ECON 104 (Exam 1) |Questions and Answers
Perfectly competitive market - -A market in which there are many buyers and sellers, all
the products are identical, and there are no barriers to new sellers entering the market.
-Demand Schedule - -A table showing the relationship between the price of a product and
the quantity of the product demanded.
-Quantity Demanded - -The amount of a good or service that a consumer is willing and
able to purchase at a given price.
-Demand Curve - -A curve that shows the relationship between the price of a product and
the quantity of the product demanded.
-Market Demand - -The demand by all the consumers of a given good or service.
-Law of Demand - -The rule that, holding everything else constant, when the price of a
product falls, the quantity demanded of the product will increase, and when the price of a
product rises, the quantity demanded of the product will decrease.
-Substitution Effect - -The change in the quantity demanded of a good that results from a
change in price, making the good more or less expensive relative to other goods that are
substitutes.
-Income Effect - -The change in the quantity demanded of a good that results from the
effect of a change in the good's price on consumers' purchasing power.
-Ceteris paribus ("all else equal") - -The requirement that when analyzing the relationship
between two variables—such as price and quantity demanded—other variables must be
held constant.
-Normal Good - -A good for which the demand increases as income rises and decreases as
income falls.
-Inferior Good - -A good for which the demand increases as income falls and decreases as
income rises.
-Substitutes - -Goods and services that can be used for the same purpose.
-Complements - -Goods and services that are used together.
-Income, Price of Related Goods, Tastes, Population and Demographics, Expected Future
Prices - -5 things that shift market demand
, -Quantity supplied - -The amount of a good or service that a firm is willing and able to
supply at a given price.
-Supply Schedule - -A table that shows the relationship between the price of a product and
the quantity of the product supplied.
-Supply Curve - -A curve that shows the relationship between the price of a product and
the quantity of the product supplied.
-Law of supply - -The rule that, holding everything else constant, increases in price cause
increases in the quantity supplied, and decreases in price cause decreases in the quantity
supplied.
-Price of Inputs, Technological Change, Price of Substitutes in production, Number of
Firms, Expected Future Prices - -5 things that shift supply
-Market equilibrium - -A situation in which quantity demanded equals quantity supplied.
-Competitive market equilibrium - -A market equilibrium with many buyers and many
sellers.
-Surplus - -A situation in which the quantity supplied is greater than the quantity
demanded.
-Shortage - -A situation in which the quantity demanded is greater than the quantity
supplied.
-Price ceiling - -A legally determined maximum price that sellers may charge.
-Price floor - -A legally determined minimum price that sellers may receive.
-Consumer surplus - -The difference between the highest price a consumer is willing to
pay and the price the consumer actually pays.
-Marginal benefit - -The additional benefit to a consumer from consuming one more unit
of a good or service.
-Marginal cost - -The additional cost to a firm of producing one more unit of a good or
service.
-Producer surplus - -The difference between the lowest price a firm would have been
willing to accept and the price it actually receives.
-Economic efficiency - -A market outcome in which the marginal benefit to consumers of
the last unit produced is equal to its marginal cost of production, and in which the sum of
consumer surplus and producer surplus is at a maximum.
Perfectly competitive market - -A market in which there are many buyers and sellers, all
the products are identical, and there are no barriers to new sellers entering the market.
-Demand Schedule - -A table showing the relationship between the price of a product and
the quantity of the product demanded.
-Quantity Demanded - -The amount of a good or service that a consumer is willing and
able to purchase at a given price.
-Demand Curve - -A curve that shows the relationship between the price of a product and
the quantity of the product demanded.
-Market Demand - -The demand by all the consumers of a given good or service.
-Law of Demand - -The rule that, holding everything else constant, when the price of a
product falls, the quantity demanded of the product will increase, and when the price of a
product rises, the quantity demanded of the product will decrease.
-Substitution Effect - -The change in the quantity demanded of a good that results from a
change in price, making the good more or less expensive relative to other goods that are
substitutes.
-Income Effect - -The change in the quantity demanded of a good that results from the
effect of a change in the good's price on consumers' purchasing power.
-Ceteris paribus ("all else equal") - -The requirement that when analyzing the relationship
between two variables—such as price and quantity demanded—other variables must be
held constant.
-Normal Good - -A good for which the demand increases as income rises and decreases as
income falls.
-Inferior Good - -A good for which the demand increases as income falls and decreases as
income rises.
-Substitutes - -Goods and services that can be used for the same purpose.
-Complements - -Goods and services that are used together.
-Income, Price of Related Goods, Tastes, Population and Demographics, Expected Future
Prices - -5 things that shift market demand
, -Quantity supplied - -The amount of a good or service that a firm is willing and able to
supply at a given price.
-Supply Schedule - -A table that shows the relationship between the price of a product and
the quantity of the product supplied.
-Supply Curve - -A curve that shows the relationship between the price of a product and
the quantity of the product supplied.
-Law of supply - -The rule that, holding everything else constant, increases in price cause
increases in the quantity supplied, and decreases in price cause decreases in the quantity
supplied.
-Price of Inputs, Technological Change, Price of Substitutes in production, Number of
Firms, Expected Future Prices - -5 things that shift supply
-Market equilibrium - -A situation in which quantity demanded equals quantity supplied.
-Competitive market equilibrium - -A market equilibrium with many buyers and many
sellers.
-Surplus - -A situation in which the quantity supplied is greater than the quantity
demanded.
-Shortage - -A situation in which the quantity demanded is greater than the quantity
supplied.
-Price ceiling - -A legally determined maximum price that sellers may charge.
-Price floor - -A legally determined minimum price that sellers may receive.
-Consumer surplus - -The difference between the highest price a consumer is willing to
pay and the price the consumer actually pays.
-Marginal benefit - -The additional benefit to a consumer from consuming one more unit
of a good or service.
-Marginal cost - -The additional cost to a firm of producing one more unit of a good or
service.
-Producer surplus - -The difference between the lowest price a firm would have been
willing to accept and the price it actually receives.
-Economic efficiency - -A market outcome in which the marginal benefit to consumers of
the last unit produced is equal to its marginal cost of production, and in which the sum of
consumer surplus and producer surplus is at a maximum.
