Demand and Supply Concepts

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Questions and Answers

What term is used by economists to represent the value consumers are willing and able to pay for particular goods or services?

Demand

The law of demand states that as the price of a product increases, what happens to the quantity demanded?

It increases.
It remains the same.
It decreases. (correct)
It fluctuates unpredictably.

The Law of Demand states that there is a direct relationship between quantity demanded and price.

False (B)

The term "______" is used to represent the assumption that all other factors remain constant when analyzing a specific variable's effect.

ceteris paribus Signup and view all the answers

What are the three ways to demonstrate the relationship between quantity demanded and price?

The three ways to demonstrate the relationship between quantity demanded and price are the demand function, the demand schedule, and the demand curve. Signup and view all the answers

What does a demand curve visually represent?

A demand curve visually represents the relationship between product price and quantity demanded, indicating a downward slope as price decreases and vice versa. Signup and view all the answers

Explain the concept of supply from the producers' perspective.

Supply represents the producer's willingness and ability to produce and sell a particular good or service at a given price. Signup and view all the answers

The law of supply states that as the price of a good or service decreases, the quantity supplied also decreases.

False (B) Signup and view all the answers

What are the three ways to represent the relationship between quantity supplied and price?

The three ways to represent the relationship between quantity supplied and price are the supply function, the supply schedule, and the supply curve. Signup and view all the answers

What does a supply curve visually represent?

A supply curve visually represents the relationship between the price of a product and the quantity producers are willing to supply, illustrating how supply changes. Signup and view all the answers

What is market equilibrium?

Market equilibrium occurs when the quantity demanded for a good or service matches the quantity supplied by producers at a specific price. Signup and view all the answers

What happens to the equilibrium price and quantity when there's an increase in both supply and demand?

Equilibrium price and quantity both increase. (B) Signup and view all the answers

What is a shift in the demand or supply graph?

A shift in the demand or supply graph signifies a change in the position of the entire curve, caused by factors other than price changes, such as consumer preferences, income, population, technology, input prices, and government policies. Signup and view all the answers

Price changes only affect the quantity demanded or supplied within the same demand or supply curve.

True (A) Signup and view all the answers

What happens to the quantity demanded when the price of a close substitute good decreases?

Quantity demanded decreases. (D) Signup and view all the answers

Complementary goods are those that are used together, and an increase in the price of one complement will lead to a decrease in the demand for the other.

True (A) Signup and view all the answers

Explain how changes in income affect the demand for normal goods.

As consumer income increases, the demand for normal goods tends to increase because consumers have more purchasing power. Conversely, a decrease in income leads to a decrease in demand for normal goods. Signup and view all the answers

What is the most likely effect of a price increase for the inputs used in production?

Decreased production. (C) Signup and view all the answers

Explain how an increase in the price of a substitute good might affect the supply of the original good.

An increase in the price of a substitute good can lead to a decrease in the supply of the original good. This happens because producers may switch their focus to producing the more profitable substitute good, resulting in a decrease in the supply of the original good. Signup and view all the answers

An increase in the number of firms in a market typically leads to an increase in the price of the product.

False (B) Signup and view all the answers

Explain how expectations regarding future prices can affect the decisions of producers.

Producers may adjust their supply based on their expectations about future price changes. If they anticipate an increase in price, they may hold off on production now and increase supply in the future. If they anticipate a decrease in price, they may ramp up production and supply in the present before the price decreases. Signup and view all the answers

A price ceiling is a government-imposed maximum price set on a product or service, typically for essential goods, to protect consumers from high prices.

True (A) Signup and view all the answers

What is the purpose of a floor price?

A floor price is a government-imposed minimum price on a product or service to protect producers from low prices and ensure a certain level of income for workers involved in producing the good or service. Signup and view all the answers

A price ceiling is effective when set above the equilibrium price.

False (B) Signup and view all the answers

A floor price is effective only when set below the equilibrium price.

False (B) Signup and view all the answers

Explain how a shortage occurs in a market.

A shortage occurs when the quantity demanded for a good or service exceeds the quantity supplied at a given price. This situation arises when the price is set below the equilibrium price, leading to a higher demand than supply. Signup and view all the answers

Explain how a surplus occurs in a market.

A surplus occurs when the quantity supplied for a good or service exceeds the quantity demanded at a given price. This happens when the price is set above the equilibrium price, leading to a larger supply than demand. Signup and view all the answers

How can changes in consumer preferences, income levels, and prices of related goods influence the demand for Nike products?

Consumer preferences, income levels, and prices of related goods can all significantly influence the demand for Nike products. For example, if consumers develop a strong preference for athletic shoes, or if their income increases allowing them to purchase more expensive shoes, then demand for Nike products is likely to increase. Similarly, if the price of substitute brands such as Adidas or Reebok decreases, consumers might choose those alternatives over Nike products, decreasing demand for Nike. On the other hand, if the price of complementary goods like athletic clothing or accessories decreases, it could lead to an increase in demand for Nike products, as consumers are more inclined to purchase complete athletic outfits. Signup and view all the answers

Flashcards

Demand

The economist's term for the value that consumers are willing and able to pay for a good or service at a given price.

Law of Demand

The principle that as the price of a product increases, the quantity demanded decreases, and vice versa, assuming other factors remain constant.

Demand Function

A mathematical expression showing the inverse relationship between quantity demanded and price.

Demand Schedule

A table that illustrates different quantities of a good or service consumers are willing to buy at various price levels.