Efficient markets

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10 Terms

1

What is the definition of supply in economic terms?

The amount of a good or service that producers are able and willing to supply at various prices.

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2

What happens to quantity demanded as price goes up?

Quantity demanded goes down.

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3

What effect explains the inverse relationship between price and quantity demanded?

The Real Income Effect, because individuals cannot keep buying the same quantity of a product if its price rises while their income stays the same.

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4

What is the definition of elasticity of demand?

A measure of consumer’s sensitivity to a change in price.

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5

Give an example of a product that is generally considered inelastic.

Salt, sugar, medicine, or milk.

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6

What happens when demand meets supply?

The equilibrium price is established.

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7

What results when the price is set too low in a market?

Shortages occur, where quantity demanded is greater than the quantity supplied.

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8

What occurs when the price is too high in a market?

Surpluses occur, where quantity supplied is greater than quantity demanded.

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9

What are factors that can shift demand?

Changes in income, number of consumers, consumer tastes and preferences, consumer expectations, price of substitute goods, and price of complementary goods.

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10

What can cause supply to change?

Changes in the cost of inputs, number of producers, conditions due to natural disasters or international events, technology, producer expectations, and government policy.

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