Introduction to markets and market
failure
complements - correct answer-two goods for which an increase in the price of one leads to a
decrease in the demand for the other
Consumer Surplus - correct answer-the difference between the highest price a consumer is
willing to pay for a good or service and the actual price the consumer pays
Contraction of demand - correct answer-when quantity demanded for a good falls because
its price rises; it is shown by a movement up the demand curve
contraction of supply - correct answer-movement along the supply curve to the left (lower
price & lower quantity supplied).
cross elasticity of demand - correct answer-A measure of the responsiveness of the demand
for a good to a change in the price of a substitute or complement when other things remain
the same.
demand - correct answer-the quantity of a good or service that consumers are willing and
able to buy at a given price
demand curve - correct answer-a graph showing how much of a good will be demanded by
consumers at any given price
excess demand - correct answer-when quantity demanded is more than quantity supplied
excess supply - correct answer-When price is set too high so supply is greater than demand
Extension of demand - correct answer-when quantity demanded for a good increases
because its price falls; it is shown by a movement down the demand curve
Extension of supply - correct answer-a movement along the supply curve to the right (higher
price & higher quantity supplied).
income elasticity of demand - correct answer-a measure of the responsiveness of the
quantity demanded to changes in income
Invisible hand - correct answer-describes the way in which resources are allocated in a
market economy to the advantage of everyone
law of demand - correct answer-a law that states there is an inverse relationship between
quantity demanded and the price of a good or service
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