Principles of Microeconomics Quiz #2

Chapter 4

Market

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

Competitive Market

Many buyers and many sellers, each has a negligible impact on market price

Perfectly Competitive Market

All goods are exactly the same, Buyers and sellers are so numerous that no one can affect the market price, Price takers

Quantity Demanded

Amount of a good that buyers are willing and able to purchase.

Law of Demand

Other things equal, When the price of a good rises, the quantity demanded of the good falls, When the price falls, the quantity demanded rises

Demand Schedule

A table, shows the relationship between the price of a good and the quantity demanded.

Market Demand

Sum of all individual demands for a good or service, Market demand curve: sum the individual demand curves horizontally

Number of Buyers

Increase in number of buyers Increases quantity demanded at each price and Shifts Demand curve to the right, Decrease in number of buyers Decreases quantity demanded at each price and Shifts Demand curve to the left

Normal Good

An increase in income leads to an increase in demand: Shifts Demand curve to the right

Inferior Good

An increase in income leads to a decrease in demand: Shifts Demand curve to the left

Substitutes

Two goods are substitutes if an increase in the price of one leads to an increase in the demand for the other

Complements

Two goods are complements if an increase in the price of one leads to a decrease in the demand for the other

Tastes

Anything that causes a shift in tastes toward a good will increase demand for that good and shift its Demand curve to the right

Quantity Supplied

Amount of a good Sellers are willing and able to sell

Law of Supply

Other things equal, When the price of a good rises, the quantity supplied of the good rises, When the price falls, the quantity supplied falls

Supply Schedule

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

Market Supply

Sum of the supplies of all sellers of a good or service, Market supply curve: sum of individual supply curves horizontally

Input Prices

Supply is negatively related to prices of inputs. Examples of input prices: wages, prices of raw materials

Technology

Determines how much inputs are required to produce a unit of output, A cost-saving technological improvement has the same effect as a fall in input prices, shifts Supply curve to the right

Number of Sellers

An increase in the number of sellers Increases the quantity supplied at each price and Shifts Supply curve to the right

Equilibrium

Price has reached the level where quantity supplied equals quantity demanded

Equilibrium Price

Price where Quantity Supplied = Quantity Demanded

Equilibrium Quantity

Quantity Supplied and Demanded at the equilibrium price

Surplus (excess supply)

Quantity supplied is greater than quantity demanded

Shortage (excess demand)

Quantity demanded is greater than quantity supplied