Economics: Demand and Law of Demand

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Questions and Answers

What is the graphic representation of a demand schedule?

A demand curve

What is the quantity supplied in reference to?

The amount of a certain good producers are willing to supply when receiving a certain price

What is the basic supply relationship between?

The price of a good and the quantity supplied

What happens to the supply of a good if the price of substitute goods increases?

The supply of the concerned good will increase Signup and view all the answers

What is the most significant factor affecting supply under conditions of production?

The state of technology Signup and view all the answers

What happens to the supply curve if sellers believe demand for their product will increase in the future?

The supply curve will shift out Signup and view all the answers

What happens to the supply curve if the price of inputs increases?

The supply curve will shift left Signup and view all the answers

What is an example of an input that can affect supply?

Electricity Signup and view all the answers

What is the primary factor that causes a shift in the demand curve, according to the text?

A change in the underlying factors that affect demand, such as changes in disposable income, tastes and preferences, expectations, or prices of related goods. Signup and view all the answers

How does a change in disposable income affect the demand curve, and what is the relationship with income elasticity of demand?

An increase in disposable income would shift the demand curve to the right, while a decrease would shift it to the left. The magnitude of the shift is also related to the income elasticity of demand, which measures how responsive demand is to changes in income. Signup and view all the answers

What is the assumption made about tastes and preferences in the short-run, and why is it necessary?

The assumption is that tastes and preferences are fixed in the short-run, and this is necessary for the aggregation of individual demand curves to derive market demand. Signup and view all the answers

What is the effect of a change in expectations on the demand curve?

A change in expectations would shift the demand curve, with an increase in expected future prices leading to an increase in current demand and a decrease in expected future prices leading to a decrease in current demand. Signup and view all the answers

How do changes in the prices of related goods affect the demand curve?

An increase in the price of a substitute would shift the demand curve for the original good to the right, while an increase in the price of a complement would shift it to the left. Signup and view all the answers

What is the difference between a movement along the demand curve and a shift in the demand curve?

A movement along the demand curve occurs when there is a change in the price of the good, while a shift in the demand curve occurs when there is a change in the underlying factors that affect demand, such as changes in disposable income, tastes and preferences, expectations, or prices of related goods. Signup and view all the answers

What is the fundamental principle that governs the relationship between the price of a good and the quantity demanded?

The law of demand states that, if all other factors remain equal, the higher the price of a good, the less people will demand that good. Signup and view all the answers

What are the three essential conditions that must be met for a person to have demand for a good or service?

The three conditions are: willingness to purchase, ability to purchase, and intention to pay. Signup and view all the answers

What is the graphical representation of the demand schedule, and what do the axes represent?

The graphical representation of the demand schedule is the demand curve, where the Y-axis represents price and the X-axis represents quantity. Signup and view all the answers

What happens to the quantity demanded when the price of a good increases, ceteris paribus?

The quantity demanded decreases. Signup and view all the answers

What is the purpose of a demand schedule, and how can it be used?

A demand schedule is a table that shows the quantity demanded of a good at different price levels, and it can be used to determine the expected quantity demanded at a given price level. Signup and view all the answers

What is the difference between the demand curve and the demand schedule?

The demand schedule is a table that shows the quantity demanded of a good at different price levels, while the demand curve is the graphical representation of the demand schedule. Signup and view all the answers

What is the implication of the law of demand on the behavior of consumers?

The law of demand implies that consumers will demand less of a good when the price increases, and more of a good when the price decreases. Signup and view all the answers

What is the relationship between the price of a good and the quantity demanded, as illustrated by the demand curve?

The demand curve illustrates a negative relationship between the price of a good and the quantity demanded, meaning that as the price increases, the quantity demanded decreases. Signup and view all the answers

Study Notes

Demand

Demand refers to the willingness and ability of a buyer to pay a price for a specific quantity of a good or service.
A person is said to have demand if they have:
- Willingness to purchase
- Ability to purchase
- Intention to pay

The Law of Demand

The law of demand states that if all other factors remain equal, the higher the price of a good, the less people will demand that good.
The higher the price, the lower the quantity demanded.
The demand curve illustrates the negative relationship between price and quantity demanded.

Demand Schedule and Demand Curve

A demand schedule is a table of the quantity demanded of a good at different price levels.
The demand schedule can be graphed as a continuous demand curve on a chart having the Y-axis representing price and the X-axis representing quantity.
The demand curve is a graphic representation of a demand schedule.

Supply

Supply represents how much the market can offer.
The quantity supplied refers to the amount of a certain good producers are willing to supply when receiving a certain price.
In economics, supply refers to the amount of a product that producers and firms are willing to sell at a given price, all other factors being held constant.

Factors Affecting Supply

Good's own price: The basic supply relationship is between the price of a good and the quantity supplied.
Prices of other goods: If the price of substitute goods increases, the supply of concerned goods will increase.
Conditions of production: The state of technology is a significant factor, and technological advancements can increase supply.
Expectations: If the seller believes that the demand for their product will increase in the future, they may increase production in anticipation.
Price of inputs: If the price of inputs increases, the supply curve will shift left as sellers are less willing or able to sell goods at any given price.

Shift in Supply Curve

A shift in the supply curve occurs when a factor other than price affects the quantity supplied.
Examples of shifts in the supply curve include:
- Natural disasters causing a shortage of inputs
- Changes in expectations or production conditions

Demand Shifters

Changes in:
- Disposable income
- Tastes and preferences
- Expectations
- Prices of related goods (substitutes and complements)

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Description

This quiz assesses your understanding of demand, its definition, and the Law of Demand. It covers the willingness and ability to pay for a specific quantity of a good or service.