38 Questions
What happens to the quantity demanded when the price rises, assuming all other factors remain constant?
It decreases
What is a change in demand caused by?
A change in any other factor apart from the price of the goods
What type of goods will see an increase in demand when income increases?
Normal goods
What is the term for goods that can be used in place of each other?
Substitutes
What is the result of a change in any factor apart from the price of the goods?
A shift of the demand curve
What is an example of a factor that can influence the quantity of goods consumers plan to purchase?
The distribution of income
What is the consequence of a binding price ceiling?
Shortage
What is the purpose of setting a price floor?
To prevent prices from falling
What happens to production when a binding price ceiling is set?
Production decreases
What is an unintended consequence of a binding price ceiling?
Discrimination by sellers
What is the result of a binding price floor?
Surplus
Why does a binding price ceiling lead to a permanent shortage?
Because the price is below the equilibrium level
What is another term for a price ceiling?
Maximum price
What is an example of a commodity that may have a price floor?
Grains
What is the direction of the movement from point A to B on the supply curve?
Upward and to the right
What is the reason for a shift in the supply curve from S1 to S3?
A change in the profitability of alternative products
What is the condition for market equilibrium?
Quantity demanded equals quantity supplied
What is the role of prices in a market with shortages or surpluses?
They function as allocative mechanisms
What is the effect of an increase in the price of a good from P1 to P2?
An increase in quantity supplied
What is the name of the point where the supply curve intersects the demand curve?
Market equilibrium
What is the reason for a change in the quantity supplied from Q1 to Q2?
A change in the price of the goods
What are the factors that affect the supply of a good, except for the price of the goods?
Costs of production, profitability of goods in joint supply, and number of producers
What happens when there is a simultaneous increase in both demand and supply?
The impact on equilibrium price and quantity is ambiguous
What is the effect of an increase in demand on equilibrium price and quantity?
Price increases, quantity increases
What is the effect of an increase in supply on equilibrium price and quantity?
Price decreases, quantity increases
What determines the overall impact on equilibrium price and quantity when there is a simultaneous change in demand and supply?
The relative magnitude of the change in demand and supply
What happens to the equilibrium point when there is a simultaneous increase in demand and supply, and the increase in demand is larger than the increase in supply?
The equilibrium point shifts rightward and upward
What is the relationship between the increase in demand and the increase in supply in the scenario described?
The increase in demand is larger than the increase in supply
What is the result of a simultaneous increase in both demand and supply, assuming the increase in demand is larger than the increase in supply?
An increase in both price and quantity
What is the graphical representation of a simultaneous increase in both demand and supply?
A shift of both the demand and supply curves to the right
What is the first step in analyzing the effect of an event on the market?
Identifying whether the event is a demand-side or supply-side factor
What happens to the demand curve when there is an increase in demand?
It shifts rightward
What is the result of a shortage in the market?
The price rises
What happens to the quantity supplied when the price rises, assuming all other factors remain constant?
It increases
What is the role of prices in the adjustment process?
To act as a rationing mechanism
What is the outcome of the adjustment process in the market?
Market equilibrium
What happens to the quantity demanded when the price rises, assuming there is an increase in demand?
It decreases
What is the relationship between the price and quantity supplied, assuming all other factors remain constant?
Direct
Study Notes
Demand Curve
- A rise in price from P1 to P2 reduces quantity demanded from Q1 to Q2, followed by movement along the same demand curve from point A to B.
Factors Influencing Demand
- Apart from the price of the goods, other factors that influence the quantity of goods consumers plan to purchase at each price include: • Tastes and preferences • Number and prices of related goods (substitutes and complements) • Income (normal goods and inferior goods) • Distribution of income • Expectations of future prices
Change in Demand
- A change in any other factor apart from the price of the goods will lead to a change in demand, shifting the entire demand curve.
Consequences of a Binding Price Ceiling
- A permanent shortage becomes inevitable, leading to: • Queuing and waiting • Discrimination by sellers • Rationing • Black or underground market • Worsening scarcity of commodities
Setting a Maximum Price (or Price Floor)
- A price floor is the minimum price legally enforced by the government to: • Prevent prices of certain commodities from falling below a certain level • Safeguard the economic interests or incomes of producers • Create a surplus (e.g., grains, corn, or wheat) for possible future shortages
Change in Quantity Supplied
- Reflected by a movement along the same supply curve.
Change in Supply
- Reflected by a shift in the entire supply curve.
Market Equilibrium
- The decisions of buyers and sellers interact to determine the equilibrium price and quantity.
- At the equilibrium level, quantity demanded equals quantity supplied.
Market Disequilibrium
- Shortages or surpluses appear in a market, and prices function as allocative mechanisms.
A Change in Demand
- An increase in demand shifts the demand curve rightward, creating a market shortage, pushing up the price, and increasing quantity supplied.
A Change in Both Demand and Supply
- A simultaneous increase in both demand and supply shifts both curves rightward, making the impact on equilibrium price and quantity ambiguous, depending on the relative magnitude of the change in demand and supply.
This quiz covers the concept of demand curve, focusing on how a change in price affects the quantity demanded. It explains the movement along the demand curve and the resulting change in quantity demanded.
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