Demand Curve Shift

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Questions and Answers

What happens to the quantity demanded when the price rises, assuming all other factors remain constant?

It remains the same

It decreases (correct)

It becomes zero

It increases

What is a change in demand caused by?

A change in any other factor apart from the price of the goods (correct)

A change in the price of the goods

A change in the quantity of goods

A change in the supply of goods

What type of goods will see an increase in demand when income increases?

Inferior goods

Substitutes

Complements

Normal goods (correct)

What is the term for goods that can be used in place of each other?

Substitutes (C) Signup and view all the answers

What is the result of a change in any factor apart from the price of the goods?

A shift of the demand curve (C) Signup and view all the answers

What is an example of a factor that can influence the quantity of goods consumers plan to purchase?

The distribution of income (B) Signup and view all the answers

What is the consequence of a binding price ceiling?

Shortage (C) Signup and view all the answers

What is the purpose of setting a price floor?

To prevent prices from falling (A) Signup and view all the answers

What happens to production when a binding price ceiling is set?

Production decreases (A) Signup and view all the answers

What is an unintended consequence of a binding price ceiling?

Discrimination by sellers (C) Signup and view all the answers

What is the result of a binding price floor?

Surplus (B) Signup and view all the answers

Why does a binding price ceiling lead to a permanent shortage?

Because the price is below the equilibrium level (D) Signup and view all the answers

What is another term for a price ceiling?

Maximum price (C) Signup and view all the answers

What is an example of a commodity that may have a price floor?

Grains (C) Signup and view all the answers

What is the direction of the movement from point A to B on the supply curve?

Upward and to the right (A) Signup and view all the answers

What is the reason for a shift in the supply curve from S1 to S3?

A change in the profitability of alternative products (A) Signup and view all the answers

What is the condition for market equilibrium?

Quantity demanded equals quantity supplied (C) Signup and view all the answers

What is the role of prices in a market with shortages or surpluses?

They function as allocative mechanisms (A) Signup and view all the answers

What is the effect of an increase in the price of a good from P1 to P2?

An increase in quantity supplied (B) Signup and view all the answers

What is the name of the point where the supply curve intersects the demand curve?

Market equilibrium (A) Signup and view all the answers

What is the reason for a change in the quantity supplied from Q1 to Q2?

A change in the price of the goods (C) Signup and view all the answers

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 (C) Signup and view all the answers

What happens when there is a simultaneous increase in both demand and supply?

The impact on equilibrium price and quantity is ambiguous (D) Signup and view all the answers

What is the effect of an increase in demand on equilibrium price and quantity?

Price increases, quantity increases (B) Signup and view all the answers

What is the effect of an increase in supply on equilibrium price and quantity?

Price decreases, quantity increases (A) Signup and view all the answers

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 (D) Signup and view all the answers

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 (C) Signup and view all the answers

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 (B) Signup and view all the answers

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 (A) Signup and view all the answers

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 (D) Signup and view all the answers

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 (A) Signup and view all the answers

What happens to the demand curve when there is an increase in demand?

It shifts rightward (D) Signup and view all the answers

What is the result of a shortage in the market?

The price rises (B) Signup and view all the answers

What happens to the quantity supplied when the price rises, assuming all other factors remain constant?

It increases (D) Signup and view all the answers

What is the role of prices in the adjustment process?

To act as a rationing mechanism (A) Signup and view all the answers

What is the outcome of the adjustment process in the market?

Market equilibrium (D) Signup and view all the answers

What happens to the quantity demanded when the price rises, assuming there is an increase in demand?

It decreases (A) Signup and view all the answers

What is the relationship between the price and quantity supplied, assuming all other factors remain constant?

Direct (D) Signup and view all the answers

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.

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Description

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.