econ (mba 701) test 1 questions and correct detailed answers graded a+
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Module
NA 701
Institution
NA 701
What is a market? - correct answer A market is any arrangement that brings together buyers and sellers.
what is the law of demand - correct answer -Pertains to the market demand (not individual prices)
T...
econ (mba 701) test 1
What is a market? - correct answer A market is any arrangement that brings
together buyers and sellers.
what is the law of demand - correct answer -Pertains to the market demand
(not individual prices)
The law of demand states that the quantity purchased varies inversely with price.
-In other words, the higher the price, the lower the quantity demanded. This occurs because of
diminishing marginal utility.
What does the phrase ceteris paribus mean? - correct answer The quantity
demanded of a good or service is inversely related to its price
What does the income effect refer to? - correct answer -As a product's price
declines, a buyer's real purchasing power increases
-In contrast, an increase in prices reduces a buyer's real income and purchasing power
What does the substitution effect refer to? - correct answer -When there is no
change in real purchasing power, an increase in the price of a goodwill cause buyers to unambiguously
shift their purchases into relatively less expensive substitutes
-Reflects changes in a consumers opportunity cost from the price change
How does a change in demand differ from a change in the quantity demanded? Explain conceptually and
graphically. - correct answer How does a change in demand differ from a
change in the quantity demanded? Explain conceptually and graphically.
Graphically how is a shift from point a to point B in figure 2.1 different from a shift to the right of the
entire curve from D1 to D2 in figure 2.2? - correct answer One represents an
increase in quantity demanded and a decline in market good price (figure 2.1). An increase in consumer
money is indicated by figure 2.2 as a right shift on the graph instead of a stationary demand curve like
figure 2.1
, How does an increase in money income affect demand for a good? - correct answer
An increase in consumer's money income will increase the demand for most good and services
What is the difference between a normal good and inferior good? - correct answer
-A normal good refers to any good that increases in demand when income increases and vice versa.
-The demand for an inferior good varies inversely with consumer's money income
-bought to be the affordable alternative to the more expensive preferred good/service
-During an economic expansion, rising incomes, sales, and profits the market demand for the services of
bankruptcy lawyers and accountants declines. Is depicted as a shift to the left of the market demand
curve
-Market demand for bankruptcy services will shift to the right during economic downturns
-Other types of inferior goods - demand for automobile repair and used cars
How do changes in tastes and preferences affect demand for a good? - correct answer
-Changes in consumer taste will shift the market
-If consumers have a negative opinion, the demand curve will shift to the left
How do prices of related goods affect demand for a good? - correct answer -
Related goods may be substitutes or complements
-If two goods are substitutes in consumption, An increase in price for good (y) will cause some
customers to shift in purchases for the less expensive good x.
In reviewing figure 2.3, how does the price increase from P1 to P2 of good Y affect the demand shift
from D1 to D2 for good X? - correct answer As the price increased for good y
the demand for the product y decreased but increase for product x?
What do we mean when we refer to goods as substitutes? - correct answer
Goods that are related. A good that can be substituted for a similar good such as pepsi and coke.
What do we mean we refer to goods as complements? - correct answer -
Goods are complements if they are consumed together
-Tennis rackets & tennis balls/ skis & ski boots
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