Economics Chapter: Supply and Demand
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Questions and Answers

What is indicated by the law of demand in relation to price and quantity demanded?

  • Price changes have no effect on quantity demanded.
  • Demand remains constant regardless of price fluctuations.
  • A decrease in price leads to an increase in quantity demanded. (correct)
  • An increase in price leads to an increase in quantity demanded.
  • According to the demand schedule, what happens to the quantity demanded as the price of ice-cream cones rises?

  • The quantity demanded increases.
  • The quantity demanded remains the same.
  • The quantity demanded fluctuates unpredictably.
  • The quantity demanded decreases. (correct)
  • At what price does Catherine completely stop buying ice-cream cones?

  • $2.50
  • $1.00
  • $3.00 (correct)
  • $0.50
  • How many cones does Catherine buy when the price reaches $1.50?

    <p>6 cones</p> Signup and view all the answers

    What is the highest number of cones Catherine buys, based on the demand schedule?

    <p>12 cones</p> Signup and view all the answers

    Which part of the demand curve is illustrated based on the relationship shown in Catherine's demand schedule?

    <p>The demand curve slopes downward.</p> Signup and view all the answers

    What does the vertical axis on the graph typically represent in demand scheduling?

    <p>Price of the good</p> Signup and view all the answers

    What is the quantity of cones demanded at the price of $2.00?

    <p>4 cones</p> Signup and view all the answers

    What occurs in the market when the price is above the equilibrium price?

    <p>There is a surplus of goods.</p> Signup and view all the answers

    How do suppliers typically respond to a surplus in the market?

    <p>They cut prices.</p> Signup and view all the answers

    What is the definition of a shortage in the context of a market?

    <p>Quantity demanded exceeds quantity supplied.</p> Signup and view all the answers

    What happens to prices when there is excess demand in the market?

    <p>Prices increase.</p> Signup and view all the answers

    What does a movement along the supply and demand curves indicate?

    <p>Action taken due to supply and demand imbalances.</p> Signup and view all the answers

    In a situation where the market price of ice cream cones is $1.50, what is likely occurring?

    <p>There is a shortage of ice cream cones.</p> Signup and view all the answers

    What happens to quantity demanded and quantity supplied when prices fall?

    <p>Quantity demanded increases; quantity supplied decreases.</p> Signup and view all the answers

    Which of the following accurately describes the equilibrium in a market?

    <p>Buyers have bought all they want, and sellers have sold all they want.</p> Signup and view all the answers

    What is the effect of a 10 percent increase in cigarette prices on the quantity demanded?

    <p>4 percent reduction</p> Signup and view all the answers

    How do teenagers respond to changes in cigarette prices compared to the general population?

    <p>They are more sensitive to price changes</p> Signup and view all the answers

    What do opponents of cigarette taxes argue regarding the relationship between tobacco and marijuana?

    <p>Tobacco acts as a substitute for marijuana.</p> Signup and view all the answers

    What does the elasticity of demand suggest about cigarette pricing?

    <p>Cigarettes are elastic in demand.</p> Signup and view all the answers

    Which group shows the highest sensitivity to cigarette price increases?

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

    What does a movement along the demand curve indicate in terms of price and quantity?

    <p>Higher price leads to lower quantity</p> Signup and view all the answers

    What is an identified consequence of raising cigarette taxes?

    <p>Decrease in cigarette demand</p> Signup and view all the answers

    What does the correlation between cigarette prices and illicit drugs suggest?

    <p>High cigarette prices may encourage marijuana use.</p> Signup and view all the answers

    What happens in the ice cream market when there is a shortage?

    <p>Buyers have to wait in long lines to purchase ice cream.</p> Signup and view all the answers

    How do sellers respond to a shortage in the ice cream market?

    <p>By raising prices without losing sales.</p> Signup and view all the answers

    What effect do price increases have on quantity demanded?

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

    What describes the market dynamics when there is a surplus?

    <p>Quantity supplied exceeds quantity demanded.</p> Signup and view all the answers

    What is the outcome when market price is above the equilibrium price?

    <p>Suppliers must lower prices to sell their goods.</p> Signup and view all the answers

    What occurs when quantity demanded is greater than quantity supplied?

    <p>The market naturally moves toward the equilibrium price.</p> Signup and view all the answers

    Which scenario describes a price adjustment mechanism?

    <p>Suppliers raise prices during a shortage.</p> Signup and view all the answers

    What ensures the market price shifts toward equilibrium?

    <p>The actions of sellers and buyers.</p> Signup and view all the answers

    What is the first step in analyzing how an event affects market equilibrium?

    <p>Decide whether the event shifts the supply curve, the demand curve, or both</p> Signup and view all the answers

    When the supply curve shifts to the right, what is the expected impact on equilibrium price and quantity?

    <p>Equilibrium price decreases, quantity increases</p> Signup and view all the answers

    What outcome occurs when both the supply and demand curves shift to the left?

    <p>Equilibrium price increases, equilibrium quantity decreases</p> Signup and view all the answers

    If demand for ice cream increases during a hot summer, what happens to the equilibrium?

    <p>Both equilibrium price and quantity increase</p> Signup and view all the answers

    Which direction does the demand curve shift when consumer preferences increase?

    <p>To the right</p> Signup and view all the answers

    What is the third step in analyzing changes in market equilibrium?

    <p>Compare initial and new equilibrium using a supply-and-demand diagram</p> Signup and view all the answers

    What is the expected result of a decrease in production costs on the supply curve?

    <p>Supply curve shifts to the right</p> Signup and view all the answers

    How does a significant increase in consumer income affect the market for normal goods?

    <p>Demand curve shifts to the right</p> Signup and view all the answers

    How do prices in a market economy influence the allocation of resources?

    <p>Prices serve as signals that guide the allocation of scarce resources.</p> Signup and view all the answers

    What happens to the market for pizza if the price of hamburgers decreases?

    <p>The demand for pizza decreases as consumers opt for cheaper hamburgers.</p> Signup and view all the answers

    According to the model of supply and demand, what does the equilibrium price represent?

    <p>The price at which quantity supplied matches quantity demanded.</p> Signup and view all the answers

    In market economies, who typically gets access to scarce resources like beachfront land?

    <p>Those who can pay the market price.</p> Signup and view all the answers

    What role do prices play in the farming industry according to the principles discussed?

    <p>Prices help to determine the balance between supply and demand in farming.</p> Signup and view all the answers

    Which principle outlines that markets are generally a good way to organize economic activity?

    <p>The principle of supply and demand.</p> Signup and view all the answers

    What effect do lower prices usually have on consumer demand?

    <p>Lower prices generally increase consumer demand for a good.</p> Signup and view all the answers

    Which scenario exemplifies prices acting as signals in an economy?

    <p>A sudden increase in the price of oil leads to reduced car usage.</p> Signup and view all the answers

    Study Notes

    Market Forces of Supply and Demand

    • Supply and demand are the primary forces shaping market economies
    • A cold snap affects orange juice prices, while warm weather impacts Caribbean hotel prices
    • These situations illustrate how supply and demand influence prices

    Markets and Competition

    • A market comprises buyers and sellers of a specific good or service
    • Competitive markets feature numerous buyers and sellers, each with negligible impact on price
    • Perfectly competitive markets have identical products and many participants
    • Buyers and sellers are price takers in competitive markets

    Demand

    • Quantity demanded represents the amount consumers are willing and able to buy at various prices, holding other factors constant
    • The law of demand states that quantity demanded falls as price rises (and vice versa)
    • A demand schedule lists quantities demanded at different prices
    • The demand curve graphically illustrates the relationship between price and quantity demanded (slopes downward)
    • Market demand is the sum of individual demands, showing total quantity demanded at each price
    • Factors influencing demand include price, income, prices of related goods, tastes, expectations, number of buyers

    Shifts in the Demand Curve

    • Changes in factors other than price shift the demand curve
    • An increase in demand (rightward shift) means consumers want more at every price
    • A decrease in demand (leftward shift) means consumers want less at every price
    • Factors affecting shifts include income, prices of related goods, tastes, expectations, number of buyers

    Supply

    • Quantity supplied represents the amount sellers are willing to sell at various prices, holding other factors constant
    • The law of supply states that quantity supplied rises as price rises (and vice versa)
    • A supply schedule lists quantities supplied at different prices
    • The supply curve graphically illustrates the relationship between price and quantity supplied (slopes upward)
    • Market supply is the sum of individual supplies, displaying total quantity supplied at each price
    • Factors influencing supply shifts include input prices, technology, expectations, number of sellers

    Shifts in the Supply Curve

    • Changes in factors other than price shift the supply curve
    • An increase in supply (rightward shift) means producers are willing to supply more at every price
    • A decrease in supply (leftward shift) means producers are willing to supply less at every price
    • Factors affecting shifts include input prices, technology, expectations, number of sellers

    Supply and Demand Together

    • Equilibrium occurs where supply and demand intersect—quantity supplied equals quantity demanded
    • Equilibrium price is the price at which quantity supplied equals quantity demanded
    • Equilibrium quantity is the quantity exchanged at the equilibrium price
    • A surplus (excess supply) arises when price is above equilibrium, pushing price down
    • A shortage (excess demand) arises when price is below equilibrium, pushing price up
    • Shifts in supply or demand curves cause changes in equilibrium price and quantity

    Conclusion

    • Supply and demand are fundamental to how market economies allocate resources, setting prices across diverse goods and services

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    Description

    Explore the fundamental concepts of supply and demand in market economies. Understand how external factors like weather affect prices and learn about competitive markets. This quiz also covers the law of demand and how demand schedules and curves illustrate consumer behavior.

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