Economics Chapter on Market Structures
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Questions and Answers

How does a higher price influence the quantity supplied according to the law of supply?

  • It decreases the quantity supplied.
  • It increases the quantity supplied. (correct)
  • It eliminates the quantity supplied.
  • It does not affect the quantity supplied.

    • What effect do higher input prices have on the supply of a product?

  • They decrease supply. (correct)
  • They increase supply.
  • They maintain supply.
  • They have no effect on supply.

    • Which of the following factors is not a reason that can shift the supply curve?

  • Expectations of future prices
  • Price of a good (correct)
  • Technology advancements
  • Input prices

    • In market supply, how is the overall supply determined?

    <p>By adding the individual supplies together.</p> Signup and view all the answers

    What is the relationship between expectations of future price increases and current supply?

    <p>It may lead to a decrease in current supply.</p> Signup and view all the answers

    Which of these statements describes a supply schedule?

    <p>A table showing the quantity supplied at different prices.</p> Signup and view all the answers

    How is the market supply curve derived?

    <p>By adding individual supply curves horizontally.</p> Signup and view all the answers

    What happens to production at very low prices according to supply theory?

    <p>Production typically stops.</p> Signup and view all the answers

    What best describes a monopoly market structure?

    <p>A market with a single seller controlling supply and prices.</p> Signup and view all the answers

    How does an increase in the price of a normal good typically affect its quantity demanded?

    <p>Quantity demanded decreases.</p> Signup and view all the answers

    What effect does a decrease in input prices have on the supply curve?

    <p>It shifts the supply curve to the right.</p> Signup and view all the answers

    What happens to the equilibrium price when there is a surplus in the market?

    <p>It decreases as suppliers lower prices.</p> Signup and view all the answers

    Which of the following defines an inferior good?

    <p>A good for which demand increases when income decreases.</p> Signup and view all the answers

    Which of the following statements about movements along the supply curve is true?

    <p>They happen when there is a change in price only.</p> Signup and view all the answers

    If both supply and demand curves shift to the right, what can be expected?

    <p>The equilibrium price may increase or decrease.</p> Signup and view all the answers

    In a situation where quantity demanded is greater than quantity supplied, this is referred to as what?

    <p>Shortage</p> Signup and view all the answers

    In the context of substitute goods, what occurs when the price of one good rises?

    <p>The demand for the substitute good increases.</p> Signup and view all the answers

    What happens to the quantity demanded if the price of a complementary good rises?

    <p>Quantity demanded of the complementary good decreases.</p> Signup and view all the answers

    What does the intersection point of the supply and demand curves represent?

    <p>The equilibrium price and quantity.</p> Signup and view all the answers

    What characterizes a perfectly competitive market?

    <p>There are many buyers and sellers, none of whom can influence the price.</p> Signup and view all the answers

    What is the likely effect of a decrease in income on the quantity demanded of inferior goods?

    <p>Quantity demanded increases.</p> Signup and view all the answers

    Which factor is NOT a determinant of demand for a product?

    <p>Cost of production.</p> Signup and view all the answers

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

    <p>Changes in consumer preferences</p> Signup and view all the answers

    What is the result of an increase in price for a good in terms of supply?

    <p>It leads to a rightward movement along the supply curve.</p> Signup and view all the answers

    Study Notes

    Market

    • A market is a group of buyers and sellers interacting with the potential to trade
    • Market types
      • Perfectly competitive markets: buyers and sellers take market price as given
      • Imperfectly competitive markets: individual buyers or sellers influence the price

    Competitors in Market

    • Perfectly Competitive Market:
      • Multiple buyers & sellers, each having a small market share
      • Homogeneous products
      • Free entry and exit from the market
      • Perfect information
    • Imperfectly Competitive Market:
      • Limited number of sellers and/or buyers
      • Differentiated products
      • Barriers to entry and exit
      • Imperfect information
      • Examples: Monopoly, Oligopoly, Monopolistic competition

    Types of Markets

    • Monopoly: One seller controls the entire supply and sets the price
    • Oligopoly: Few sellers, who may avoid aggressive competition to maintain high prices
    • Monopolistic Competition: Many sellers offer similar but differentiated products

    Demand

    • Represents a consumer's desire to purchase goods and services and their willingness to pay a specific price.

    Quantity Demanded

    • The amount of a good buyers are willing and able to purchase

    Factors that Determine Individual Demand

    • Price: Higher price, lower quantity demanded; Lower price, higher quantity demanded.
    • Income: Lower income, lower demand; Higher income, higher demand.
      • Normal Good: Demand increases with an increase in income
      • Inferior Good: Demand decreases with an increase in income
    • Price of Related Goods:
      • Substitute Goods: Increase in price of one leads to an increase in demand for the other
      • Complement Goods: Increase in price of one leads to a decrease in demand for the other
    • Taste: Individual preferences and trends influence demand

    Law of Demand

    • Quantity demanded falls when price rises, and vice-versa (other things equal).

    Shifts in the Demand Curve

    • Factors Shifting Demand Curve to the Right (Increase in Demand):
      • Increase in consumer income (for normal goods)
      • Decrease in the price of a substitute good
      • Decrease in the price of a complementary good
      • Favorable change in consumer taste
      • Expectations of future price increases
    • Factors Shifting Demand Curve to the Left (Decrease in Demand):
      • Decrease in consumer income (for normal goods)
      • Increase in the price of a substitute good
      • Increase in the price of a complementary good
      • Unfavorable change in consumer taste
      • Expectations of future price decreases

    Demand Schedule and Demand Curve

    • Demand Schedule: Table showing relationship between price and quantity demanded
    • Demand Curve: Graph showing relationship between price and quantity demanded

    Market Demand vs. Individual Demand

    • Market Demand: Sum of individual demands for a good at various prices.
    • Individual Demand: Specific demand of one consumer for a good at different prices.

    Supply

    • Represents the amount of a good that sellers are willing and able to sell.

    Quantity Supplied

    • The amount of a good sellers are willing and able to sell at a specific price.

    Factors that Determine Individual Supply

    • Price: Higher price, higher quantity supplied; Lower price, lower quantity supplied
    • Input Prices: Higher input prices, lower supply; Lower input prices, higher supply
    • Technology: Advancements in technology lower production costs and increase supply
    • Expectations: Expectations of future price increases lead to reduced current supply

    Law of Supply

    • Quantity supplied rises when price rises, and vice-versa (other things equal).

    The Supply Schedule and Supply Curve

    • Supply Schedule: Table showing the relationship between price and quantity supplied.
    • Supply Curve: Graph showing the relationship between price and quantity supplied.

    Market Supply vs. Individual Supply

    • Market Supply: Sum of individual supplies of all sellers in a market.
    • Individual Supply: Specific supply of one seller for a good at various prices.

    Shifts in the Supply Curve

    • Factors Shifting the Supply Curve to the Right (Increase in Supply):
      • Decrease in input prices
      • Technological advancement
      • Favorable weather conditions (for agricultural products)
      • Expectations of future price decreases
    • Factors Shifting the Supply Curve to the Left (Decrease in Supply):
      • Increase in input prices
      • Technological setbacks
      • Unfavorable weather conditions (for agricultural products)
      • Expectations of future price increases

    Putting Supply and Demand Together

    • Market equilibrium is where supply and demand curves intersect
    • Equilibrium price: Price that balances supply and demand
    • Equilibrium quantity: Quantity supplied and demanded at the equilibrium price

    Equilibrium on a Graph

    • Surplus: Quantity supplied exceeds quantity demanded
    • Shortage: Quantity demanded exceeds quantity supplied

    Law of Supply and Demand

    • Price adjusts to bring quantity supplied and demanded into balance

    Analyzing Changes in Equilibrium

    1. Identify whether the event shifts supply, demand, or both curves.
    2. Determine which direction the curve shifts (left or right).
    3. Use the supply-demand diagram to analyze the resulting changes in equilibrium price and quantity.

    Expectations

    • Expectations about future prices can influence current demand and supply decisions.

    Demand Schedule and Demand Curve

    • Demand schedule and demand curve visualize the relationship between price and quantity demanded.

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    Chapter 4-B46 - The Market Forces of Supply and Demand PDF

    Description

    This quiz explores the different types of market structures, including perfectly competitive and imperfectly competitive markets. Test your understanding of key concepts such as monopoly, oligopoly, and monopolistic competition. Perfect for students studying economics at various levels.

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