unit 2

Question 1

demand

Answer 1

the different quantities of goods that consumers are willing and able to buy at different prices

Question 2

law of demand

Answer 2

there is an INVERSE relationship between price and quantity demanded

Question 3

the substitution effect

Answer 3

if the price goes up for a product, consumers will buy less of that product and more of another substitute product

Question 4

income effect

Answer 4

if the price goes down for a product, the purchasing power increases for consumers, allowing them to purchase more

Question 5

Law of Diminishing Marginal Utility

Answer 5

as you consume anything, the additional satisfaction that you will receive will eventually start to decrease

Question 6

change in demand

Answer 6

NEW LINE - shifts to the right of left. there is no change in price of the final product

Question 7

shift to the right

Answer 7

positive shift - good

Question 8

shift to the left

Answer 8

negative shift - bad

Question 9

change in quantity demanded

Answer 9

represents movement along the same line. this is reflected from a change in price

Question 10

5 shifters (determinants) of demand

Answer 10

1. tastes and preferences
2. number of consumers
3. price of related goods
4. income
5. future expectations

Question 11

substitute (direct)

Answer 11

substitutes are goods used in place of one another

Question 12

complementary (inverse)

Answer 12

two goods that are bought and used together. if the price of one increases, the demand for the other decreases

Question 13

normal goods (direct)

Answer 13

as income increases, demand increases

Question 14

inferior goods (inverse)

Answer 14

as income increases, demand falls

Question 15

law of supply

Answer 15

the more money we make, the more we are willing to supply

Question 16

change in supply

Answer 16

new line, shift to the right = good; left = bad

Question 17

change in quantity supplied

Answer 17

same line, movement along that same line; reflects change in price

Question 18

5 shifters of supply

Answer 18

1. prices/availability of inputs (resources)
2. number of sellers
   (more sellers, supply increases)
3. technology
4. government action: taxes and subsidies
5. expectations of future profit

Question 19

tax

Answer 19

discourages production (shift to the left)

Question 20

subsidies

Answer 20

encourage production (shift to the right)

Question 21

surplus

Answer 21

the quantity demanded is less than the quantity supplied

Question 22

shortage

Answer 22

the quantity demanded is greater than the quantity supplies

Question 23

price ceiling

Answer 23

maximum legal price a seller can charge for a product

Question 24

price floor

Answer 24

the minimum legal price a seller can sell a product/service

Question 25

consumer surplus

Answer 25

extra money that the consumer was willing to spend, but didn't have to

Question 26

producer surplus

Answer 26

extra money that the producer makes on a transaction

Question 27

deadweight loss

Answer 27

the lost consumer surplus and producer surplus (inefficient) - the value of foregone mutually beneficial transactions

Question 28

competitive market

Answer 28

a market in which there are many buyers and sellers of the same good or service, none of whom can influence the price at which the good or service is sold

Question 29

the supply and demand model

Answer 29

a model of how the competitive market works

Question 30

demand schedule

Answer 30

shows how much of a good or service consumers will be willing and able to pay at different prices

Question 31

quantity demanded

Answer 31

the actual amount of a good or service consumers are willing and able to buy at some specific price

Question 32

individual supply curve

Answer 32

illustrates the relationship between quantity supplied and price for an individual producer

Question 33

equilibrium

Answer 33

when no individual would be better off doing something different

Question 34

equilibrium quantity

Answer 34

the quantity of the good bought and sold at that price

Question 35

price controls

Answer 35

legal restrictions on how high or low a market price may go.

Question 36

inefficient allocation to consumers

Answer 36

people who want the good badly and are willing to pay a high price don't get it, and those who care relatively little about the good and are only willing to pay a relatively low price do get it

Question 37

wasted resources

Answer 37

people expend money, effort, and time to cope with the shortages caused by the price ceiling

Question 38

inefficiently low quality

Answer 38

sellers offer low quality goods at a low price even though buyers would prefer a higher quality at a higher price

Question 39

black market

Answer 39

a market in which goods or services are bought and sold illegally either because it is illegal to sell them at all or because the prices charged are legally prohibited by a price ceiling

Question 40

minimum wage

Answer 40

a legal floor on the hourly wage rate paid for a worker's labor

Question 41

inefficient allocation of sales among sellers

Answer 41

those who would be wiling to sell the good at the lowest price are not always those who manage to sell it

Question 42

inefficiently high quality

Answer 42

sellers offer high quality goods at a high price, even though buyers would prefer a lower quality at a lower price

Question 43

quantity control (quota)

Answer 43

an upper limit on the quantity of some good that can be bought or sold

Question 44

license

Answer 44

gives its owner the right to supply a good or service

Question 45

demand price

Answer 45

the price at which customers will demand that quantity

Question 46

supply price

Answer 46

the price at which producers will supply that quantity

Question 47

wedge

Answer 47

quantity control or quota drives a wedge between the demand price and the supply price of a good; the price paid by buyers ends up being higher than that received by sellers.

Question 48

quota rent

Answer 48

The difference between the demand and supply price at the quota amount