Economics Demand and Supply Changes
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Economics Demand and Supply Changes

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Questions and Answers

What happens to the demand curve when there are favorable changes in non-price factors?

  • It shifts outward. (correct)
  • It becomes perfectly elastic.
  • It shifts inward.
  • It remains unchanged.

    • When the supply curve shifts inward, what is this change referred to?

  • Increase in Supply
  • Equilibrium Shift
  • Decrease in Supply (correct)
  • Increase in Demand

    • Which of the following is a factor that can cause a shift in the demand curve?

  • State of technology
  • Population changes (correct)
  • Government policies
  • Cost of production

    • What is described as the market price where the quantity of goods supplied equals the quantity demanded?

    <p>Equilibrium Price</p> Signup and view all the answers

    An increase in which of the following leads to an outward shift of the supply curve?

    <p>Government subsidies</p> Signup and view all the answers

    What is the result of unfavorable changes in non-price factors affecting demand?

    <p>Shift from D to D2</p> Signup and view all the answers

    Which of the following would likely cause a decrease in the demand for a product?

    <p>Decrease in consumer income</p> Signup and view all the answers

    If the cost of production decreases due to technological advancements, what is likely to happen to the supply curve?

    <p>It shifts outward.</p> Signup and view all the answers

    What is the relationship between advertising expenditure and demand for a commodity?

    <p>There is a positive relationship between advertising expenditure and demand.</p> Signup and view all the answers

    Which component is not part of the definition of demand in economics?

    <p>Income level</p> Signup and view all the answers

    According to the law of demand, what happens when the price of a commodity rises?

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

    Which assumption is NOT made in the law of demand?

    <p>Consumer tastes and preferences can change.</p> Signup and view all the answers

    What effect can a change in the price of substitute goods have on demand?

    <p>It can lead to a change in demand for the commodity.</p> Signup and view all the answers

    Which factor is assumed to be unchanged when analyzing the law of demand?

    <p>Price of related goods.</p> Signup and view all the answers

    Why is the assumption of constant consumer income important in the law of demand?

    <p>It avoids skewing the demand affected by purchasing power.</p> Signup and view all the answers

    What does the law of demand imply about consumer behavior when prices increase?

    <p>The quantity demanded will typically decrease.</p> Signup and view all the answers

    What is the general relationship between income level and elasticity of demand?

    <p>Lower income groups have more elastic demand.</p> Signup and view all the answers

    How does postponing consumption affect the elasticity of demand for a commodity?

    <p>It makes the demand for the commodity more elastic.</p> Signup and view all the answers

    In the short run, how is the elasticity of demand generally characterized?

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

    What is a key method for measuring price elasticity of demand?

    <p>Percentage method</p> Signup and view all the answers

    What characterizes the demand curve faced by an oligopoly firm?

    <p>It is kinked in nature.</p> Signup and view all the answers

    What happens to demand elasticity in the long run as compared to the short run?

    <p>Demand becomes more elastic.</p> Signup and view all the answers

    What does the kink in the oligopoly demand curve represent?

    <p>Different reactions from firms based on price changes.</p> Signup and view all the answers

    Which type of commodities typically show inelastic demand?

    <p>Urgent needs like medicines</p> Signup and view all the answers

    How is elasticity of demand defined?

    <p>The responsiveness of quantity demanded to changes in one variable.</p> Signup and view all the answers

    What is the formula for calculating price elasticity of demand?

    <p>ep = % change in quantity demanded / % change in price</p> Signup and view all the answers

    What term describes the elasticity of demand being affected by the time period considered?

    <p>Time elasticity of demand</p> Signup and view all the answers

    Which factor influences whether demand is elastic or inelastic?

    <p>Availability of substitutes</p> Signup and view all the answers

    What is typically the sign of price elasticity of demand for most commodities?

    <p>Negative, indicating an inverse relationship.</p> Signup and view all the answers

    In which scenario is market demand and supply used to determine the price of a commodity?

    <p>In a market with many buyers and sellers.</p> Signup and view all the answers

    What role does elasticity of demand play in business decision making?

    <p>It aids in pricing, promotion, and production policies.</p> Signup and view all the answers

    Which statement is true regarding the oligopoly demand curve?

    <p>It has segments that are elastic and inelastic based on price changes.</p> Signup and view all the answers

    What is the primary goal of demand forecasting in business planning?

    <p>To plan activities under conditions of risk and uncertainty</p> Signup and view all the answers

    Which method involves plotting sales data on a graph and drawing a free hand curve?

    <p>Graphical Method</p> Signup and view all the answers

    In the least square method, what does the equation $y = a + bx$ represent?

    <p>A mathematical relationship between independent and dependent variables</p> Signup and view all the answers

    What do the normal equations in the least square method help to determine?

    <p>The intercept and slope for the trend line</p> Signup and view all the answers

    Which forecasting method involves statistical analysis to predict dependent variable values?

    <p>Regression Method</p> Signup and view all the answers

    What role does historical data play in regression methods?

    <p>It establishes the basis for predictions</p> Signup and view all the answers

    Which of the following statements about demand forecasting is FALSE?

    <p>It completely eliminates risk.</p> Signup and view all the answers

    What is a common characteristic of the regression method?

    <p>It always requires linear relationships.</p> Signup and view all the answers

    Study Notes

    Shifts / Changes in Demand

    • Demand shifts occur due to changes in non-price factors, including:
      • Income
      • Population
      • Government policies
      • Tastes and preferences
      • Habits
      • Fashion
    • Favorable changes increase demand, shifting the curve outwards
    • Unfavorable changes decrease demand, shifting the curve inwards

    Shifts / Changes in Supply

    • Supply shifts occur due to changes in non-price factors, including:
      • Cost of production
      • Government policies
      • State of technology
    • Favorable changes increase supply, shifting the curve outwards
    • Unfavorable changes decrease supply, shifting the curve inwards

    Shifts in Equilibrium

    • Equilibrium price occurs where quantity supplied equals quantity demanded
    • Advertising expenditure influences a commodity's demand, with a positive relationship between advertising and demand

    Meaning of Demand

    • Demand in economics is not just desire for a commodity, but also the willingness and ability to pay for it

    The Law of Demand

    • Developed by Alfred Marshall in 1892
    • States that price and quantity demanded have an inverse relationship; as price rises, demand falls
    • Assumptions:
      • Consumers' income remains constant
      • Prices of substitute and complement goods remain constant
      • Consumers' tastes and preferences remain constant
      • There's no expectation of future price change

    Oligopoly Demand Curve

    • Indeterminate for a firm due to uncertain behavior of a producer in an oligopoly market
    • Kinked in nature
    • Kink formed at a prevailing price level
      • Segment above the prevailing price level is highly elastic
      • Segment below the prevailing price level is inelastic

    Elasticity of Demand

    • Measures the responsiveness of one variable to changes in another variable
    • For demand, measures the responsiveness of quantity demanded to changes in price, income, or prices of related goods

    Price Elasticity of Demand

    • Shows the degree of responsiveness of quantity demanded to a change in price, holding other demand determinants constant
    • Ratio of percentage change in quantity demanded to percentage change in price
    • Value is always negative due to the inverse relationship between quantity demanded and price
    • Factors Influencing Price Elasticity of Demand
      • Availability of substitutes
      • Nature of commodity
      • Consumer's income
      • Postponement of consumption
      • Time period

    Measurements of Price Elasticity of Demand

    • Percentage Method
      • Developed by Alfred Marshall
      • Calculates price elasticity by dividing the percentage change in quantity demanded by the percentage change in price

    Demand Forecasting

    • Uses trends to get a general idea about the future
    • Methods
      • Graphical method
      • Least Square Method
      • Regression method

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    Description

    This quiz covers the shifts and changes in demand and supply within the context of economics. It explores the factors that lead to these shifts, how equilibrium is established, and the impact of advertising on demand. Test your knowledge on these fundamental concepts in economics.

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