Macro Exam #1 Chapter 4

supply schedule

a table that shows the relationship between the price of a good and the quantity supplied

monopoly

markets that have only one seller and this seller sets the price

complements

two goods for which an increase in the price of one leads to a decrease in the demand for the other

Does a change in producer's technology lead to a movement along the supply curve or a shift in the supply curve? Does a change in price lead to a a movement along the supply curve or a shift in the supply curve?

-shift -movement

What are the two characteristics of a perfectly competitive market?

1. the goods offered for sale are all exactly the same 2. the buyers and sellers are so numerous that no single buyer or seller has any influence over the market price.

demand curve

a graph of the relationship between the price of a good and the quantity demanded

supply curve

a graph of the relationship between the price of a good and the quantity suppled

Market

a group of buyers and sellers of a particular good or service

Competitive market

a market in which there are many buyers and any sellers so that each has a negligible impact on the market price

shortage

a situation in which quantity demanded is greater than quantity supplied; excess demand

surplus

a situation in which quantity supplied is greater than quantity demanded; excess supply

equilibrium

a situation in which the market price has reached the level at which quantity supplied equals quantity demanded

demand schedule

a table that shows the relationship between the price of a good and the quantity demanded

What are the supply schedule and the supply curve and how are they related? Why does the supply curve slope upward?

supply schedule/curve: a table/graph that shows the relationship between the price of a good and the quantity supplied. Curve slopes upward because a higher price increases the quantity supplied.

Beer and pizza are complements. When the price of beer rises, what happens to the supply? demand? quantity supplied? quantity demanded? price of the market for pizza?

supply-supply increases demand- the demand for pizza declines, because beer and pizza are complements and people want to buy less beer. quantity supplied-quantity supplied declines quantity demanded- quantity demanded declines price of the market for pizza- falls

quantity demanded

the amount of a good that buyers are willing and able to purchase

quantity supplied

the amount of a good that sellers are willing and able to sell

law of supply and demand

the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance

law of demand

the claim that, other things being equal, the quantity demanded of a good falls when the price of the good rises

law of supply

the claim that, other things being equal, the quantity supplied of a good rises when the price of the good rises

Popeye's income declines and as a result he buys more spinach. Is spinach and inferior or a normal good? What happens to Popeye's demand curve for spinach?

-Inferior -Shifts to the right

What determines the quantity of a good that buyers demand?

-Price -Income -Price of related goods -Taste -Expectations -#of buyers

What determines the quantity of a good that sellers supply?

-Price -Input prices -Technology -Expectations -# of sellers

What is a competitive market? Briefly describe the types of markets other than perfectly competitive markets.

A competitive market is a market in which there are many buyers and many sellers of an identical product each having a negligible (tiny) impact on the market price. Monopoly-has one seller and this seller sets the price. ie. Television company.

Describe the forces that move a market toward its equilibrium.

Forces: If the price is above the equilibrium price, sellers want to sell more than buyers want to buy, so there is a surplus. Sellers try to increase their sales by cutting prices. That continues until they reach the equilibrium price. If the price is below the equilibrium price, buyers want to buy more than sellers want to sell, so there is a shortage. Sellers can raise their price without losing customers. That continues until they reach the equilibrium price.

Describe the role of prices in market economies.

Prices play a vital role in market economies because they bring markets into equilibrium. Price acts as a signal for shortages and surpluses which help firms respond to changing market conditions. If the price is different from its equilibrium level, quantity supplied and quantity demanded are not equal. The resulting surplus or shortage leads suppliers to adjust the price until equilibrium is restored. Prices serve as signals that guide economic decisions and allocate scarce resources.

inferior goods

a good for which, other things being equal, an increase in income leads to a decrease in demand

normal good

a good for which, other things being equal, an increase in income leads to an increase in demand

If the economy goes into a recession and incomes fall, what happens in the markets for inferior goods? a. prices and quantities both rise. b. prices and quantities both fall. c. prices rise, quantities fall. d. prices fall, quantities rise.

a. Prices and quantities both rise.

The discovery of a large new reserve of crude oil will shift the ___ curve for gasoline, leading to a _____ equilibrium price. a. supply, higher b. supply, lower c. demand, higher d. demand, lower

a. supply, higher

An increase in____ will cause a movement along a given demand curve, which is called a change in _________. a. supply, demand b. supply, quantity demanded c. demand, supply d. demand, quantity supplied

b. supply, quantity demanded

A change in which of the following will NOT shift the demand curve for hamburgers? a. the price of hot dogs b. the price hamburgers c. the price of hamburger buns d. the income of hamburger consumers

b. the price hamburgers

Which of the following might lead to an increase in the equilibrium price of jelly and a decrease in the equilibrium quantity of jelly sold? a. an increase in the price of peanut better, a complement to jelly b. an increase in the price of marshmallow fluff, a substitute for jelly c. an increase in the price of gapes, an input into jelly d. an increase in consumers' incomes, as long as jelly is a normal good

c. an increase in the price of grapes, an input to jelly

Movie tickets and DVDs are substitutes. If the price of DVDs increases, what happens in the market for movie tickets? a. The supply curve shifts to the left b. The supply curve shifts to the right c. The demand curve shifts to the left. d. The demand curve shifts to the right

d. The demand curve shifts to the right

Does a change in price lead to a movement along the demand curve or a shift in the demand curve?

movement

change in the quantity demanded

movement along a fixed demand curve

change in the quantity supplied

movement along a fixed supply curve

Does a change in consumer's tastes lead to a movement along the demand curve or a shift in the demand curve?

shift

equilibrium price

the price that balances quantity supplied and quantity demanded

equilibrium quantity

the quantity supplied and the quantity demanded at the equilibrium price

market demand

the sum of all the individual the individual demands for a particular good or service

substitutes

two good for which an increase in the price of one leads to an increase in the demand for the other