Question: law of demand

Answer: States that, other things equal, price and quantity demanded are inversely related.

Question: income effect

Answer: When the price of a product increases, a consumer is able to buy less of it with a given money income.

Question: An increase in the price of a product will reduce the amount of it purchased because

Answer: Consumers will substitute other products for the one whose price has risen.

Question: A change in the price of product K will

Answer: Not cause the demand for product K to change.

Question: If Z is an inferior good, an increase in money

Answer: Will shift the demand curve for Z to the left.

Question: law of supply

Answer: States that, other things equal, producers will offer more of a product at high prices than at low prices.

Question: A firm’s supply curve is upsloping because

Answer: Beyond some point the production cost of additional units of output will rise.

Question: An improvement in production technology will

Answer: Shift the supply curve to the right.

Question: If there is a surplus of a product, its price

Answer: Is above the equilibrium level.

Question: The rationing function of prices refers to the

Answer: Capacity of a competitive market to equalize quantity demanded and quantity supplied.