Microeconomics Chapter 3

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If an economy produces its most wanted goods but uses outdated production methods, it is: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.