Economics Chapter 3

Front 1

ECONOMICS CHAPTER 3

Back 1

ECONOMICS CHAPTER 3

Front 2

How is the US problem of scarcity dealt with

Back 2

mainly thru markets - markets determine the price and quantity of goods produced

Front 3

Define demand:

Back 3

the willingness and abilty of buyers to buy different quantities of a good at different prices

Front 4

Define law of demand

Back 4

the price and the quantity demanded of a good are inversely related: the relationship between price and quantity demand is expressed in law of demand

Front 5

What is an inverse relationship

Back 5

as the value of one variable increases the value of other variables decrease

Front 6

What does the law of demand indicated in reference to inverse relationships

Back 6

as the price of a good increases the quantity demanded of the good decreases. As the price of a good decreases the quantity demanded of the good increases

Front 7

What is a substitution effect

Back 7

because of scarcity a consumer will have only limited income. therefore, a consumer will substitute lower-priced goods for higher priced goods - thus substitution effect

Front 8

What 2 reasons do we have for the inverse relationship between price and quantity demanded caused by scarcity

Back 8

substitution effect and income effect

Front 9

Define income effect

Back 9

Because of scarcity, a consumer will haveonly limited income. When price of good decreases, consumer's income has greater buying power allowing more quantity of the good. When price of good increases, consumer has less buying power.

Front 10

How do we illustrate the inverse relationship between price an dqunatity demand

Back 10

demand schedule is a table showing the different combinations of price and quantity demanded for a good

Front 11

What are some deteriminants of demand

Back 11

1. Income
2. Preferences
3. prices of related goods (substitues or complements)
4. # of buyers
5. expectations of future price

Front 12

Explain income as it relates to determinants of demand

Back 12

1. For normal goods, income & demand are directly related: increased income causes increase demand - curve shifts R. 2. For inferior goods, income & demand are inversely related: increase income causes decrease in demand - curve shifts L.) eg: used clothing

Front 13

Explain preferences as it pertains to determinants of demand

Back 13

if consumer preference for a good increases the demand for good increases - curve shift R. If preference for good decreases, demand for good decreases - shift L.

Front 14

Discuss prices of related goods (substitutes or complements) as it pertains to determinants of demand

Back 14

the demand for a good is directly related to the price of substitute. If Y is sub for X, an increase price for Y will cause increase in demand for X

Front 15

Discuss number of buyers as it pertains to determinants of demand

Back 15

an increase in the # buyers for a good will increase the demand for the good. A decrease in # of buyers will decrease the demand

Front 16

Discuss the expectations of future price as it pertains to determinants of demand

Back 16

if buyers expect price of good to rise in future, demand for good now will increase. If buyers expect price to fall in future, demand for good will now decrease

Front 17

How is a change in demand caused

Back 17

change in one of the determinants of demand

Front 18

What does a shift to the right mean in reference to change in demand versus change in quantity demanded

Back 18

shift to right is an increase in demand

Front 19

What does a shift to the left mean in reference to change in demand versus change in quantity demanded

Back 19

shift to left is a decrease in demand

Front 20

A change in quantity demanded is a cuased by

Back 20

change in price

Front 21

An increase in price will cause

Back 21

a decrease in quantity demanded - upward movement along the demand curve

Front 22

a decrease in price will cause

Back 22

an increase in quantity demanded - movement downward along the demand curve

Front 23

Define supply

Back 23

the willingness and ability of sellers to sell different quantities of a good at different prices

Front 24

What is the relationship between price and quantity supplied is expressed how

Back 24

in the law of supply: as the price of a good increases, the quantity supplied of the good increases

Front 25

How is the relationship between price and quantity supplied illustrated

Back 25

supply schedule or supply curve

Front 26

What factor would cause thesupply curve to shift to the R (increase) or L (decrease)

Back 26

determinant of supply shifts suply curve

Front 27

An increase in the cost of production will cause a ______ in supply. A decrease in the cost of production will cause an _______ in supply

Back 27

decrease, increase

Front 28

What common factors can change the cost of producing a good

Back 28

1. price of labor and other inputs
2. Technology
3. Taxes

Front 29

What is equilibrium

Back 29

putting demand and supply together

Front 30

What is meant by a free market

Back 30

prices are free to adjust up or down in response to demand and supply

Front 31

This is the price where quantity demanded equals quantity supplied

Back 31

equilibrium price

Front 32

How do we determine equilibrium price and quantity for a good

Back 32

the demand curve and supply curve for the good is plotted on a graph. Equ. price and quant occur where 2 curves intersect

Front 33

Define surplus

Back 33

if market price is above equilibrium price teh quantity supplied will exceed the quantity demanded

Front 34

Define shortage

Back 34

if market price is below equil price, the quant demanded will exceed the quantity supplied

Front 35

This results in a an equilibrium price, eliminates surplus or shortage and generally results in the most efficient quantity of output

Back 35

free market

Front 36

What is the producer's surplus

Back 36

the difference between the lowest price a seller is willing to accept and the price actually received

Front 37

What determines equilibrium price and quantity

Back 37

demand and supply

Front 38

What is a price ceiling

Back 38

the maximum legal price

Front 39

What is a price floor

Back 39

minimum legal price

Front 40

Fill in the blank: ______ is the willingness and ability of buyers to buy different quantities of a good at different prices

Back 40

demand

Front 41

Fill in the blank: according to the law of demand, the price and the quantity demanded of a good are ______ related

Back 41

inversely

Front 42

Fill in the blank: For ____ goods, income and demand are directly related

Back 42

normal

Front 43

Fill in the blank: For ____ goods, income and demand are inversely related

Back 43

inferior

Front 44

Fill in the blank: _____ is the willingness and ability of sellers to sell different quantitiesof a good at different prices

Back 44

supply

Front 45

Fill in the blank: According to the law of supply, the price and the quantity supplied of a good are _____ related

Back 45

directly

Front 46

Fill in the blank: The determinant of supply is the ____ of ____

Back 46

cost, production

Front 47

Fill in the blank: An increase in the cost of production will cause a(n) ___ in supply

Back 47

decrease

Front 48

Fill in the blank: _____ advance is the ability to produce more output per resource

Back 48

technological

Front 49

Fill in the blank: A _________ is a market in which price is free to adjust up or down in response to demand and supply

Back 49

free market

Front 50

Fill in the blank: _____ price is the price where quantity demanded equals quantity supplied

Back 50

equilibrium

Front 51

Fill in the blank: A ___ is when quantity supplied exceeds quantity demanded

Back 51

surplus

Front 52

Fill in the blank: A ____ is when quantity demanded exceeds quantity supplied

Back 52

shortage

Front 53

Fill in the blank: A price ____ is a maximum legal price

Back 53

ceiling

Front 54

Fill in the blank: A price ____ is a minimum legal price

Back 54

floor

Front 55

Chris is iven a dollar each day to buy hsi breakfast. He normally buys 2 dognut (.45 each). Today the donut is .30 and he is buys 3. This is the:
a. substituion effect
b. income effect
c. both
d. none

Back 55

b - income effect

Front 56

An increase in the demand for donuts could be caused by:
a. an increase in the # of buyers
b. a decrease in teh cost of producing donuts
c. a decrease in the price of donuts
d. all of the above

Back 56

a - an increase in the # of buyers

Front 57

A good for which an increase in income causes an increase in demand is:
a. complement
b. substitute
c. normal good
inferior good

Back 57

c - normal good

Front 58

If an increase in the price of Y causes a decrease in the demand for Z, goods Y and Z must be:
a. normal goods
b. complements
c. substitues
d. inferior goods

Back 58

b - complements

Front 59

Which of the following will cause a change in demand for good A
a. a decrease in the cost of producing A
b. a decrease in the price of good A
c. A decrease in the # of buyers for Good A
d. All of the above

Back 59

c - a decrease in teh # of buyers

Front 60

A movement along the demand curve caused by a change in price is:
a. change in supply
b. change in quantity supplied
c. change in demand
d. change in quantity demanded

Back 60

d - a change in quantity demanded

Front 61

An increase in the price of donuts will cause:
a. a decrease in thedemand for donuts
b. a decrease in the quantity demanded of donuts
c. a decrease in the demand for bagels
d. all of the above

Back 61

b - a decrease in the quantity demanded of donuts

Front 62

If the price of gasoline doubles what is likely to happen to the demand for public transportation
a. decreases
b. increases
c. stays the same
d. none

Back 62

b - increases

Front 63

If the demand for public transportation increases resulting in a higher market price, this will cause:
a. an increase in the supply of public transportation
b. a rightward shift in the supply curve for public transportation
c. an increase in the quantity supplied of public transportation
d. none

Back 63

c - an increase in the quantity supplied of public transportation

Front 64

An increase in teh supply of diet books could be caused by:
a. an increase in the number of people wanting to lose weight
b. an increase in the equilibrium price of diet books
c. a decrease in the cost of producing diet books
d. all of the above

Back 64

c - a decrease in teh cost of producing diet books

Front 65

Free market equilibrium will generally occur:
a. where there is no surplus or shortage
b. where marginal benefit equals marginal cost
c. where thesum of consumer's surplus and producer's surplus is maximized
d. All of the above

Back 65

d - all of the above

Front 66

If demand decreases and supply increases, what happens to price
a. increases
b. decreases
c. stays same
d. cannot be determined

Back 66

b - decreases

Front 67

Assuming a market originally in equilibrium, an increase in supply would lead to;
a. price increase, quantity increase
b. price increase, quantity decrease
c. price decrease, quantity increase
d. price decrease, quantity decrease

Back 67

c - price decrease, quantity increase

Front 68

A surplus is an indication that the market price is:
a. below equilibrium
b. above equilibrium
c. at equilibrium
d. none

Back 68

b - above equilibrium

Front 69

Assuming a market originally in equilibrium, a decrease in teh number of buyers would lead to:
a. price increase, quantity increase
b. price increase, quantity decrease
c. price decrease, quantity increase
d. price decrease, quantity decrease

Back 69

d - price decrease, quantity decrease

Front 70

If there is an increase in enrollment in economics classes, what will happen in the market for economics textbooks
a. price increase, quantity increase
b. price increase, quantity decrease
c. price decrease, quantity increase
d. price decrease, quantity decrease

Back 70

a - price increase, quantity increase

Front 71

If the government imposes a price ceiling in a market, this will tend to create:
a. surplus
b. shortage
c. more exchanges
d. all of the above

Back 71

b - shortage

Front 72

When a price control is imposed:
a. the number of exchanges will increase
b. producer's surplus and consumer's surplus are reduced
c. the market operates more efficiently
d. both a and c

Back 72

b - producer's surplus and consumer's surplus are reduced

Front 73

Explain the reason for the direct relationship between price and quantity supplied

Back 73

the seller's goal of profit-maaximization. For seller to make profit, the price must be sufficient to cover the seller's cost of production. higher selling price then easier to cover production and greater quantity supplied

Front 74

What is a price ceiling? List 4 results that a price ceiling will lead to

Back 74

maximum legal price.
1. shortage
2. fewer exchanges than at equilibrium
3. use of non-price rationing devices
4. illegal transactions at prices above ceiling