Economics Chapter Markets and Demand

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Questions and Answers

What characterizes a competitive market?

There are many buyers but only one seller.

No buyer or seller can influence the market price. (correct)

Prices are set by a single seller.

A few sellers dominate the market.

What does the law of demand state?

The quantity demanded decreases when prices increase. (correct)

As income increases, demand always decreases.

Demand is unrelated to prices.

The quantity demanded increases when prices rise.

Which of the following factors can shift the demand curve?

A movement along the supply curve.

Technological advancements in production.

Changes in consumer income. (correct)

Substitutes becoming available. (correct)

What is indicated by a movement along the demand curve?

A change in the price of the good. Signup and view all the answers

What is supply typically represented by?

A graph showing the relationship between price and quantity supplied. Signup and view all the answers

Which of the following statements accurately describes quantity supplied?

It describes the amount sellers can provide at a given price. Signup and view all the answers

How is market demand determined?

By summing up individual demands from all consumers in the market. Signup and view all the answers

Which statement is true regarding the law of supply?

The quantity supplied tends to increase when prices rise. Signup and view all the answers

What occurs when quantity supplied exceeds quantity demanded?

Surplus Signup and view all the answers

What is the equilibrium price?

The price where quantity demanded equals quantity supplied Signup and view all the answers

What does the price elasticity of demand measure?

The responsiveness of quantity demanded to price changes Signup and view all the answers

What happens to total revenue when demand is inelastic and price increases?

Total revenue increases Signup and view all the answers

In the scenario where income elasticity of demand is less than 0, the good is categorized as what type?

Inferior good Signup and view all the answers

Which of the following statements about demand curves is true?

Demand curves differ based on their elasticity Signup and view all the answers

Using the midpoint method, how is the price elasticity of demand calculated?

[(Q2 - Q1)/[(Q2 + Q1)/2]] / [(P2 - P1)/[(P2 + P1)/2]] Signup and view all the answers

When demand is perfectly inelastic, what happens to the quantity demanded as price changes?

Quantity demanded remains the same Signup and view all the answers

Study Notes

Markets

A market is a group of buyers and sellers of a particular good or service.
Markets can be highly organized, like agricultural commodities, or less organized, like a small ice cream shop.
A competitive market has so many buyers and sellers that no individual buyer or seller can influence the market price.
In a perfectly competitive market, buyers and sellers are price takers, meaning they must accept the prevailing market price.
A monopoly is a market with only one seller who sets the price.

Demand

The demand curve shows the relationship between the price of a good and the quantity demanded.
Quantity demanded is the amount of a good that buyers are willing and able to purchase at a given price.
The Law of Demand states that, other things being equal, the quantity demanded of a good falls when the price of the good rises.
Market Demand is the sum of the demand from all individuals in the market.
Factors that can affect market demand include income, prices of related goods, tastes, expectations, and the number of buyers.
Movement along the demand curve represents a change in quantity demanded due to a change in price.
Shift of the demand curve represents a change in demand due to factors other than price, such as income or consumer preferences.

Supply

The supply curve shows the relationship between the price of a good and the quantity supplied.
Quantity supplied is the amount of a good that sellers are willing and able to sell at a given price.
The Law of Supply states that, other things being equal, the quantity supplied of a good rises when the price of the good rises.
Market Supply is the sum of the supplies of all sellers.
Factors that can shift the supply curve include input prices, technology, expectations, the number of sellers, and government policies.

Equilibrium

Equilibrium is a state where the quantity supplied and quantity demanded are equal at a specific price.
Equilibrium price is the price that balances quantity supplied and quantity demanded.
Equilibrium quantity is the quantity supplied and demanded at the equilibrium price.
Surplus occurs when the quantity supplied exceeds the quantity demanded.
Shortage occurs when the quantity demanded exceeds the quantity supplied.

Elasticity

Elasticity is a measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants.
Price elasticity of demand measures the responsiveness of quantity demanded to a change in price.
Income elasticity of demand measures the responsiveness of quantity demanded to a change in income.
Cross-price elasticity of demand measures the responsiveness of quantity demanded of one good to a change in the price of another good.

Total Revenue

Total Revenue is the amount paid by buyers and received by sellers of a good, calculated as price times quantity (TR = P x Q).
When demand is inelastic, price and total revenue move in the same direction.
When demand is elastic, price and total revenue move in opposite directions.
When demand is unit elastic, total revenue remains constant when price changes.

Other Demand Elasticities

An inferior good has negative income elasticity of demand, meaning demand decreases as income rises (e.g., margarine).
A normal good has positive income elasticity of demand, meaning demand increases as income rises (e.g., luxury goods).

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Description

This quiz covers key concepts in economics regarding markets and demand. Learn about the characteristics of different market structures, including competition and monopoly, as well as the relationship between price and quantity demanded. Test your understanding of the Law of Demand and factors influencing market demand.