Economics Chapter 3 Flashcards

Questions and Answers

A change in __________ causes a movement along the supply curve.

product price

Which of the following reasons is NOT an explanation for why the demand curve slopes downward and to the right?

As price on the vertical axis increases, quantity demanded on the horizontal axis remains unchanged. (correct)

Higher prices result in lower quantity demanded.

As income increases, quantity demanded decreases.

Lower prices result in higher quantity demanded.

With a price ceiling, quantity will exceed quantity _, resulting in a persistent shortage of product.

demanded; supplied

A decrease in equilibrium price and indeterminate result on equilibrium quantity is a result of which of the following?

An increase in supply and a simultaneous and proportional decrease in demand Signup and view all the answers

Which of the following summarizes the determinants of supply and their net effect on the supply curve?

Changes in the number of sellers and resource prices shift the supply curve. Signup and view all the answers

Among the following products, which best exemplifies a normal good?

Beef Signup and view all the answers

The demand by a consumer for a good or service essentially reflects the ___________ benefit of the good or service, based on the utility received.

marginal Signup and view all the answers

A change in ____________ causes the supply curve of a product to shift leftward or rightward.

resource prices Signup and view all the answers

Buyers and sellers are brought together in a __________________.

market Signup and view all the answers

Which of the following consists of a large number of independently acting buyers and sellers?

a competitive market Signup and view all the answers

The concept of demand can be summarized by a schedule or curve showing the quantity of a product that would be consumed at various possible prices.

consumed at various possible prices Signup and view all the answers

Which of the following are determinants of demand?

<ol> <li>Consumer tastes, 2. Changes in income, 3. Price of related goods, 4. Consumer expectations, 5. Number of buyers</li> </ol> Signup and view all the answers

All of the following are determinants of demand, except: price of substitutes in production.

True Signup and view all the answers

The law of demand describes a(n) ______________ relationship between the price of a good or service and the quantity demanded of that good or service.

inverse Signup and view all the answers

A shortage results from an excess of quantity _____________.

demanded Signup and view all the answers

Which of the following are determinants of supply?

<ol> <li>Taxes, 2. Subsidies</li> </ol> Signup and view all the answers

A decrease in demand while holding supply constant results in _____________ in both equilibrium price and quantity.

a decline Signup and view all the answers

A price __________ is the maximum legal price a seller may charge for a product or service.

ceiling Signup and view all the answers

The vast majority of goods that are not related to one another are called ____________ goods.

independent Signup and view all the answers

Producer expectations of future prices are a determinant of ____________.

supply Signup and view all the answers

Which determines market price and equilibrium output in a market?

The interaction of buyers and sellers Signup and view all the answers

Improvements in technology are a determinant of _________.

supply Signup and view all the answers

Which of the following types of goods affect the demand for another product due to a change in their price?

<ol> <li>Complementary goods, 2. Substitute goods</li> </ol> Signup and view all the answers

Market ______________ is a schedule or curve showing that the various amounts of a product that producers supply.

supply Signup and view all the answers

The number of sellers or competitors in a market is a determinant or shifter of the _____________ curve.

supply Signup and view all the answers

Which of the following are determinants of supply 2?

<ol> <li>Resource prices, 2. Taxes and subsidies, 3. Technology</li> </ol> Signup and view all the answers

__________________ in supply while holding demand constant results in an increase in equilibrium price, but a decrease in equilibrium quantity.

<ol> <li>A shift leftward, 2. A decrease</li> </ol> Signup and view all the answers

_ resource prices raise production costs and, assuming a fixed product price, profits.

Higher; reduce Signup and view all the answers

Products whose demand varies directly with changes in money or income are called normal or _______________ goods.

superior Signup and view all the answers

The _____________ incurred by firms when producing a good or service arise from the prices of the inputs that are used to produce said good or service.

costs of production Signup and view all the answers

Which of the following refers to a particular apportionment or mix of goods and services most highly valued by society?

allocative efficiency Signup and view all the answers

The supply curve illustrates the relationship between:

prices and quantity supplied Signup and view all the answers

The income effect is best described as _ increasing the purchasing power of income, enabling consumers to purchase _ of a product and vice versa.

lower prices; more Signup and view all the answers

The of supply are any factors other than the product's that have an effect on the supply of a good or service and cause the supply curve to shift.

determinants; price Signup and view all the answers

A price ______________ is a legally mandated price imposed above the price, otherwise known as equilibrium price, that would be established between buyers and sellers in a free market.

floor Signup and view all the answers

Choose all of the following that will cause a change in supply, not quantity supplied.

<ol> <li>Number of sellers, 2. Technology, 3. Producer expectations</li> </ol> Signup and view all the answers

When two variables are being examined, and one variable moves one way and the other variable moves in the opposite direction, this is called a(n)

inverse relationship Signup and view all the answers

Government may place legal limits on prices when it is determined that prices are unfairly for buyers or unfairly for sellers.

high; low Signup and view all the answers

Price and quantity supplied have a(n) ______________ relationship.

direct Signup and view all the answers

Other things equal, firms will produce and offer for sale ___________ of their product at a high price than at a low price.

more Signup and view all the answers

The _ of supply are any factors other than the product's that have an effect on the supply of a good or service and cause the supply curve to shift.

determinants; price Signup and view all the answers

When each additional worker of a firm produces less additional output than previously added workers, then the marginal cost of additional units of output:

rises Signup and view all the answers

Substitution in production is a determinant of _______________.

supply Signup and view all the answers

An increase in supply while holding demand constant results in a(n) __ in equilibrium price, but a(n) _ in equilibrium quantity.

decrease; increase Signup and view all the answers

Consumers experience ___________ marginal utility the more they consume of a particular good or service.

diminishing Signup and view all the answers

The numbers of buyers is a determinant of market _____________.

demand Signup and view all the answers

A surplus is also known as an excess of _______________.

supply Signup and view all the answers

Government-controlled prices in the form of price ceilings and price floors result in:

<ol> <li>Stifle the rationing function of prices, 2. Distort resource allocation, 3. Produce negative side effects</li> </ol> Signup and view all the answers

If costs of production rise, the producer has an incentive to produce ______________ output.

less Signup and view all the answers

Quantity demanded is illustrated on the _ axis, while price is illustrated on the _ axis.

horizontal (x); vertical (y) Signup and view all the answers

When the government provides financial assistance for the production of a good which lowers producers' costs and increases supply, it is called a _____________.

subsidy Signup and view all the answers

A demand curve measures quantity _ on the horizontal axis and _ on the vertical axis.

demanded; price Signup and view all the answers

Government-controlled prices cause:

<ol> <li>Distortions in resource allocation, 2. Negative side effects, 3. Surpluses, 4. Shortages</li> </ol> Signup and view all the answers

Products that have decreased demand when consumer incomes rise and increased demand when consumer incomes fall are called ____________ goods.

inferior Signup and view all the answers

Equilibrium price is otherwise known as market-____________ price.

clearing Signup and view all the answers

A price _____________ is a legally mandated price imposed above the price, otherwise known as equilibrium price, that would be established between buyers and sellers in a free market.

floor Signup and view all the answers

The production of a good or service in the least costly way is known as ___________ efficiency.

productive Signup and view all the answers

A buyer's intentions or plans in regard to the purchase of a product is known as:

demand Signup and view all the answers

Which of the following shows the effects on equilibrium price and quantity due to an increase in demand, while holding everything else constant?

<ol> <li>Consumers expect the price of shrimp to increase in the future, therefore the equilibrium price and quantity increase now, 2. 3-D televisions become popular, therefore the equilibrium price and quantity increase, 3. The price of Coke increases, therefore the equilibrium price and quantity of Pepsi increase</li> </ol> Signup and view all the answers

Government may place legal limits on prices when it is determined that prices are unfairly for buyers or unfairly for sellers.

high; low Signup and view all the answers

One of the determinants of demand is __________ expectations.

consumer Signup and view all the answers

In free markets, though prices will rise and fall, and __ will always be achieved.

<ol> <li>Equilibrium quantity, 2. Equilibrium price</li> </ol> Signup and view all the answers

Which of the following are substitutes?

Pepsi and Coca-Cola Signup and view all the answers

The added cost of producing one more unit of output is called ____________ cost.

marginal Signup and view all the answers

Government-controlled prices in the form of price _ and price _ stifle the rationing function of prices, distort resource allocation, and cause negative side-effects.

ceilings; floors Signup and view all the answers

An increase in supply and a simultaneous and proportional decrease in demand will result in a(n) ____________ in equilibrium price, with no effect on equilibrium quantity.

decrease Signup and view all the answers

Competition among corn producers forces them to use the best technology and right mix of productive resources; otherwise their costs will be too high relative to the market price and they will be unprofitable. This is best described as:

productive efficiency Signup and view all the answers

A change in demand occurs due to a change in the consumer's mind about purchasing a product that is based on something other than the __________ of the product.

price Signup and view all the answers

The price of new cars and the sale of new cars represents:

an inverse relationship Signup and view all the answers

____________ goods are used together with other goods.

complementary Signup and view all the answers

At the equilibrium price, quantity ___ equals quantity _.

demanded; supplied Signup and view all the answers

Which of the following scenarios describe the appropriate effects on equilibrium price and quantity due to a decrease in supply while holding everything else constant?

<ol> <li>An oil spill causes several fishermen to leave the shrimp business and the equilibrium price of shrimp increases while quantity decreases, 2. A fishing tax is placed on all shrimp and the equilibrium price of shrimp increases while quantity decreases</li> </ol> Signup and view all the answers

If the government subsidizes the production of a good, it in effect the producers' costs and supply.

lowers; increases Signup and view all the answers

The market demand curve is the _ of all _ demand curves for a good or service.

summation; individual Signup and view all the answers

____________ benefit is the additional utility gained from consuming one more unit of a good or service.

marginal Signup and view all the answers

If an increase in supply is smaller than a decrease in demand, the equilibrium quantity will _____________.

decrease Signup and view all the answers

Which of the following results in a decrease in the equilibrium quantity and an indeterminate change in price?

Government taxes home builders, and a proportional decrease in consumer incomes. Signup and view all the answers

If the supply of corn increases, holding demand constant, the equilibrium price of corn will _ and the quantity will ___.

decrease; increase Signup and view all the answers

A decrease in supply and a simultaneous and proportional decrease in demand will result in equilibrium quantity, with __ equilibrium price.

a decrease in; no effect on Signup and view all the answers

A simultaneous and proportional increase in supply and demand will result in a(n) ____________ in equilibrium quantity, with no effect on equilibrium price.

increase Signup and view all the answers

When a factor other than price affects consumption of a good or service, the demand curve can shift or .

rightward; down Signup and view all the answers

A decrease in supply and proportional increase in demand will result in a(n) ___________ in equilibrium price, with no effect on equilibrium quantity.

increase Signup and view all the answers

Which of the following best explains why economists 'sound the alarm' when politicians advocate government-controlled prices such as price ceilings or price floors?

<ol> <li>Government-controlled prices cause surpluses, 2. Government-controlled prices cause shortages, 3. Government-controlled prices distort resource allocation, 4. Government-controlled prices may cause potential environmental damage</li> </ol> Signup and view all the answers

An economic unit, meaning a household, firm, or government, should continue to engage in an activity so long as the marginal exceeds the marginal .

benefit; cost Signup and view all the answers

______________ refers to the production of a product, whereas demand refers to the consumption of a product.

supply Signup and view all the answers

Identify those statements that correctly state the effects on equilibrium price and quantity as a result of changes in supply and/or demand?

<ol> <li>When the supply and the demand for corn rises proportionally, the change in equilibrium price is indeterminate, but quantity will rise. 2. When the supply of DVD players falls while holding demand constant, the equilibrium price will rise and quantity will fall. 3. When the demand for health care rises while holding supply constant, the equilibrium price and quantity of health care will rise.</li> </ol> Signup and view all the answers

Which of the following describe the effects on equilibrium price and equilibrium quantity as a result of a decrease in supply and a simultaneous and proportional increase in demand?

Price rises and the change in equilibrium quantity is indeterminate. Signup and view all the answers

The market supply curve is the horizontal of all the _ supply curves for a good or service.

summation; individual Signup and view all the answers

The _______________ of a good or service by a producer essentially reflects the marginal cost of producing the good or service.

supply Signup and view all the answers

The fundamental characteristic of demand, other things equal, is that as the price falls, the quantity demanded for a product _____________.

increases Signup and view all the answers

A change in quantity demanded is caused by an increase or decrease in the ______________ of the product under consideration and nothing else.

price Signup and view all the answers

A change in quantity demanded is caused by an increase or decrease in the __________ of the product under consideration and nothing else.

price Signup and view all the answers

What are the ways that government can cope with a surplus?

<ol> <li>It can purchase the surplus of output. 2. It can restrict supply or increase demand.</li> </ol> Signup and view all the answers

A change in quantity supplied is caused by an increase or decrease in the ____________ of the product under consideration and nothing else.

price Signup and view all the answers

An increase in the sales, property, or any other tax will __ production costs and _ supply.

increase; decrease Signup and view all the answers

If a decline in demand is greater than an increase in supply, the equilibrium quantity will ____________.

fall Signup and view all the answers

Which of the following statements summarize the winners and losers of a government-controlled market?

<ol> <li>Farmers are winners with price floors because they will be willing to produce and offer more and make more money. 2. Landlords are losers with rent controls, as it is less attractive for landlords to offer housing. 3. Consumers are losers with price floors as prices of products will increase. 4. Families are winners with rent controls as more families are willing to consume rental housing at the lower price.</li> </ol> Signup and view all the answers

If a decrease in supply is greater than a decrease in demand, equilibrium price will

rise Signup and view all the answers

Diminishing marginal utility states that less satisfaction is derived from each successive unit of a product consumed. Therefore, the law of demand is upheld because, as each successive unit yields , consumers will buy additional units only if the price of those units is progressively .

less and less utility; reduced Signup and view all the answers

A favorable change in consumer tastes and preferences for a product will _ demand, illustrated as a shift of the demand curve to the ___.

increase; right Signup and view all the answers

Study Notes

Market Fundamentals

A market is where buyers and sellers interact to exchange goods or services.
Competitive markets feature many independently acting buyers and sellers.

Demand Characteristics

Demand is expressed as a schedule or curve indicating product consumption at various prices.
Key determinants of demand include consumer tastes, income changes, related goods' prices, consumer expectations, and the number of buyers.

Supply Concepts

Supply is affected by factors like resource prices, taxes, subsidies, and technological changes.
A shift in supply can lead to an increase or decrease in equilibrium price and quantity.

Price Mechanisms

The law of demand states there is an inverse relationship between price and quantity demanded.
Price ceilings (maximum allowable price) and price floors (minimum allowable price) can distort market equilibrium.

Equilibrium Price and Quantity

At equilibrium, the quantity demanded equals the quantity supplied.
Changes in demand or supply lead to shifts in equilibrium price and quantity.

Elasticity of Demand and Supply

Diminishing marginal utility indicates that additional consumption yields less satisfaction, impacting demand.
Substitution in production affects supply based on relative prices of goods.

Types of Goods

Normal goods see increased demand with rising income, while inferior goods experience decreased demand as income rises.
Complementary goods have interrelated demand affecting each other; substitutes can replace one another.

Market Dynamics

Government interventions such as subsidies can lower production costs, increasing supply.
Shortages occur when quantity demanded exceeds quantity supplied, while surpluses happen when supply exceeds demand.

Effects of Shifts in Demand and Supply

An increase in demand typically raises both equilibrium price and quantity.
Conversely, a decrease in demand while supply holds constant leads to declines in both equilibrium price and quantity.

Consumer Behavior

Consumers adjust their purchasing based on changes in their expectations, leading to shifts in demand.
The number of buyers in a market directly affects demand levels.

Production Costs and Efficiency

Production costs influence supply decisions; higher costs may decrease supply.
Productive efficiency is achieved when goods are produced at the lowest cost.

Impact of External Factors

Government price controls can lead to unintended side effects like shortages or market distortions.
Changes in resource prices lead to shifts in the supply curve, affecting overall supply dynamics.

Summary of Economic Principles

Marginal benefit and cost principles dictate that activities should continue until marginal benefits exceed marginal costs.
Market supply and demand curves represent aggregated behaviors of individual consumers and producers, affecting pricing and resource allocation.

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Economics Chapter 3 Flashcards

Questions and Answers

A change in __________ causes a movement along the supply curve.

Which of the following reasons is NOT an explanation for why the demand curve slopes downward and to the right?

With a price ceiling, quantity ________ will exceed quantity _________, resulting in a persistent shortage of product.

A decrease in equilibrium price and indeterminate result on equilibrium quantity is a result of which of the following?

Which of the following summarizes the determinants of supply and their net effect on the supply curve?

Among the following products, which best exemplifies a normal good?

The demand by a consumer for a good or service essentially reflects the ___________ benefit of the good or service, based on the utility received.

A change in ____________ causes the supply curve of a product to shift leftward or rightward.

Buyers and sellers are brought together in a __________________.

Which of the following consists of a large number of independently acting buyers and sellers?

The concept of demand can be summarized by a schedule or curve showing the quantity of a product that would be consumed at various possible prices.

Which of the following are determinants of demand?

All of the following are determinants of demand, except: price of substitutes in production.

The law of demand describes a(n) ______________ relationship between the price of a good or service and the quantity demanded of that good or service.

A shortage results from an excess of quantity _____________.

Which of the following are determinants of supply?

A decrease in demand while holding supply constant results in _____________ in both equilibrium price and quantity.

A price __________ is the maximum legal price a seller may charge for a product or service.

The vast majority of goods that are not related to one another are called ____________ goods.

Producer expectations of future prices are a determinant of ____________.

Which determines market price and equilibrium output in a market?

Improvements in technology are a determinant of _________.

Which of the following types of goods affect the demand for another product due to a change in their price?

Market ______________ is a schedule or curve showing that the various amounts of a product that producers supply.

The number of sellers or competitors in a market is a determinant or shifter of the _____________ curve.

Which of the following are determinants of supply 2?

__________________ in supply while holding demand constant results in an increase in equilibrium price, but a decrease in equilibrium quantity.

_____________ resource prices raise production costs and, assuming a fixed product price, ____________ profits.

Products whose demand varies directly with changes in money or income are called normal or _______________ goods.

The _____________ incurred by firms when producing a good or service arise from the prices of the inputs that are used to produce said good or service.

Which of the following refers to a particular apportionment or mix of goods and services most highly valued by society?

The supply curve illustrates the relationship between:

The income effect is best described as _____________ increasing the purchasing power of income, enabling consumers to purchase _____________ of a product and vice versa.

The ______________ of supply are any factors other than the product's ______________ that have an effect on the supply of a good or service and cause the supply curve to shift.

A price ______________ is a legally mandated price imposed above the price, otherwise known as equilibrium price, that would be established between buyers and sellers in a free market.

Choose all of the following that will cause a change in supply, not quantity supplied.

When two variables are being examined, and one variable moves one way and the other variable moves in the opposite direction, this is called a(n)

Government may place legal limits on prices when it is determined that prices are unfairly ______________ for buyers or unfairly ______________ for sellers.

Price and quantity supplied have a(n) ______________ relationship.

Other things equal, firms will produce and offer for sale ___________ of their product at a high price than at a low price.

The _____________ of supply are any factors other than the product's ____________ that have an effect on the supply of a good or service and cause the supply curve to shift.

When each additional worker of a firm produces less additional output than previously added workers, then the marginal cost of additional units of output:

Substitution in production is a determinant of _______________.

An increase in supply while holding demand constant results in a(n) ______________ in equilibrium price, but a(n) _____________ in equilibrium quantity.

Consumers experience ___________ marginal utility the more they consume of a particular good or service.

The numbers of buyers is a determinant of market _____________.

A surplus is also known as an excess of _______________.

Government-controlled prices in the form of price ceilings and price floors result in:

If costs of production rise, the producer has an incentive to produce ______________ output.

Quantity demanded is illustrated on the _____________ axis, while price is illustrated on the _____________ axis.

When the government provides financial assistance for the production of a good which lowers producers' costs and increases supply, it is called a _____________.

A demand curve measures quantity ___________ on the horizontal axis and ___________ on the vertical axis.

Government-controlled prices cause:

Products that have decreased demand when consumer incomes rise and increased demand when consumer incomes fall are called ____________ goods.

Equilibrium price is otherwise known as market-____________ price.

A price _____________ is a legally mandated price imposed above the price, otherwise known as equilibrium price, that would be established between buyers and sellers in a free market.

The production of a good or service in the least costly way is known as ___________ efficiency.

A buyer's intentions or plans in regard to the purchase of a product is known as:

Which of the following shows the effects on equilibrium price and quantity due to an increase in demand, while holding everything else constant?

Government may place legal limits on prices when it is determined that prices are unfairly ____________ for buyers or unfairly ____________ for sellers.

One of the determinants of demand is __________ expectations.

In free markets, though prices will rise and fall, ________ and __________ will always be achieved.

Which of the following are substitutes?

The added cost of producing one more unit of output is called ____________ cost.

Government-controlled prices in the form of price ___________ and price ___________ stifle the rationing function of prices, distort resource allocation, and cause negative side-effects.

An increase in supply and a simultaneous and proportional decrease in demand will result in a(n) ____________ in equilibrium price, with no effect on equilibrium quantity.

Competition among corn producers forces them to use the best technology and right mix of productive resources; otherwise their costs will be too high relative to the market price and they will be unprofitable. This is best described as:

A change in demand occurs due to a change in the consumer's mind about purchasing a product that is based on something other than the __________ of the product.

The price of new cars and the sale of new cars represents:

____________ goods are used together with other goods.

At the equilibrium price, quantity _____________ equals quantity ___________.

Which of the following scenarios describe the appropriate effects on equilibrium price and quantity due to a decrease in supply while holding everything else constant?

If the government subsidizes the production of a good, it in effect __________ the producers' costs and __________ supply.

The market demand curve is the ___________ of all ___________ demand curves for a good or service.

____________ benefit is the additional utility gained from consuming one more unit of a good or service.

If an increase in supply is smaller than a decrease in demand, the equilibrium quantity will _____________.

Which of the following results in a decrease in the equilibrium quantity and an indeterminate change in price?

If the supply of corn increases, holding demand constant, the equilibrium price of corn will _________ and the quantity will ___________.

With a price ceiling, quantity will exceed quantity _, resulting in a persistent shortage of product.

_ resource prices raise production costs and, assuming a fixed product price, profits.

The income effect is best described as _ increasing the purchasing power of income, enabling consumers to purchase _ of a product and vice versa.

The of supply are any factors other than the product's that have an effect on the supply of a good or service and cause the supply curve to shift.

Government may place legal limits on prices when it is determined that prices are unfairly for buyers or unfairly for sellers.

The _ of supply are any factors other than the product's that have an effect on the supply of a good or service and cause the supply curve to shift.

An increase in supply while holding demand constant results in a(n) __ in equilibrium price, but a(n) _ in equilibrium quantity.

Quantity demanded is illustrated on the _ axis, while price is illustrated on the _ axis.

A demand curve measures quantity _ on the horizontal axis and _ on the vertical axis.

Government may place legal limits on prices when it is determined that prices are unfairly for buyers or unfairly for sellers.

In free markets, though prices will rise and fall, and __ will always be achieved.

Government-controlled prices in the form of price _ and price _ stifle the rationing function of prices, distort resource allocation, and cause negative side-effects.

At the equilibrium price, quantity ___ equals quantity _.

If the government subsidizes the production of a good, it in effect the producers' costs and supply.

The market demand curve is the _ of all _ demand curves for a good or service.

If the supply of corn increases, holding demand constant, the equilibrium price of corn will _ and the quantity will ___.

A decrease in supply and a simultaneous and proportional decrease in demand will result in equilibrium quantity, with __ equilibrium price.

When a factor other than price affects consumption of a good or service, the demand curve can shift or .

An economic unit, meaning a household, firm, or government, should continue to engage in an activity so long as the marginal exceeds the marginal .

The market supply curve is the horizontal of all the _ supply curves for a good or service.

An increase in the sales, property, or any other tax will __ production costs and _ supply.

A favorable change in consumer tastes and preferences for a product will _ demand, illustrated as a shift of the demand curve to the ___.