Economic Principles 101 Ch 4

Questions and Answers

What are the four factors of production (FoPs) that households sell to firms?

Land, labor, capital, and entrepreneurship

What is the payment for the factors of production?

Rent for land, wages for labor, interest for capital, and profit for entrepreneurship.

Households demand goods and services while firms supply them.

True

What determines prices in a market economy?

The interaction of demand and supply. Signup and view all the answers

What does 'effective demand' refer to?

Demand when consumers are both willing and able to pay. Signup and view all the answers

Which of the following describes demand?

It's the quantities of a good or service potential buyers are willing and able to buy. Signup and view all the answers

Individual demand is influenced by the availability of supply.

False Signup and view all the answers

What is market demand?

The total of individuals' preferences for a good or service. Signup and view all the answers

A change in quantity demanded is referred to as a _____ on the demand curve.

movement Signup and view all the answers

What is a shift on the demand curve?

It is when the entire demand curve moves due to changes in factors other than price. Signup and view all the answers

Define individual supply.

The quantity of a good or service that a producer is willing and able to sell at a given price. Signup and view all the answers

Study Notes

Overview of Demand, Supply & Prices

Economic principles govern the interaction between households and firms in a market economy.
Households possess four factors of production (FoPs) which they sell to firms for income.
Firms utilize these FoPs to produce goods and services (G&S) that households subsequently purchase, creating a demand and supply dynamic.

Demand

Demand is defined as the desire and ability to purchase G&S, influenced by a potential buyer's intentions and resources.
Effective demand exists when potential buyers are both willing and able to pay.
Demand is a flow concept, measured over time, reflecting potential future purchasing plans.

Individual Demand

Individual demand varies depending on personal factors such as preferences, income, and availability.
Availability of a product does not directly influence demand decisions, although it may affect the outcomes of those decisions.

Market Demand

Market demand represents the aggregate total of individual preferences.
Market demand curves behave similarly to individual demand curves, following the ceteris paribus rule (all other factors held constant) and showing inverse relationships.

Movements and Shifts in Demand

A movement along the demand curve indicates a change in quantity demanded caused by price changes.
A shift in the demand curve represents a change in demand due to other factors, affecting the entire curve rather than just a single point on it.

Supply

Supply describes the quantity of G&S that producers are willing and able to sell at various prices.
Like demand, supply is also a flow concept, reflecting the planned quantity over time without guaranteeing actual sales.

Individual Supply

Individual supply can be affected by various determinants, including production costs and market conditions.

Equilibrium

Market prices are determined by the interaction of demand and supply, achieving equilibrium in both price and quantity where the quantity demanded equals the quantity supplied.

Description

Explore the fundamental concepts of demand, supply, and pricing in Economic Principles 101, Chapter 4. This quiz covers the relationships between households and firms in terms of factors of production and their roles in the economy. Test your understanding of these essential economic principles.