Principles of Economics 2e - Chapter 3
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Questions and Answers

What does the upward slope of the supply curve illustrate?

  • Lower prices lead to a higher quantity supplied.
  • Higher prices lead to a higher quantity supplied. (correct)
  • Higher prices increase quantity demanded.
  • Demand remains constant as price changes.

    • Equilibrium price is where quantity supplied is less than quantity demanded.

    False (B)

    What happens at a price below equilibrium?

    There is excess demand.

    At the existing price, if quantity supplied exceeds quantity demanded, there is a __________.

    <p>surplus</p> Signup and view all the answers

    Match the economic terms to their definitions:

    <p>Equilibrium = Quantity demanded equals quantity supplied Surplus = Quantity supplied exceeds quantity demanded Shortage = Quantity demanded exceeds quantity supplied Equilibrium price = Price at which the market clears</p> Signup and view all the answers

    What does the term 'ceteris paribus' mean?

    <p>All things being equal (A)</p> Signup and view all the answers

    An increase in consumers' income will shift the demand curve to the left.

    <p>False (B)</p> Signup and view all the answers

    How does a rightward shift in the demand curve affect quantity demanded at given prices?

    <p>The quantity demanded at each price increases.</p> Signup and view all the answers

    If demand decreases, the demand curve shifts to the ______.

    <p>left</p> Signup and view all the answers

    Match the following terms with their definitions:

    <p>Demand Curve = Graph showing quantity consumers will buy at each price Shift Right = Increased demand Shift Left = Decreased demand Ceteris Paribus = Assumption of constant other factors</p> Signup and view all the answers

    Which of the following factors affects demand?

    <p>Consumer preferences (C)</p> Signup and view all the answers

    At every given price, increased demand results in a lower quantity demanded.

    <p>False (B)</p> Signup and view all the answers

    Which of the following factors can cause a shift in demand?

    <p>Income changes (B)</p> Signup and view all the answers

    An inferior good is one whose demand increases when income increases.

    <p>False (B)</p> Signup and view all the answers

    What is the term for a good that we can use in place of another good?

    <p>Substitute</p> Signup and view all the answers

    A product whose demand rises when income rises is known as a __________.

    <p>normal good</p> Signup and view all the answers

    Match the following types of goods with their definitions:

    <p>Normal good = Demand increases as income increases Inferior good = Demand decreases as income increases Substitute = Can be used in place of another good Complement = Used together with another good</p> Signup and view all the answers

    What happens to demand when there is a negative shift in consumer expectations about the future?

    <p>Demand decreases (C)</p> Signup and view all the answers

    Changes in population composition do not affect demand.

    <p>False (B)</p> Signup and view all the answers

    How does the price of substitutes affect demand?

    <p>If the price of a substitute rises, the demand for the original good increases.</p> Signup and view all the answers

    The price a firm will set for a product equals the cost of production plus the desired __________.

    <p>profit</p> Signup and view all the answers

    What happens to the price set for a product when the cost of production increases?

    <p>It increases (B)</p> Signup and view all the answers

    When the supply curve shifts to the left, it indicates an increase in supply.

    <p>False (B)</p> Signup and view all the answers

    What is the effect of decreased supply on the supply curve?

    <p>The supply curve shifts to the left.</p> Signup and view all the answers

    If production costs increase, the supply curve shifts _____ to a new price level.

    <p>up</p> Signup and view all the answers

    Match the following scenarios with their effects on the supply curve:

    <p>Decreased supply = Shifts left Increased supply = Shifts right Increased production costs = Shifts up Decreased production costs = Shifts down</p> Signup and view all the answers

    What is the relationship between cost of production and the price set for a product?

    <p>Higher costs lead to higher prices (C)</p> Signup and view all the answers

    An increase in supply results in a leftward shift of the supply curve.

    <p>False (B)</p> Signup and view all the answers

    What defines a firm's pricing strategy?

    <p>The cost of production and desired profit.</p> Signup and view all the answers

    When the supply curve shifts from S0 to S2, it indicates that the _____ supply has increased.

    <p>quantity</p> Signup and view all the answers

    Which factor does NOT affect the supply of a product?

    <p>Consumer preferences (D)</p> Signup and view all the answers

    Flashcards

    Supply Curve

    A graph showing the relationship between price and quantity supplied, sloping upward.

    Equilibrium

    The price and quantity where supply equals demand, no surplus or shortage.

    Ceteris Paribus

    Latin for "other things being equal" used in economics.

    Equilibrium Price

    The price at which quantity demanded equals quantity supplied.

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    Demand Curve

    Graph showing quantity demanded at different prices.

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    Surplus

    Occurs when quantity supplied exceeds quantity demanded at a given price.

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    Shift in Demand Curve

    Change in demand at every price point, leading to a new curve position.

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    Shortage

    Occurs when quantity demanded exceeds quantity supplied at a given price.

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    Increased Demand

    Consumers purchase larger quantities at every price, shifting demand rightwards.

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    Decreased Demand

    Consumers buy fewer quantities at every price, shifting demand leftwards.

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    Right Shift of Demand Curve

    Indicates an increase in quantity demanded at each price level.

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    Left Shift of Demand Curve

    Indicates a decrease in quantity demanded at each price level.

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    Shift in Demand

    A change in demand due to economic factors like income or preferences.

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    Factors Affecting Demand

    Elements that can increase or decrease demand, such as income and preferences.

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    Normal Good

    A product whose demand increases with rising income.

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    Inferior Good

    A product whose demand decreases as income rises.

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    Substitute Good

    A good that can be used in place of another, affecting demand.

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    Complementary Good

    Goods that are often used together, affecting each other's demand.

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    Supply Price

    The price set by a firm, based on production cost and desired profit.

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    Demand Change

    A movement in demand levels due to shifts in economic conditions.

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    Cost of Production

    The total expenses incurred in manufacturing a product.

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    Price Setting

    Determining the price based on production costs and desired profit.

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    Supply Curve Shift

    A graphical representation of changes in supply at different price levels.

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    Increased Supply

    Occurs when more of a product is offered at every price, shifting the supply curve right.

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    Decreased Supply

    Occurs when less of a product is offered at every price, shifting the supply curve left.

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    Supply Shift Left

    Indicates reduced supply at every given price level.

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    Supply Shift Right

    Indicates increased supply at every given price level.

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    Factors Affecting Supply

    Elements that can cause a change in the amount of a product supplied, like production costs.

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    Graphical Representation

    A visual way to illustrate economic concepts like supply and demand curves.

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    Study Notes

    Principles of Economics 2e - Chapter 3: Demand and Supply

    • Chapter Outline:

      • 3.1: Demand, Supply, and Equilibrium in Markets for Goods and Services
      • 3.2: Shifts in Demand and Supply for Goods and Services
      • 3.3: Changes in Equilibrium Price and Quantity: The Four-Step Process
      • 3.4: Price Ceilings and Price Floors
      • 3.5: Demand, Supply, and Efficiency

    • Demand: The amount of a good or service consumers are willing and able to buy at various prices.

    • Price: What a buyer pays for a specific good or service.

    • Quantity Demanded: The total number of units of a good or service consumers are willing and able to buy at a given price.

    • Law of Demand: As price increases, quantity demanded decreases (all other factors constant). This is an inverse relationship.

    • Demand Schedule: A table showing a range of prices for a good or service and the corresponding quantity demanded.

    • Demand Curve: A graphic representation of the relationship between price and quantity demanded. It slopes downward.

    • Supply: The amount of a good or service a producer is willing and able to sell at various prices.

    • Quantity Supplied: The total number of units of a good or service producers are willing and able to sell at a given price.

    • Law of Supply: As price increases, quantity supplied increases (all other factors constant). This is a direct relationship.

    • Supply Schedule: A table showing a range of prices for a good or service and the corresponding quantity supplied.

    • Supply Curve: A graphic representation of the relationship between price and quantity supplied. It slopes upward.

    • Equilibrium: The point where quantity demanded equals quantity supplied.

    • Equilibrium Price: The price at which the quantity demanded equals the quantity supplied.

    • Equilibrium Quantity: The quantity of a good or service that is bought and sold at the equilibrium price.

    • Surplus: When the quantity supplied exceeds the quantity demanded at a given price (above equilibrium price).

    • Shortage: When the quantity demanded exceeds the quantity supplied at a given price (below equilibrium price).

    • Shift in Demand: A change in demand resulting in a whole new demand curve causing a shift to the left or right (caused by non-price factors like income, population, taste, or price of related goods).

    • Shift in Supply: A change in supply resulting in a whole new supply curve causing a shift to the left or right (caused by non-price factors like input costs, technology, or government policies).

    • Ceteris Paribus: Latin for "other things being equal" — a simplifying assumption in economics.

    • Normal Goods: Goods whose demand increases as income increases.

    • Inferior Goods: Goods whose demand decreases as income increases.

    • Substitutes: Goods that can be used in place of one another.

    • Complements: Goods that are often used together.

    • Price Ceilings: A legally established maximum price for a good or service, often used to control prices.

    • Price Floors: A legally established minimum price for a good or service, often used to protect producers from receiving too low a price.

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    Principles of Economics 2e - Chapter 3 PDF

    Description

    This quiz covers Chapter 3 of 'Principles of Economics 2e', focusing on demand, supply, and market equilibrium. Explore concepts such as the law of demand, shifts in supply and demand, and the effects of price controls. Test your understanding of these fundamental economic principles.

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