Ebook Chapter 3 - Demand and Supply Analysis

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Questions and Answers

What happens to the demand for a normal good when income increases?

Demand decreases.

Demand becomes inelastic.

Demand remains unchanged.

Demand increases. (correct)

How does an increase in population affect the demand for goods?

It causes demand to become more elastic.

It decreases demand due to increased competition.

It can increase demand as more buyers enter the market. (correct)

It has no effect on demand.

What is the effect on demand for inferior goods when consumers' incomes rise?

Demand becomes unpredictable.

Demand decreases. (correct)

Demand increases significantly.

Demand remains stable.

If buyers expect future prices to increase, what is likely to happen to their demand today?

Demand will increase today. Signup and view all the answers

What effect do consumer preferences have on the demand curve for a product?

Preferences can shift the demand curve rightward if they favor the product. Signup and view all the answers

Which factor would most likely lead to a decrease in the number of buyers in a market?

High death rates. Signup and view all the answers

How do expectations of future income changes affect current consumption?

Higher future income may lead to increased current consumption. Signup and view all the answers

Which statement accurately describes the concept of inferior goods?

Demand for inferior goods decreases as income rises. Signup and view all the answers

What effect does a decrease in the price of a complementary good have on the demand for its pair?

It increases the demand for the paired good. Signup and view all the answers

Which statement correctly describes normal goods?

Demand increases as income increases. Signup and view all the answers

How does an increase in the number of buyers generally affect market demand?

Market demand increases. Signup and view all the answers

What is the impact of buyer expectations about future prices on current demand?

It decreases current demand if prices are expected to rise. Signup and view all the answers

Which of the following would most likely be considered a complementary good?

Tennis rackets and tennis balls. Signup and view all the answers

How does consumer income affect the demand for inferior goods?

Demand increases as income decreases. Signup and view all the answers

Which option best describes the effect of advertising on demand?

It can shift the demand curve to the right. Signup and view all the answers

If the price of one substitute good rises, what is likely to happen to the demand for its substitute?

Demand for substitutes will increase. Signup and view all the answers

What happens to the demand for a complementary good when the price of its related good increases?

Demand for the complementary good decreases Signup and view all the answers

Which of the following is an example of an inferior good?

Public transportation Signup and view all the answers

If consumer incomes increase, how would the demand for normal goods typically respond?

Increase Signup and view all the answers

How does an increase in the number of buyers in a market affect demand?

Demand increases as there are more consumers Signup and view all the answers

Buyer expectations regarding future prices can influence current demand in which way?

Increase if prices are expected to rise Signup and view all the answers

Demographics can influence demand by affecting what types of products consumers are likely to purchase. Which demographic factor would most directly impact the demand for children's toys?

The age distribution of the population Signup and view all the answers

What effect do changes in consumer preferences typically have on demand?

Increase demand for products that are favored Signup and view all the answers

Which of the following scenarios is likely to lead to a decrease in the demand for a normal good?

A decrease in consumer income Signup and view all the answers

Study Notes

Chapter 2 (Ebook Chapter 3) - Demand and Supply Analysis

This chapter analyzes demand and supply.
Learning outcomes include the law of demand and its curve, determinants of demand, changes in demand vs. changes in quantity demanded.
Learning outcomes include the law of supply and its curve, determinants of supply, and changes in supply vs. changes in quantity supplied.

Definition of Demand (p51)

Demand refers to the buyer's willingness and ability to purchase a specific quantity of a good at various prices during a specific time period.

Law of Demand (P ↓ Q↑)

As the price of a good rises, the quantity demanded falls (ceteris paribus).
Price and quantity demanded are inversely related.
The demand curve slopes downwards due to the inverse relationship.

Demand Schedule

A table showing the relationship between price and quantity demanded by a consumer, ceteris paribus.
Example data for price (RM) and quantity demanded is provided in the schedule.

Demand Curve

A graphical representation of the demand schedule.
The curve visually shows how price and quantity demanded relate.
The curve slopes downwards, reflecting the inverse relationship.

The Individual Demand Curve

Shows the relationship between price and the quantity demanded by a single consumer.
The curve slopes downward.

Market Demand

The sum of the quantities demanded by all consumers in a market at each price.
Calculated by adding the individual demand curves of all buyers.

Determinants of Demand (p51)

Price of related goods: Substitute and complementary goods.
Consumer income: Normal goods and inferior goods.
Number of buyers/population: Size, demographics.
Expectation about future prices.
Tastes and preferences: Shifts in demand curve.
Advertising: Influence on consumer behavior.
Level of taxation: Effects on demand.

Substitute goods: If the price of one good increases, the demand for the substitute good increases (Corn chips and Potato Chips).
Complementary goods: If the price of one good increases, the demand for the complementary good decreases (Tennis racket and tennis ball).

Consumer Income

Normal goods: Demand increases with increased income (e.g., bags, clothes).
Inferior goods: Demand decreases with increased income (e.g., second-hand items).

Number of Buyers and Population

The more buyers, the higher the demand.
Affected by factors like birth rate, immigration, and death rate.

Buyer Expectations

Future income: If people expect income to rise, they may increase their spending today leading to an increase in demand.
Future prices: If prices expected to fall in the future, their purchases today may be delayed leading to decrease in demand.

Changes in Quantity Demanded

Movement along a demand curve.
Caused by a change in price.

Changes in Demand

The whole demand curve shifts.
Caused by factors other than price (example shifts in the demand curve are given).

Definition of Supply (p52)

The amount of a specific good or service that a firm is willing and able to sell at various prices during a specific period, ceteris paribus.

Law of Supply (P ↑ Q↑)

As prices increase, the quantity supplied also increases, ceteris paribus
This positive relationship exists between price and supply
The supply curve slopes upwards.

Supply Schedule

A table showing the supply of eggs at different prices.

Supply Curve

A graphical representation of the supply schedule.

Individual Supply vs Market Supply

Individual supply: relationship between price and quantity supplied by a single seller.
Market supply: sum of the quantities supplied by all sellers in the market at each price.

Determinants of Supply (p52)

Price of related goods: Substitute and complementary goods.
Cost of production: Factors like input costs (materials, labor).
Number of suppliers/sellers: Increase in suppliers will increase total output.
Technological change: Advancements will increase output; innovations = increase in supply.
Government policies (taxes/subsidies): Taxes decrease supply. Subsidies increase supply.
Expected future price.

Substitute goods: Producers might switch to producing the substitute good with higher prices (Mutton/Cattle examples).
Complementary goods: Increase in demand for one good will increase the demand for its related good/complement.

Change in Cost of Production

Higher production costs decrease supply.
Supply curve shifts left

Number of Suppliers

More suppliers lead to an increase in supply, and vice versa.
An increase in the number of producers = increase in total output

Technological Change

Advancements/improvements in technology increase/increase supply

Change in Government Policy

Taxes decrease supply
Subsidies increase supply.

Change in Quantity Supplied vs Change in Supply

Change in quantity supplied: movement along a supply curve in response to change in price.
Change in supply: a shift of the entire supply curve due to changes in other factors besides price (e.g., technology, costs, government policies).

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Description

This quiz covers Chapter 2 of the ebook, focusing on demand and supply analysis. Key concepts include the law of demand, determinators of demand, and the relationship between price and quantity demanded. Additionally, it explores the law of supply and its determinants.