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Questions and Answers
What do the terms supply and demand refer to?
The behavior of people as they interact with one another in competitive markets.
A competitive market is one in which there are many buyers and sellers, so that each has a negligible impact on the market price.
True
What is the law of demand?
The quantity demanded of a good falls when the price of the good rises.
What is a demand schedule?
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What happens to the demand for normal goods as income increases?
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What is an example of an inferior good?
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When a fall in the price of one good reduces the demand for another good, what are the two goods called?
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Which of the following is true about complements?
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What might affect demand based on consumer preferences?
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Study Notes
Markets and Competition
- A market is a group of buyers and sellers of a particular good or service
- A competitive market has many buyers and sellers, so that each has a negligible impact on the market price
Demand
- The desire, ability, and willingness to buy a product or service
- The quantity demanded of any good is the amount that buyers are willing and able to purchase at a certain price
Law of Demand
- The quantity demanded of a good falls when the price of the good rises
- This is an inverse relationship between price and quantity demanded
- Demand is represented by a demand schedule, a table that shows the relationship between the price of the good and the quantity demanded
- The demand curve graphically represents the relationship between the price of a good and the quantity demanded
Changes in Demand
- Many variables affect demand
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Income
- Normal good - As income increases, demand for a normal good increases
- Inferior good - As income increases, demand for an inferior good decreases
- Bus rides are an example of an inferior good
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Prices of related goods
- Substitutes are often pairs of goods used in place of each other (hot dogs and hamburgers, tea and coffee, sweaters and sweatshirts, and movie tickets and DVD rentals)
- A fall in the price of one good reduces the demand for another good
- Complements are often pairs of goods used together (cars and fuel, computers and software, and peanut butter and jelly)
- A fall in the price of one good raises the demand for another good
- Substitutes are often pairs of goods used in place of each other (hot dogs and hamburgers, tea and coffee, sweaters and sweatshirts, and movie tickets and DVD rentals)
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Tastes
- Tastes are based on historical preferences
- Economists normally do not try to explain people's tastes
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Expectations
- Expectations about future prices or income can impact current demand
- If you expect the price of a good to rise in the future, you may buy more of it now
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Population
- A larger population generally leads to a higher demand for goods and services
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Other Factors
- Factors like weather, advertising, and government policies can also impact demand
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Description
This quiz explores the fundamental concepts of markets and competition, detailing how demand functions and the law of demand. It examines the factors influencing demand and the relationship between price and quantity demanded in various scenarios.
