micro - ch 3
Supply is a schedule that shows the amounts of a product a producer can make in a limited time period.
False
S increase
P ↓, Q ↑
D decrease
P ↓, Q ↓
income effect
A higher price for a good decreases the purchasing power of consumers' incomes so they can't buy as much of the good.
A change in supply means that there is a movement along an existing supply curve.
False
A government subsidy for the production of a product will tend to decrease supply.
False
A price ceiling set by government below the competitive market price of a product will result in a surplus.
False
Allocative efficiency means that goods and services are being produced by society in the least costly way.
False
A market is any arrangement that brings together the buyers and sellers of a particular good or service.
True
A surplus indicates that the quantity demanded is less than the quantity supplied at that price.
True
An increase in resource prices will tend to decrease supply.
True
An increase in the prices of other goods that could be made by producers will tend to decrease the supply of the current good that the producer is making.
True
If the demand for a product increases and the supply of the product decreases, the equilibrium price will increase and equilibrium quantity will be indeterminate.
True
The law of diminishing marginal utility is one explanation of why there is an inverse relationship between price and quantity demanded.
True
The rationing function of prices is the elimination of shortages and surpluses.
True
When two products are substitute goods, the price of one and the demand for the other will tend to move in the same direction.
True
determinants of supply
are changes in (1) resource prices; (2) technology; (3) taxes and subsidies; (4) prices of other goods; (5) price expectation; and (6) the number of sellers in a market.
A change in the quantity demanded means that there has been a change in demand.
false
demand curve
has a downward slope and is a graphic representation of the law of demand.
allocative efficiency
in which resources are devoted to the production of goods and services society most highly values.
If consumer tastes or preferences for a product decrease, the demand for the product will tend to decrease.
true
determinants of demand
are consumer tastes (preferences), the number of buyers in the market, consumers' income, the prices of related goods, and consumer expectations.
inferior goods
but an increase in consumers' income decreases its demand if it is an inferior good (one where income and demand are negatively related)
normal goods
consumers' income increases its demand if it is a normal good (one where income and demand are positively related)
change in demand
means that the entire demand curve or schedule has changed because of a change in one of the above determinants of demand
change in quantity demanded
means that there has been a movement along an existing demand curve or schedule because of a change in price.
change in quantity supplied
means that there has been a movement along an existing supply curve or schedule because of a change in price.
law of supply
shows a positive relationship between price and quantity supplied. Other things equal, as the price of the good increases, more quantities will be offered for sale, and as the price of the good decreases, fewer quantities will be offered for sale.
law of demand
states that there is an inverse or negative relationship between price and quantity demanded. Other things equal, as price increases, buyers will purchase fewer quantities, and as price decreases they will purchase more quantities. There are three explanations for the law of demand:
substitution effect
A higher price for a good encourages consumers to search for cheaper substitutes and thus buy less of it.
diminishing marginal utility
After a point, consumers get less satisfaction or benefit from consuming more and more units.
Demand is the amount of a good or service that a buyer will purchase at a particular price.
False
If price falls, there will be an increase in demand.
False
If the market price of a product is below its equilibrium price, the market price will tend to rise because demand will decrease and supply will increase.
False
If the supply of a product increases and demand decreases, the equilibrium price and quantity will increase.
False
If two goods are complementary, an increase in the price of one will tend to increase the demand for the other.
False
In graphing supply and demand schedules, supply is put on the horizontal axis and demand on the vertical axis.
False
The law of demand states that as price increases, other things being equal, the quantity of the product demanded increases.
False
The substitution effect suggests that, at a lower price, you have the incentive to substitute the more expensive product for similar products that are relatively less expensive.
False
There is no difference between individual demand schedules and the market demand schedule for a product.
False
surplus
If the price of a product is above the market equilibrium price, there will be a surplus or excess supply. In this case, the quantity demanded is less than the quantity supplied at that price.
shortage
If the price of a product is below the market equilibrium price, there will be a shortage or excess demand. In this case, the quantity demanded is greater than the quantity supplied at that price
S ↑, D ↑
P ?, Q ↓
S ↓, D ↓
P ?, Q ↓
S ↓, D ↑
P ↑, Q ?
D increase
P ↑, Q ↑
S decrease
P ↑, Q ↓
S ↑, D ↓
P ↓, Q ?
complementary good
an increase in the price of a related good will decrease its demand if the related good is a complementary good (one that is used with another good).
substitute good
an increase in the price of a related good will increase its demand if the related good is a substitute good (one that can be used in place of another)
productive efficiency
in which the goods and services society desires are being produced in the least costly way
supply curve
is a graphic representation of supply and the law of supply; it has an upward slope, indicating the positive relationship between price and quantity supplied.
price floor
is a minimum price set by government for the sale of a product or resource. It creates a surplus (quantity supplied is greater than the quantity demanded) at the fixed price. The surplus may induce the government to increase demand or decrease supply to eliminate the surplus.
demand
is a schedule of prices and the quantities that buyers would purchase at each of these prices during a selected period of time.
supply
is a schedule of prices and the quantities that sellers will sell at each of these prices during some period of time.
supply schedule
is a schedule of prices and the quantities that sellers will sell at each of these prices during some period of time.
change in supply
is an increase or decrease in the entire supply schedule and the supply curve. It is the result of a change in one or more of the determinants of supply that affect the cost of production. For a particular product,
equilibrium quantity
is equal to the quantity demanded and supplied at the equilibrium price.
equilibrium price
of a product is that price at which quantity demanded and quantity supplied are equa
price ceiling
set by government prevents price from performing its rationing function in a market system. It creates a shortage (quantity demanded is greater than the quantity supplied) at the government-set price.