When a law holds a price below the market-clearing level, buyers want more units than sellers offer, and the gap is called a shortage.
Missing Word
shortage
A shortage, also called excess demand, exists when the amount buyers want at a price exceeds the amount sellers offer. It occurs at any price below equilibrium, such as under a binding price ceiling.
Category: Equilibrium
Question 2
Economists classify a good as normal when buyers purchase more of it at every price after their incomes rise, as happens with most goods.
Missing Word
normal
A normal good is one whose demand moves in the same direction as income: higher income raises demand and lower income reduces it. Most goods fit this pattern, which is why rising incomes usually shift demand curves to the right.
Category: Demand Shifters
Question 3
Butter and margarine are substitutes, since a drop in the price of margarine reduces demand for butter.
Missing Word
substitutes
Substitutes are goods that can be used in place of each other. When one becomes cheaper, buyers switch toward it, so demand for the other falls.
Category: Demand Shifters
Question 4
Printers and ink cartridges are complements, because a rise in the price of printers reduces demand for the cartridges used with them.
Missing Word
complements
Complements are goods that are consumed together. A higher price for one leads people to buy less of it, which lowers demand for the good that goes with it.
Category: Demand Shifters
Question 5
A government payment to producers for each unit they make lowers their costs and is called a subsidy.
Missing Word
subsidy
A subsidy is a payment from the government that reduces the cost of producing a good. Because producers can offer more at every price, a subsidy increases supply.
Category: Supply Shifters
Question 6
A product is classified as inferior when demand for it falls as buyers' incomes rise.
Missing Word
inferior
An inferior good is one whose demand moves opposite to income: higher income lowers demand and lower income raises it. Buyers with more money often switch to options they prefer.
Category: Demand Shifters
Question 7
Government price controls come in 2 kinds: a ceiling, which sets a legal maximum price, and a floor, which sets a legal minimum price.
Missing Word
2
Price controls are laws that set prices instead of letting the market determine them. A ceiling is binding only below the equilibrium price and causes a shortage, while a floor is binding only above it and causes a surplus.
Category: Price Controls
Question 8
When all possible gains from trade have been achieved, so that no one can be made better off without making someone else worse off, a market has reached efficiency.
Missing Word
efficiency
Economic efficiency means the market produces and consumes the quantity at which no further mutually beneficial trades remain. A competitive market reaches it at equilibrium, where social surplus is largest.
Category: Surplus and Efficiency
Question 9
Economists use the term equilibrium for the price and quantity at which the demand and supply curves cross, because there the plans of buyers and sellers agree.
Missing Word
equilibrium
Equilibrium is where quantity demanded equals quantity supplied, so there is neither a surplus nor a shortage. With no pressure for the price to change, the market tends to stay there until a curve shifts.
Category: Equilibrium
Question 10
Demand counts only purchases that buyers are both willing and able to make, so a desire for a good without the money to pay for it does not count.
Missing Word
able
Demand requires both the wish to buy and the ability to pay. A want that is not backed by purchasing power does not add to the quantity demanded at any price.
Category: Demand and Supply Basics
Question 11
An advance in technology, meaning better knowledge of how to turn inputs into output, lowers production costs and increases supply.
Missing Word
technology
Technology is the knowledge and methods used to combine inputs into goods and services. Improvements in it let firms produce more at lower cost, shifting the supply curve to the right.
Category: Supply Shifters
Question 12
A new per-unit tax on producers raises their costs and shifts the supply curve to the left.
Missing Word
left
A tax on producers acts like a higher cost of production, so firms offer less at every price. A decrease in supply is drawn as a leftward shift of the supply curve.
Category: Supply Shifters
Question 13
Unusually good growing weather for strawberries shifts the supply curve of strawberries to the right.
Missing Word
right
Favorable natural conditions raise the amount farmers can harvest at the same cost, so they offer more at every price. An increase in supply is drawn as a rightward shift, which lowers the equilibrium price and raises the equilibrium quantity.
Category: Supply Shifters
Question 14
Growth in a city's population, the number of people living there, raises demand for housing in that city.
Missing Word
population
Population is the number of people in an area, and more people means more potential buyers. A larger population therefore shifts the demand curve for most goods to the right.
Category: Demand Shifters
Question 15
A shift in consumer tastes, also called preferences, such as a health trend that makes oat milk popular, moves the whole demand curve for that product.
Missing Word
tastes
Tastes are what buyers like and want, and they change with fashion, information and trends. A change in tastes is a factor other than price, so it shifts the entire demand curve instead of causing a movement along it.
Category: Demand Shifters