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Define "Ceteris Paribus"
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True or False: "Demand is the amount of a good that buyers wish to purchase"
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Arnold Economics 3
Economics by Arnold Chapter 3
| Question | Answer |
|---|---|
| Define "Ceteris Paribus" | Everything else the same or all other factors constant. |
| True or False: "Demand is the amount of a good that buyers wish to purchase" | False - demand is not a particular quantity. |
| Define "Demand by an individual" | A schedule of prices and quantities showing the maximum amount that the particular individual would like to purchase at each price. |
| Define the "Law of Demand." | As the price decreases the amount the buyer wishes to purchase increases. That is, the demand curve is downward sloping (inverse relationship). |
| True or False: "Demand, Demand Curve and Demand Schedule all mean the same thing." | True |
| Define "Absolute Price." | The price of a good in terms of money (Dollars, Euros, Yen, etc) |
| Define "Relative Price." | The price of a good in terms of other goods. |
| Which price, Absolute Price or Relative Price, is important to buyers and sellers? | Relative Price |
| Define the "Law of Diminishing Marginal Utility." | As an individual consumes more of a good the marginal utility of the good will fall. |
| Define "Market Demand." | It is simply the sum of the individual demand curves by all of the buyers in a market. |
| Define "Quantity Demanded." | It is the specific quantity that will be purchased at a specific price. |
| True or False: "A rise in price will decrease demand." | False - a change in price will affect Quantity Demanded but it will have no effect on Demand (i.e. Demand Curve). Instead you will simply move along a given demand curve. |
| How would you graphically illustrate a change in demand? | By a shift in the demand curve. |
| How would you graphically represent an increase in demand? | The demand curve would shift to the right. |
| Why is a rightward shift in the demand curve an increase in demand? | Because at each price the quantity demanded is greater. |
| How would you graphically represent a decrease in demand? | The demand curve would shift to the left. |
| How will a change in income affect demand? | It depend on whether the good is a normal good (superior good), an inferior good or a neutral good. |
| What is a normal good (superior good)? | A good whose demand rises as income rises. |
| What is an inferior good? | A good whose demand falls as income rises. |
| What is a neutral good? | A good whose demand is unaffected as income rises (or falls). |
| What is a substitute for good x? | Any good that can be used in place of good x. It satisfies the same want. |
| How will an increase in the price of a substitute affect the demand for good x? | The demand for good x will increase (because consumers will shift from the substitute to good x). |
| What is a complement for good x? | Any good that is used together with good x. |
| How will an increase in the price of a complement affect the demand for good x? | The demand for good x will decrease. |
| How will the number of buyers affect the market demand for good x? | The more buyers the greater the market demand. |
| If buyers expect the future price of good x to increase how will this affect the current demand for x? | The current demand will increase (buy the good now when you think the price is relatively low). |
| True or False: "Supply is the amount that sellers wish to sell." | False - supply is not a specific amount. |
| Define "Supply by an individual" | A schedule of prices and quantities showing the maximum amount that the particular individual would like to sell at each price. |
| Define the "Law of Supply" | As the price decreases the amount the seller wishes to sell increases. That is, the supply curve is upward sloping (direct relationship). |
| True or False: "Supply, Supply Curve and Supply Schedule all mean the same thing." | True |
| Define "Market Supply." | It is simply the sum of the individual supply curves by all of the sellers in a market. |
| Why is the supply curve upward sloping? | Because of the Law of Increasing Opportunity Cost. |
| Define "Quantity Supplied." | It is the specific quantity that will be sold at a specific price. |
| True or False: "An increase in price will cause an increase in supply." | False - a change in price will affect the quantity supplied but not the supply (supply curve). |
| How would you graphically represent a change in supply? | By a shift in the supply curve. |
| True or False: "An increase in supply would be represented by a shift up of the supply curve." | False - An increase in supply would be represented by a shift to the right (or down). |
| How will an increase in the price of an input affect supply? | Supply would decrease (shift left or up). |
| How would an increase in the technology of production affect supply? | Supply would increase (shift right or down). |
| How will an increase in the number of sellers affect the market supply? | Supply would increase. |
| Suppose a farmer could grow either corn or beans. If the price of corn increases what would happen to the supply of beans? | Supply would decrease (farmers would be less willing to grow beans because of the higher price of corn). |
| If sellers expect the future price of good x to increase what would happen to the current supply? | Supply would decrease (sellers would prefer to wait and sell later at the higher expected price). |
| How would a per unit tax on sellers affect supply? | Supply would decrease. |
| How would a per unit subisdy (money paid to the seller for each unit sold) affect supply? | Supply would increase. |
| What is a "Surplus"? | When the quantity supplied is greater than the quantity demanded. |
| What is a "Shortage"? | When the quantity demanded is greater than the quantity supplied. |
| If the price is greater than the market equilibrium this will create a shortage or a surplus? | Surplus |
| Define "Consumer Surplus." | The net gain to the buyer from trade. CS = maximum price the buyer is willing to pay - price they actually pay |
| Define "Seller Surplus." | The net gain to the seller from trade. SS = price the seller actually receives - minimum price they would have accepted. |
| If supply is constant and demand increases, what will happen to price and quantity? | Both increase. |
| If demand is constant and supply increases, what will happen to price and quantity? | Price falls and quantity increases. |
| If supply is constant and demand decreases, what will happen to price and quantity? | Both decrease. |
| If demand is constant and supply decreases, what will happen to price and quantity? | Price increases and quantity falls. |
| Define a "Price Ceiling." | It is a government mandated maximum price. No legal trades are allowed to occur above this price. |
| What are some of the possible consequences of a price ceiling? | (1) shortages, (2) fewer exchanges, (3) the use of nonprice rationing devices, (4) black market [illegal, off-the-book transactions] trades, (5) tie-in sales [two products are sold together - in this case to circumvent the price ceiling]. |
| Define a "Price Floor." | A government mandated minimum price. |
| What are some of the possible consequences of a price ceiling? | (1) surpluses, (2) fewer exchanges, (3) reduction in product quality. |
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bscollier
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