.-from one price-quantity combination to another- along a fixed demand curve or schedule. Ex: a shift from point A to point B

Supply

Is a schedule or curve showing the various amounts of a product that producers are willing and able to make available for sale at each of a series of possible prices during a specified period of time, other things equal.

Demand

Is a schedule or curve that shows the various amounts of a product that consumers are willing able to buy at a series of possible prices during a specified period of time, other things equal.

The substitution effect

Is the decrease in sales for a product that can be attributed to consumers switching to cheaper alternatives when its price rises.

If costs of production rise, the producer has an incentive to produce

Less output

The income effect indicates that a __ price increases the asking power of income, enabling consumers to purchase __ of a product and vice versa

Lower, more

The relationship between the price of a good or service and the quantity demanded of that good or service described by the law of demand is

Negative

Which of the following are substitutes?

Pepsi and Coca-Cola

Which of the following has the greatest effect on the quantity supplied?

Price

All competitive markets include

Price Supply Demand Quantity

The supply curve illustrates the relationship between

Price and quantity supplied

What is NOT a determinant of demand?

Price of substitutes in production.

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.

Supply schedule

Shows the quantities of goods and services producers are willing and able to produce at each possible prices during a specific period of time.

Which of the following are characteristics of a competitive market

Standardized products A large number of buyers and sellers

In the market place, what is a good that can be used in the place of another good called

Substitute good

Which of the following types of goods affect the demand for another due to a change in their price?

Substitute goods Complementary goods

The supply curve measures quantity ___ on the horizontal axis and __ on the vertical axis

Supplied, price

Market __ is a schedule or curve showing the various amounts of a product that producers are willing and able to make available for sale at each possible price during a specific period

Supply

Shortage

The amount by which the quantity demanded of a product exceeds the quantity supplied at a particular price. (BELOW equilibrium). Excess demand.

Surplus

The amount by which the quantity supplied of a product exceeds the quantity demanded. (ABOVE equilibrium) excess supply. Surpluses drive prices down.

Which of the following specifically refers to demand

The buyer side of any market

Last Word

When the federal government raised the borrowing limits, students borrowed more, in result tuition increased. More loans led to higher tuition. Increases the students ability to pay. Shifts the demand curve to the right. Government should subsidize supply instead of demand.

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.

superior/normal goods

products whose demand varies directly with money income are called superior goods or normal goods. Goods whose demand varies inversely with money income are inferior goods.