Economics Chapter: Demand and Supply Factors

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Questions and Answers

What defines the Giffen goods phenomenon?

Demand fluctuates with changes in consumer income.

Demand remains unchanged regardless of price.

Demand decreases as the price increases.

Demand increases as the price increases. (correct)

In which situation does the law of demand become ineffective?

During emergencies or calamities. (correct)

When the price of goods is constant.

When there are no substitutes available.

When consumers have stable preferences.

What effect do changes in fashion have on the law of demand?

They can lead to higher demand for trendy goods, regardless of price. (correct)

They dictate that lower prices automatically boost demand.

They consistently decrease the demand for all types of goods.

They always increase the demand for lower-priced items.

What happens when there is a change in price in terms of the demand curve?

It leads to movement along the demand curve. Signup and view all the answers

What is one factor that does NOT cause a shift in demand?

Change in the price of the good itself. Signup and view all the answers

Which situation illustrates the price expectations affecting current demand?

Consumers believe prices will rise in the future. Signup and view all the answers

Which option is a characteristic of shifts in demand?

They are influenced by non-price factors. Signup and view all the answers

Which of the following statements about the Veblen effect is true?

It leads to higher consumption of goods deemed more prestigious. Signup and view all the answers

What causes the demand curve to shift outward?

Favourable changes in non-price factors Signup and view all the answers

Which of the following would NOT cause a decrease in demand?

Increase in population Signup and view all the answers

What outcome occurs when the demand curve shifts inward?

Decrease in demand at the same price Signup and view all the answers

Which of the following factors can lead to an increase in supply?

Advance in technology Signup and view all the answers

Which scenario would most likely lead to a decrease in market supply?

Increase in wages for workers Signup and view all the answers

What represents a shift from the demand curve D to D1?

Increase in consumer preferences for the product Signup and view all the answers

If a supply curve shifts rightward, it indicates which of the following?

Increase in the quantity supplied at every price Signup and view all the answers

Which market condition would likely lead to an inward shift of the demand curve?

Negative change in consumer tastes towards the product Signup and view all the answers

What happens to the quantity supplied when the price decreases?

The quantity supplied decreases. Signup and view all the answers

Which of the following best describes a shift in supply due to non-price factors?

Changes in technology can shift the supply curve. Signup and view all the answers

How is the supply curve represented graphically?

Upward sloping from left to right. Signup and view all the answers

What term describes the increase in quantity supplied due to a rise in price?

Expansion in supply. Signup and view all the answers

What does an outward shift of the supply curve indicate?

Increase in supply. Signup and view all the answers

What characterizes a market in economic terms?

A mechanism for buyers and sellers to interact. Signup and view all the answers

What effect does an increase in the price of labor have on the supply of a product?

The supply of the product will decline due to higher labor costs. Signup and view all the answers

What is termed as a decrease in quantity supplied when the price declines?

Contraction in supply. Signup and view all the answers

How does a change in technology typically affect market supply?

It increases the quantity supplied by lowering production costs. Signup and view all the answers

Which factor does NOT typically cause a shift in the supply curve?

Changes in consumer preferences. Signup and view all the answers

What occurs to the supply of a good when the price of a substitute good increases?

The supply of the original good decreases. Signup and view all the answers

What is one effect of an increase in the number of firms within an industry?

It likely increases the quantity supplied at given prices. Signup and view all the answers

How do taxes or subsidies influence market supply?

Decreased taxes or increased subsidies typically allow for higher supply. Signup and view all the answers

What is a goal of a business firm that can influence market supply?

Profit maximization or sales maximization. Signup and view all the answers

Which factor does not typically influence the market supply of a commodity?

Weather conditions. Signup and view all the answers

What happens to the quantity supplied when firms face increased production costs?

The quantity supplied will decrease because higher costs make production less attractive. Signup and view all the answers

What characterizes a market in equilibrium?

Market demand equals market supply. Signup and view all the answers

What reflects the equilibrium price in a market?

The price where the quantity demanded equals quantity supplied. Signup and view all the answers

What happens at a price above the equilibrium price?

Excess supply occurs. Signup and view all the answers

What effect does excess demand have on market prices?

Prices increase, leading sellers to supply more. Signup and view all the answers

How does a change in consumer income typically affect the demand curve?

It shifts the demand curve leftward if income decreases. Signup and view all the answers

What causes a supply curve to shift?

Alterations in technology or factor prices. Signup and view all the answers

What is indicated by the intersection of the demand curve and supply curve?

Market equilibrium. Signup and view all the answers

Which of the following statements is true regarding the role of market prices?

Market prices provide signals to both consumers and producers. Signup and view all the answers

Study Notes

Factors Affecting Demand Changes

Changes in non-price factors influence shifts in demand.
These factors include income, population, government policies, tastes, preferences, habits, and fashion.
Favorable changes in these factors shift the demand curve outward, leading to an increase in demand.
Unfavorable changes in these factors shift the demand curve inward, leading to a decrease in demand.

Factors Affecting Supply Changes

Costs of production, government policies, and technology influence shifts in supply.
Favorable changes in these factors shift the supply curve outward, leading to an increase in supply.
Unfavorable changes in these factors shift the supply curve inward, leading to a decrease in supply.

The Market

The market acts as a mechanism for buyers and sellers to interact.
The market doesn't always need to be a physical space.
Online shopping is an example of a virtual market.
The market for a particular commodity is composed of all buyers and sellers.

Market Equilibrium

Equilibrium occurs when market demand equals market supply.
This point is characterized by the equilibrium price and equilibrium quantity.

Equilibrium Price

The price at which demand and supply are balanced is known as the Equilibrium Price.
This price remains stable until changes in factors affecting demand and supply occur.

Equilibrium Quantity

Equilibrium quantity represents the amount bought and sold at the equilibrium price.

Excess Demand and Supply

When the price is above the equilibrium price, there is excess supply.
When the price is below the equilibrium price, there is excess demand.
Market prices play a crucial role in achieving market equilibrium.
Excess demand encourages higher supply and lower demand.
Excess supply encourages lower supply and higher demand.

Change in Demand and Supply

Shifts in demand and supply curves occur due to changes in non-price factors.
An individual's demand curve shifts based on changes in income, prices of other commodities, and preferences.
The market demand curve shifts correspondingly.
The supply curve shifts due to changes in technology and prices of factors of production.

Supply Curve

The supply curve describes the relationship between price and quantity supplied.
It is upward sloping, meaning that as price increases, quantity supplied increases.

Movement along the Demand/Supply Curve

Changes in price cause a movement along the demand/supply curve, affecting quantity demanded/supplied, but not demand/supply itself.
Increasing prices lead to expansion in supply or contraction in demand, while decreasing prices lead to contraction in supply or expansion in demand.

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Description

Explore the vital factors that influence demand and supply in this quiz. Learn how changes in income, government policies, and technology can shift demand and supply curves, impacting market dynamics. Test your understanding of market mechanisms and their implications.