Principles of Economics Ch 3
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each of the black spaces below before clicking
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| Demand | The willingness and ability of buyers to buy different quantities of a good at different prices.
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| Law of Demand | The price and the quantity demand of a good are inversely related.
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| Substitution Effect | A consumer will try to obtain as much consumer satisfaction as possible from that limited income. A consumer will substitute lower-priced goods for higher-priced goods.
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| Income Effect | When the price of good decreases, a consumer's income has greater buying power, allowing the consumer to buy a greater quantity of the good. When the price of a good increases, a consumer's income has less buying power allowing the consumer to buy a less.
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| The demand curve will have: | A negative slope because of the inverse (negative) relationship between price and quantity demanded.
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| The determinants of demand include: | Income (both normal and inferior), preferences, prices of related goods (substitutes or complements), number of buyers, and expectations of the future.
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| A change in demand refers to a shift in the demand curve. A shift to the _______ is an increase in demand and a shift to the ______ is a decrease in demand. | Right, left
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| Supply | The willingness and ability of sellers to sell different quantities of a good at different prices.
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| The Law of Supply | The price and quantity supplied of a good are directly related.
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| The determinant of supply is: | The cost of production.
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| An increase in the cost of production will cause a decrease in supply (supply curve shifts to the _______). A decrease in the cost of production will cause an increase in supply (supply curve shifts to the ______). | Left, right
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| The cost of producing a good can be changed by a number of common factors including: | The prices of labor and other inputs, technology, and taxes.
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| Technological Advance | The ability to produce more output per resource. It decreases the cost of production and increase supply.
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| Free Market | A market in which price is free to adjust up or down in response to demand and supply.
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| Equilibrium Price | The price where quantity demanded equals quantity supplied.
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| Surplus | When the market price is above the equilibrium price, the quantity supplied will exceed the quantity demanded.
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| Shortage | When the market price is below the equilibrium price, the quantity demanded will exceed the quantity supplied.
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| Price Ceiling | A maximum legal price.
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| A per ice ceiling leads to: | Fewer exchanges than at equilibrium, the use of non price rationing devices, and illegal transactions at prices above the ceiling.
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| Price Floor | A minimum legal price.
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