# Microeconomics Chapter 3

Total word count: 405
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 What does the law of demand state? states that price and quantity demanded are inversely related. Graphically, the market demand curve is: the horizontal sum of individual demand curves. The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is _____. direct, inverse A demand curve indicates what? indicates the quantity demanded at each price in a series of prices. What do the income and substitution effects account for? the downward sloping demand curve. When an economist says that the demand for a product has increased, this means that: consumers are now willing to purchase more of this product at each possible price. By an increase in demand we mean that : the quantity demanded at each price in a set of prices is greater. The quantity demanded of a product increases as its price declines because the: demand curve is downsloping. The law of supply indicates that: producers will offer more of a product at high prices than they will at low prices. The upward slope of the supply curve reflects the: law of supply. A surplus of a product will arise when price is: above equilibrium with the result that quantity supplied exceeds quantity demanded. If we say that a price is too high to clear the market, we mean that: quantity supplied exceeds quantity demanded. Productive efficiency refers to: the use of the least-cost method of production. If an economy produces its most wanted goods but uses outdated production methods, it is: not achieving productive efficiency. Allocative efficiency is concerned with: producing the combination of goods most desired by society. Allocative efficiency involves determining: the mix of output that will maximize society’s satisfaction. The equilibrium price and quantity in a market usually produces allocative efficiency because: marginal benefit and marginal cost are equal at that point. Price floors and ceiling prices: interfere with the rationing function of prices. A price floor means that: government is imposing a minimum legal price that is typically above the equilibrium price. An effective ceiling price will: result in a product shortage. An effective price floor will: result in a product surplus. Price ceilings and price floors: interfere with the rationing function of prices. A price ceiling means that: government is imposing a legal price that is typically below the equilibrium price. If a legal ceiling price is set above the equilibrium price: neither the equilibrium price nor equilibrium quantity will be affected.

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