Macroeconomics Chapter 3 Test Flashcards

Questions and Answers

A market is the institution or mechanism that brings together buyers or _ and sellers or __ of a particular good or service.

Demanders; Suppliers

What type of relationship is there between price and quantity in the demand schedule?

Inverse relationship

What type of relationship is there between price and quantity in the supply schedule?

Direct relationship

When demand or supply is graphed, price is placed on the ___ axis and quantity is placed on the _ axis.

Vertical; horizontal Signup and view all the answers

The change from an individual to a market demand schedule involves the quantities demanded by each consumer at the various possible _.

Adding; prices Signup and view all the answers

What is a complement?

When the price of one product and the demand for another product are directly related Signup and view all the answers

What is a substitute?

When the price of one product and the demand for another product are inversely related Signup and view all the answers

When a consumer demand schedule or curve is drawn up, it is assumed that the five factors that determine demand are _ and __.

fixed; constant Signup and view all the answers

What are the five determinants of consumer demand?

<ol> <li>Consumers' taste/preference 2) The number of consumers in the market 3) Consumers' incomes 4) The prices of related goods 5) Expected prices</li> </ol> Signup and view all the answers

A decrease in demand means that consumers will buy __ quantities at every price, or will pay _ for the same quantities.

Smaller; less Signup and view all the answers

A change in income or in the price of another product will result in a change in _________.

Demand Signup and view all the answers

A change in the price of the given product will result in a change in the ____________.

Quantity Demanded Signup and view all the answers

The change from an individual to a market supply schedule involves __ the quantities supplied by each producer at the various possible _.

Adding; prices Signup and view all the answers

What are the fundamental factors that determine the supply of any commodity in the product market?

<ol> <li>Resource prices 2) Technology 3) Taxes and subsidies 4) Prices of other goods 5) Expected price 6) Number of buyers in the market</li> </ol> Signup and view all the answers

An increase in supply means that producers will make and be willing to sell ___ quantities at every price, or will accept for the same quantities.

Larger; less Signup and view all the answers

A change in resource prices or the prices of other goods that could be produced will result in a change in the _______ of the given product.

Supply Signup and view all the answers

A change in the price of the given product will result in a change in the _______________.

Quantity Supplied Signup and view all the answers

If quantity demanded is greater than quantity supplied, price is _ equilibrium price, and the _ will cause the price to ___.

Below; shortage; rise Signup and view all the answers

If quantity demanded is less than the quantity supplied, price is ____ the equilibrium price, and the _ will cause the price to __.

Above; surplus; fall Signup and view all the answers

The equilibrium price of a product is the price at which quantity demanded is ___ quantity supplied, and there a surplus or a shortage at that price.

equal to; is not Signup and view all the answers

What is a rationing function for price?

If supply and demand establish a price for a good so that there is no shortage or surplus of the product Signup and view all the answers

The rationing price is set at a market-_______ price.

clearing Signup and view all the answers

Match the changes in demand or supply to their effects on price and quantity:

Increase in demand; supply constant = Price +; Quantity + Increase in supply; demand constant = Price -; Quantity + Decrease in demand; supply constant = Price -; Quantity - Decrease in supply; demand constant = Price +; Quantity - Increase in demand; increase in supply = Price +; Quantity + Decrease in demand; decrease in supply = Price -; Quantity - Signup and view all the answers

Define price ceiling

The maximum legal price a seller may charge for a product or services Signup and view all the answers

Define price floor

The minimum legal price set by the government Signup and view all the answers

If a price ceiling is below the market equilibrium price, a _______ will arise in a competitive market.

Shortage Signup and view all the answers

If a price floor is above the market equilibrium, a _______ will arise in a competitive market.

Surplus Signup and view all the answers

How do you know if a resource is scarce?

The price rises, harder to find, alternatives arise Signup and view all the answers

What is a normal good?

A good whose consumption rises when income increases and falls when income decreases Signup and view all the answers

What is an inferior good?

A good whose consumption declines when income rises and rises when income decreases Signup and view all the answers

Competition imposes . It forces firms to keep prices , while maintaining .

Discipline; low; value Signup and view all the answers

Profit =

Revenue - Total Cost Signup and view all the answers

Every society must have a method to ration the scarce resources among competing users. Some of these are:

First come, first served; fairness; lottery; discrimination Signup and view all the answers

When price is used, the goods or resources are obtained by those _________________ in order to obtain ownership rights.

Willing to give up other things Signup and view all the answers

Who is considered the father of capitalism and what did he advocate?

Adam Smith; advocated creating wealth through entrepreneurship and trade Signup and view all the answers

What is essential for economic freedom?

Political freedom Signup and view all the answers

What plays a crucial role in determining how much of scarce resources get used and where?

Prices Signup and view all the answers

Price is an expression of what?

Perceived value Signup and view all the answers

What is the Law of Demand?

The quantity demanded is inversely related to price. Signup and view all the answers

What is the Law of Supply?

More of a good will be provided the higher its price; less will be provided the lower its price. Signup and view all the answers

If one of the inputs rises, then resource prices rise and the supply curve will shift left.

True Signup and view all the answers

What is surplus?

An excess in quantity supplied Signup and view all the answers

What is shortage?

An excess in quantity demanded Signup and view all the answers

Study Notes

Market Mechanics

A market connects buyers (demanders) and sellers (suppliers) of goods and services.

Demand and Supply Relationships

Demand: price and quantity exhibit an inverse relationship; as price decreases, quantity demanded increases.
Supply: price and quantity show a direct relationship; as price increases, quantity supplied increases.

Graphing Demand and Supply

Price is represented on the vertical axis; quantity is on the horizontal axis.

Market Demand Schedule

Transitioning from individual to market demand involves adding quantities demanded by consumers at various prices.

Complementary and Substitute Goods

Complement: rise in the price of one product increases demand for another.
Substitute: rise in the price of one product decreases demand for another.

Determinants of Demand

Influenced by consumer tastes, number of consumers, incomes, prices of related goods, and expected prices.

Changes in Demand

A decrease means consumers buy smaller quantities or pay less at every price.
Changes in income or related product pricing will lead to demand fluctuations.

Market Supply

Transition from individual to market supply involves aggregating quantities supplied by producers at various prices.

Factors Influencing Supply

Resource prices, technology, taxes/subsidies, prices of other goods, expected prices, and number of buyers.

Changes in Supply

An increase allows producers to sell more at every price or accept lower prices for the same quantities.

Equilibrium Price

Equilibrium occurs when quantity demanded equals quantity supplied; no surpluses or shortages exist at this price.

Price Rationing

Price acts as a rationing function, balancing supply and demand without shortages or surpluses.

Market Reactions:

Increase in Demand (Supply Constant): Price and quantity both increase.
Increase in Supply (Demand Constant): Price decreases, quantity increases.
Decrease in Demand (Supply Constant): Price and quantity decrease.
Decrease in Supply (Demand Constant): Price increases, quantity decreases.

Price Controls

Price Ceiling: Maximum legal price set below market equilibrium leads to shortages.
Price Floor: Minimum legal price set above market equilibrium leads to surpluses.

Scarcity Indicators

Scarcity is signaled by rising prices, difficulty in finding resources, and emergence of alternatives.

Goods Classifications

Normal Good: Consumption increases with income rise; decreases with income fall.
Inferior Good: Consumption declines with income rise; increases with income fall.

Competition and Profit

Competition drives firms to maintain low prices while delivering value, ensuring discipline in the market.
Profit calculation: Revenue minus total cost.

Resource Allocation Methods

Societies ration scarce resources through first-come, first-served, fairness, lotteries, or discrimination.

Economic Freedom

Political freedom is vital for economic freedom, impacting how resources are utilized.

Price as Value Expression

Price reflects perceived value of goods and resources in the market context.

Laws of Demand and Supply

Law of Demand: Inverse relationship between price and quantity demanded; lower prices boost demand.
Law of Supply: Direct relationship; higher prices incentivize greater supply.

Surplus and Shortage Definitions

Surplus: Excess quantity supplied beyond demand.
Shortage: Excess quantity demanded beyond supply.

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Test your knowledge on the key concepts of Macroeconomics Chapter 3 with these flashcards. This quiz covers fundamental topics such as market mechanisms, demand and supply relationships, and more. Perfect for students preparing for exams or anyone looking to refresh their understanding of macroeconomic principles.