( Week 2 ) Economics Chapter: Demand and Supply Curves

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Questions and Answers

What is the effect of a price increase on the quantity demanded of a product, assuming all else is equal?

Quantity demanded will increase.

Quantity demanded will remain the same.

Quantity demanded will decrease. (correct)

Quantity demanded will become unpredictable.

The substitution effect explains why consumers will always buy more of a cheaper product regardless of income changes.

False

What does 'ceteris paribus' mean in economic analysis?

All else being equal.

A good for which demand increases as income rises is called a __________ good.

normal Signup and view all the answers

Match the demand-related terms with their definitions:

Quantity demanded = The amount consumers are willing to buy at a given price Demand schedule = A table showing price-quantity demanded relationship Demand curve = A graphical representation of demand Market demand = Total demand from all consumers for a good or service Signup and view all the answers

Which of the following variables does NOT affect market demand?

Weather conditions Signup and view all the answers

A shift in the demand curve indicates a change in the quantity demanded at every price.

True Signup and view all the answers

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

It decreases. Signup and view all the answers

The __________ effect describes how a change in price impacts consumer purchasing power.

income Signup and view all the answers

What is market equilibrium?

The point where demand equals supply. Signup and view all the answers

What is an inferior good?

A good for which demand increases as income falls. Signup and view all the answers

Substitutes are goods that can be used together.

False Signup and view all the answers

What effect does an increase in population generally have on the demand for goods and services?

Increase in demand Signup and view all the answers

A _______ cost is a cost that has already been paid and cannot be recovered.

sunk Signup and view all the answers

Match the following concepts with their definitions:

Opportunity cost = The highest-valued alternative given up for an activity Endowment effect = The unwillingness to sell owned goods at a higher price Behavioral economics = Study of irrational economic behaviors Supply schedule = Table showing price and quantity supplied relationship Signup and view all the answers

Which of these factors does NOT shift the supply curve?

Consumer preferences Signup and view all the answers

An increase in the price of a product will lead to a decrease in the quantity supplied according to the law of supply.

False Signup and view all the answers

What happens to market equilibrium when supply increases?

Price decreases Signup and view all the answers

Consumers are often __________ about their future behavior, leading to poor decision-making.

overly optimistic Signup and view all the answers

Which of these statements best describes complements?

Goods that have a direct relationship in demand. Signup and view all the answers

Study Notes

Demand and Supply Curves

Movement vs. Shift: Movement along curves occurs with price changes, while shifts indicate changes in demand/supply for reasons other than price.
Law of Demand: As price decreases, quantity demanded increases; as price increases, quantity demanded decreases, assuming ceteris paribus (all else constant).

Demand

Quantity Demanded: Amount consumers are willing to buy at a specific price.
Demand Schedule: A table correlating product price to quantity demanded.
Demand Curve: Graphical representation of price vs. quantity demanded.

Factors Shifting Demand

Income:
- Normal goods: Demand increases with income.
- Inferior goods: Demand increases as income falls.
Prices of Related Goods:
- Substitutes: Alternative goods that can replace one another.
- Complements: Products used together increase demand for each other.
Tastes and Preferences: Influenced by trends, seasons, and individual consumer preferences.
Population and Demographics: Demand typically rises with population growth. Changes in demographics impact specific market needs.
Expected Future Prices: Anticipation of price changes can prompt increased present purchases if prices are expected to rise.

Supply

Quantity Supplied: Amount that firms are willing to supply at a specific price.
Supply Schedule: Table showing the relationship between price and quantity supplied.
Supply Curve: Graphical depiction of price versus quantity supplied.

Factors Shifting Supply

Prices of Inputs: Costs related to production inputs influence supply.
Technological Change: Advances can increase supply efficiency.
Prices of Substitutes in Production: Changes can divert resources to more profitable goods.
Number of Firms: More firms generally increase total market supply.
Expected Future Prices: Anticipating changes can alter present supply strategies.

Market Equilibrium

Equilibrium occurs where quantity demanded equals quantity supplied.
Surpluses: Occur when supply exceeds demand, leading to downward pressure on prices.
Shortages: Occur when demand exceeds supply, leading to upward pressure on prices.
Supply Increase Impact: Leads to lower market prices and higher equilibrium quantity.
Demand Increase Impact: Results in higher market prices and increased equilibrium quantity.

Behavioral Economics

Focuses on choices that defy rational economic behavior.
Common consumer mistakes include not accounting for non-monetary opportunity costs and being overly optimistic about future actions.

Opportunity Costs

Opportunity Cost: The cost of the next best alternative forgone when a decision is made.
Endowment Effect: Consumers’ reluctance to sell owned items even when presented a higher selling price than their buying price.

Production Possibility Frontier (PPF)

Visual tool to demonstrate resource efficiency and the trade-offs in production.
Points inside the curve indicate inefficiency, while points on the curve represent efficient resource usage.
Scarcity: Limited resources must meet unlimited wants.
Absolute Advantage vs. Comparative Advantage: Absolute focuses on productivity measures; comparative based on lower opportunity costs.

Currency Impact on Production

A weaker currency generally enhances production competitiveness, while a stronger currency can reduce production efficiency.

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Description

Test your understanding of demand and supply curves with this quiz. Explore key concepts such as movements versus shifts, the law of demand, and factors that influence demand. Perfect for students looking to consolidate their economic knowledge.