Economics Chapter on Supply and Demand

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Questions and Answers

What is the relationship between the price of a product and the quantity supplied?

The price of a product and the quantity supplied are positively related. (correct)

The price of a product and the quantity supplied are unrelated.

The price of a product and the quantity supplied are negatively related.

The relationship between the price of a product and the quantity supplied depends on the type of product.

What does a rightward shift in the demand curve indicate?

A decrease in demand

An increase in demand (correct)

An increase in quantity demanded

A decrease in quantity demanded

What is the difference between a change in demand and a change in quantity demanded?

There is no difference between a change in demand and a change in quantity demanded.

A change in demand is a movement along the demand curve, while a change in quantity demanded is a shift of the entire demand curve.

A change in demand is a change in the price, while a change in quantity demanded is a change in the quantity.

A change in demand is a shift of the entire demand curve, while a change in quantity demanded is a movement along the demand curve. (correct)

Which of the following would NOT cause a shift in the supply curve?

A change in the price of the product (B) Signup and view all the answers

What does quantity supplied refer to?

The amount of a product that firms desire to sell in a given time period. (C) Signup and view all the answers

What is the difference between a change in supply and a change in quantity supplied?

A change in supply is a shift of the entire supply curve, while a change in quantity supplied is a movement from one point on a supply curve to another point. (D) Signup and view all the answers

What is the ceteris paribus assumption used in the relationship between quantity supplied and price?

All other factors that could affect supply are held constant. (A) Signup and view all the answers

What is the effect of an increase in supply on the equilibrium price and quantity?

Decreased equilibrium price and increased equilibrium quantity (D) Signup and view all the answers

What is the main reason why the quantity supplied of a product is positively related to its price?

Producers can make more profit when the price of a product is higher. (B) Signup and view all the answers

What is the main characteristic of a perfectly competitive market?

Buyers and sellers are price takers (A) Signup and view all the answers

What does the term 'excess demand' mean in the context of market equilibrium?

The quantity demanded exceeds the quantity supplied (C) Signup and view all the answers

How do governments respond to a sudden decline in income during an economic crisis?

Increase government spending financed by borrowing (C) Signup and view all the answers

What is the effect of a decrease in demand on the equilibrium price and quantity?

Decreased equilibrium price and decreased equilibrium quantity (C) Signup and view all the answers

What is the difference between absolute price and relative price?

Absolute price is the price of a product in terms of money, while relative price is the price of a product in terms of another product (C) Signup and view all the answers

What is the impact of lockdowns on market equilibrium during a pandemic?

Lockdowns cause demand for some goods to decrease while demand for others increases (B) Signup and view all the answers

What is the relationship between demand and supply curves and relative prices?

Demand and supply curves are drawn in terms of relative prices, not absolute prices (D) Signup and view all the answers

What is the relationship between the quantity demanded of a product and its price, according to the basic hypothesis discussed in the text?

They are negatively related. (B) Signup and view all the answers

Which of the following factors can cause a shift in the demand curve for a product?

A change in consumer income. (D) Signup and view all the answers

Why is the quantity demanded of a product considered a flow, not a stock?

Because the quantity demanded represents purchases over a specific time period. (D) Signup and view all the answers

Assume the price of a product decreases. What happens to the quantity demanded according to the basic hypothesis discussed in the text?

It increases. (D) Signup and view all the answers

Which of the following scenarios would NOT cause a shift in the demand curve for a product?

A reduction in the price of the product. (B) Signup and view all the answers

What does "ceteris paribus" mean in the context of the basic hypothesis about price and quantity demanded?

That all other factors affecting demand are held constant. (B) Signup and view all the answers

Suppose there is an increase in consumer income. How would this affect the demand curve for a normal good?

The demand curve would shift to the right. (B) Signup and view all the answers

What is the relationship between the actual purchases of a product and the quantity demanded?

Actual purchases may be less than or equal to the quantity demanded. (A) Signup and view all the answers

Study Notes

Chapter 3: Demand, Supply, and Price

This chapter examines the forces that determine market prices.
It describes how quantity demanded and supplied are related to price, and how changes in these variables affect equilibrium price.
Quantity demanded refers to the total amount of a good that consumers wish to purchase during a particular time period. It's a flow, distinct from the stock (amount available).
Quantity bought (or exchanged) represents actual purchases.
Quantity demanded is inversely related to price (ceteris paribus). Several products can often fulfill the same need, so a lower price for one product encourages its greater consumption.
Factors that influence quantity demanded beyond price include consumer income, prices of other goods, consumer preferences, population, and significant changes in weather.
A change in any of these factors (apart from price) causes a shift in the demand curve. A shift is distinct from a movement along the curve, which involves responding to a price change. A shift in the curve represents a change in quantity demanded at every price.
Quantity supplied represents the total amount of a product that firms wish to sell during a period. It's also a flow, differentiated from the amount available. Quantity supplied is positively related to price (ceteris paribus). Producers seek profit, so higher prices encourage more supply.
Factors that influence quantity supplied beyond price include technology, government taxes/subsidies, prices of other products, significant weather changes, and the number of suppliers.
A change in any of these factors (apart from price) causes a shift in the supply curve. A shift is distinct from a movement along the curve, which involves responding to a price change. A shift in the curve represents a change in quantity supplied at every price.
Market equilibrium occurs when quantity demanded equals quantity supplied. Any price above or below this equilibrium price will result in either excess supply (price too high) or excess demand (price too low).
Equilibrium price helps balance supply and demand levels.
Changes in demand or supply affect equilibrium price and quantity. Shifts in the curve indicate a change of supply or demand, different from a change in quantity.
These shifts might be prompted by numerous factors.
The theory of supply and demand may have limitations in specific market situations. For example, markets with few consumers or producers, or where the product being traded is not standardized, may exhibit non-typical behaviors. The model is useful for many consumer products, though.
Absolute pricing refers to the exact price of a product. Relative pricing defines the price in terms of other goods. Demand and supply graphs usually depict relative pricing.

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Description

Test your understanding of the fundamental concepts of supply and demand in economics. This quiz covers key topics such as shifts in demand and supply curves, the relationship between price and quantity supplied, and market equilibrium. Challenge yourself with questions that explore the dynamics of a perfectly competitive market.