Podcast
Questions and Answers
What is the value of goods exchanged in product markets measured by?
What is the value of goods exchanged in product markets measured by?
Which of the following is NOT involved in factor markets?
Which of the following is NOT involved in factor markets?
A shortage occurs when:
A shortage occurs when:
In perfect competition, what characteristic is true?
In perfect competition, what characteristic is true?
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What happens to prices when a surplus occurs?
What happens to prices when a surplus occurs?
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Which of the following best describes factor markets?
Which of the following best describes factor markets?
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What typically encourages producers to produce more during a shortage?
What typically encourages producers to produce more during a shortage?
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What role do government purchases play in the demand side of product markets?
What role do government purchases play in the demand side of product markets?
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What does the negatively sloped market demand curve indicate?
What does the negatively sloped market demand curve indicate?
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What does the law of supply state?
What does the law of supply state?
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Which of the following represents a determinant of supply?
Which of the following represents a determinant of supply?
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What effect does an increase in the number of suppliers have on supply?
What effect does an increase in the number of suppliers have on supply?
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What scenario would cause a leftward shift in the supply curve?
What scenario would cause a leftward shift in the supply curve?
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How is equilibrium price defined?
How is equilibrium price defined?
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What is indicated by a supply function stated as $QS = c + dP$?
What is indicated by a supply function stated as $QS = c + dP$?
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What happens to equilibrium quantity when there is a decrease in resource prices?
What happens to equilibrium quantity when there is a decrease in resource prices?
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In the context of supply, what could cause producers to release less to the market now?
In the context of supply, what could cause producers to release less to the market now?
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What occurs at equilibrium?
What occurs at equilibrium?
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What happens to the quantity demanded of normal goods when consumer income increases?
What happens to the quantity demanded of normal goods when consumer income increases?
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Which of the following best describes the income effect?
Which of the following best describes the income effect?
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In the case of Giffen goods, how does an increase in price affect the quantity demanded?
In the case of Giffen goods, how does an increase in price affect the quantity demanded?
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What characterizes a substitute good?
What characterizes a substitute good?
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Which factor would shift the demand curve to the right?
Which factor would shift the demand curve to the right?
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The law of demand states that holding other factors constant, if the price of a commodity rises, what happens to its quantity demanded?
The law of demand states that holding other factors constant, if the price of a commodity rises, what happens to its quantity demanded?
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How is the price effect defined?
How is the price effect defined?
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What occurs when a good's price decreases in relation to its substitutes?
What occurs when a good's price decreases in relation to its substitutes?
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Which of the following best describes the concept of a demand schedule?
Which of the following best describes the concept of a demand schedule?
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What is depicted by a demand curve?
What is depicted by a demand curve?
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Which statement is true regarding inferior goods?
Which statement is true regarding inferior goods?
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What happens to demand when the price of a substitute increases?
What happens to demand when the price of a substitute increases?
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If the number of consumers in a market decreases, what effect does that have on the demand curve?
If the number of consumers in a market decreases, what effect does that have on the demand curve?
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Study Notes
Goods Market and Factors Market
- Goods Markets: Used to exchange final goods and services. This includes consumer goods bought by households, capital goods bought by businesses, and goods bought by governments and foreign sectors. Raw materials, intermediate goods, factors of production are excluded.
- Gross Domestic Product (GDP) measures the total value of goods exchanged in product markets annually.
- Demand Side: Comprised of consumption expenditures, investment expenditures, government purchases, and net exports.
- Supply Side: Production by the business sector.
- Factors Markets (Resource Markets): Used to exchange the services of factors of production (labor, capital, land, entrepreneurship), not the factors themselves.
- National Income measures the value of services exchanged in factor markets annually.
- Assumptions: Beliefs or predictions used in economic theories, even without proof.
- Perfect Competition: A market situation where no firm or consumer significantly influences the market price.
Demand Analysis
- Shortage: Occurs when demand exceeds supply, causing price to rise as producers increase output and consumers decrease demand.
- Surplus: Occurs when supply exceeds demand, causing price to fall as producers decrease output and consumers increase demand.
- Price Mechanism: A system where price adjustments regulate supply and demand, clearing any market imbalances (shortage or surplus).
- Normal Goods: Goods whose demand increases with increased consumer income.
- Inferior Goods: Goods whose demand decreases with increased consumer income.
- Giffen Goods: A rare type of inferior good where a price increase leads to an increase in quantity demanded. This occurs when the income effect outweighs the substitution effect (when the good is a large proportion of a consumer's budget).
- Substitution Effect: The change in demand due to a good becoming relatively more or less expensive than substitute goods. Higher price leads to reduced demand and to consumption of the alternative, substitute product. Increased price makes the product more expensive relative to other goods, therefore quantity demanded falls.
- Income Effect: The change in demand due to a change in real consumer income when the prices change. Changing price causes higher or lower real income (purchase power) even when nominal income remains the same. Increased price decreases consumers' purchasing power and quantity demanded falls.
- Price Effect: Combined effect of income and substitution effects.
- Substitutes: Goods that are interchangeable (e.g., butter and margarine)
- Complements: Goods used together (e.g., left and right shoes, bread and butter)
- Cash Crops: Crops used as raw materials (e.g. cotton).
Demand
- Demand: The quantity of a good that buyers want to purchase at each price point.
- Law of Demand: Holding other factors constant, as price increases, quantity demanded decreases (negative relationship).
- Demand Schedule: A table showing different price-quantity demanded combinations.
- Demand Curve: A graph plotting price against quantity demanded.
- Demand Function: An equation describing how demand depends on multiple factors (price, tastes, income, prices of other goods, etc.).
Supply
- Supply: The quantity of a good that sellers are willing to sell at each price.
- Law of Supply: As price increases, quantity supplied increases.
- Supply Schedule: A table showing different price-quantity supplied combinations.
- Supply Curve: A graph plotting price against quantity supplied.
- Supply Function: An equation describing how supply depends on multiple factors (price, production costs, technology, prices of other goods, etc.).
- Determinants of Supply: Costs of production, Profitability of alternative products, Profitability of goods in joint supply, Nature and random shocks, Aims of producers, and Expectations of producers.
- Problems of Identification: Uncertainty about whether changes in equilibrium are caused by demand changes, supply changes, or both.
Equilibrium
- Equilibrium: A state where quantity demanded equals quantity supplied.
- Equilibrium Price: The price where supply and demand curves intersect.
- Equilibrium Quantity: The quantity at the point of intersection of the supply and demand curves.
- Algebraic Representation of Equilibrium: Mathematical equations describing the demand and supply functions, then solving for the equilibrium price and quantity using the condition Qd = Qs.
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Description
Test your understanding of goods and factors markets, including the concepts of GDP and National Income. This quiz covers the demand and supply sides as well as the assumptions behind economic theories. Perfect for students studying economics.
