Demand
What is the curve that shows the relationship between the price of a good and the quantity demanded?
demand curve
What type of good experiences an increase in demand when consumer income rises?
Normal good
What do we call two goods where an increase in the price of one causes an increase in demand for the other?
Substitues
What curve shows the relationship between the price of a good and the quantity supplied?200
supply curve
What economic concept measures how responsive quantity demanded or quantity supplied is to one of its determinants?
Elasticity
According to the law of demand, what happens to quantity demanded when the price of a good rises, ceteris paribus?
quantity demanded falls
What type of good experiences a decrease in demand when consumer income rises?
Inferior good
What do we call two goods where an increase in the price of one causes a decrease in demand for the other?
Complements
According to the law of supply, what happens to quantity supplied when price rises, ceteris paribus?
Quantity supplied rises
If quantity demanded changes significantly in response to a change in one of its determinants, would we describe the quantity as highly responsive or unresponsive?
Highly responsive
Define quantity demanded
The amount of a good that buyers are willing and able to purchase
If people's incomes rise and they buy more new clothes, what type of good are new clothes?
Normal good
Ice cream and frozen yogurt satisfy similar desires. What is their economic relationship?
Substitues
What is the market situation in which quantity supplied equals quantity demanded?
Equilibrium
The price of a good rises from $10 to $12, while quantity demanded falls from 100 units to 80 units. Using the percentage-change method, calculate the price elasticity of demand.
1
A coffee shop raises the price of coffee from $3 to $4, and customers buy fewer cups. Is this a movement along the demand curve or a shift of the demand curve?
A movement along the demand curve
When people's incomes rise, they buy fewer bus rides because they can afford cars or taxis. What type of good are bus rides?
Inferior good
If the price of badminton rackets falls, what happens to the demand for shuttlecocks?
Demand for shuttlecocks increases
What do we call the price that makes quantity supplied equal to quantity demanded?
Equilibrium price
The price of a good increases by 20%, causing quantity demanded to decrease by 5%. Calculate the price elasticity of demand and state whether demand is relatively elastic or inelastic.
0.25
Because a change in the good's own price changes quantity demanded, rather than demand itself.
Suppose household income rises by 20%, but demand for a particular good falls. Based only on this information, what type of good is it, and why?
Inferior good, because demand decreases as income increases.
The price of frozen yogurt falls. At the same time, consumers buy more ice cream. Based on the definitions in this section, are ice cream and frozen yogurt substitutes or complements? Explain.
Substitutes, because consumers can switch between goods that satisfy similar desires.
In a competitive market, the current price is above the equilibrium price. What will happen to the market, and how will the price change over time? Explain using quantity demanded and quantity supplied.
There will be a surplus, because quantity supplied is greater than quantity demanded. Sellers will have difficulty selling all their goods, creating pressure for them to lower the price. As the price falls, quantity demanded increases and quantity supplied decreases, moving the market toward equilibrium.
A firm's price increases from $20 to $25, and its quantity supplied increases from 400 to 500 units. Calculate the price elasticity of supply using the percentage-change method. What does your answer tell you about the responsiveness of quantity supplied?
1, unitary elastic