Economics Demand and Supply Concepts

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Questions and Answers

What determines a consumer's effective demand for a good or service?

The consumer's need or want for the item only.

The popularity of the item among other consumers.

The consumer's ability to differentiate between needs and wants.

The consumer's ability to pay for the item. (correct)

What is the law of demand primarily concerned with?

The relationship between demand and supply.

The effects of consumer income on demand.

The factors that shift the demand curve.

The relationship between price and quantity demanded. (correct)

What does a demand schedule specifically show?

How consumer preferences shift over time.

The quantity demanded at each price for a specific good or service. (correct)

Prices for a variety of goods.

Predicted future prices based on current demand.

In a demand curve graph, where is the quantity demanded plotted?

On the horizontal axis (x-axis). Signup and view all the answers

When the price of gasoline increases, what is a common consumer response?

Reduce their gasoline consumption through various strategies. Signup and view all the answers

Which of the following can affect the quantity demanded according to the law of demand?

The price of the good or service itself. Signup and view all the answers

What is typically true about the relationship between price and quantity demanded?

It is inversely proportional. Signup and view all the answers

Which statement accurately reflects the concept of demand from an economist's perspective?

Demand includes both the willingness and ability to purchase. Signup and view all the answers

What does the law of supply state regarding the relationship between price and quantity supplied?

A rise in price results in an increase in quantity supplied. Signup and view all the answers

What is the equilibrium price in the context provided?

$1.40 per gallon Signup and view all the answers

What happens when the price is above the equilibrium price?

Producers will cut prices to sell the excess supply. Signup and view all the answers

What is indicated by the intersection of the supply curve and the demand curve?

Equilibrium point. Signup and view all the answers

When the price of gasoline decreases to $1.20, what happens to quantity demanded?

Quantity demanded increases due to lower prices. Signup and view all the answers

What results from a price that is below equilibrium?

Shortage and increased demand. Signup and view all the answers

What is the role of profit-seeking firms when the price of gasoline rises?

They will expand exploration and production efforts. Signup and view all the answers

What happens to gasoline supply if the price reaches $1.80 per gallon?

Gasoline supply increases to 680 million gallons. Signup and view all the answers

What is a supply schedule?

A table showing quantity supplied at different prices. Signup and view all the answers

How do producers and consumers react when prices are above equilibrium?

Consumers buy less, leading to surplus. Signup and view all the answers

What does the term 'excess demand' refer to?

When quantity demanded exceeds quantity supplied. Signup and view all the answers

What occurs at the equilibrium price?

Quantity demanded equals quantity supplied. Signup and view all the answers

What encourages sellers to lower prices when there is surplus?

The need to maintain cash flow and reduce excess supply. Signup and view all the answers

Which of the following actions might producers take in response to rising gasoline prices?

Invest in logistics to improve supply chains. Signup and view all the answers

Study Notes

Demand and Supply

Demand: The amount of a good or service consumers are willing and able to buy at each price. Stems from needs and wants, both viewed as equivalent by economists. Also relies on the consumer's ability to pay.
Quantity Demanded: The total amount of a good or service consumers will purchase at a specific price.
Law of Demand: An inverse relationship between price and quantity demanded; usually, as price rises, quantity demanded falls, and vice versa. Assumes all other factors affecting demand remain constant.
Demand Schedule: A table showing the quantity demanded at various prices.
Demand Curve: A graph illustrating the relationship between price and quantity demanded, with quantity on the horizontal axis and price on the vertical axis.

Supply

Supply: The amount of a good or service a producer is willing and able to offer for sale at each price.
Quantity Supplied: The total amount of a good or service producers will offer at a specific price.
Law of Supply: A positive relationship between price and quantity supplied; usually, as price rises, quantity supplied rises, and vice versa. Assumes all other factors affecting supply remain constant.
Supply Schedule: A table showing the quantity supplied at various prices.
Supply Curve: A graph showing the relationship between price and quantity supplied.

Equilibrium

Equilibrium: The point where the supply curve and demand curve intersect. Represents a balance where the quantity demanded equals the quantity supplied.
Equilibrium Price: The price at which the quantity demanded and the quantity supplied are equal.
Equilibrium Quantity: The quantity bought and sold at the equilibrium price.

Disequilibrium

Excess Supply (Surplus): When quantity supplied exceeds quantity demanded at a given price (above equilibrium). Results in downward pressure on price towards equilibrium.
Excess Demand (Shortage): When quantity demanded exceeds quantity supplied at a given price (below equilibrium). Results in upward pressure on price towards equilibrium.
Market Responses:
- Surplus: Producers decrease prices, increasing demand.
- Shortage: Consumers increase demand, and producers raise prices.
Equilibrium Stability: Markets tend to move towards equilibrium due to these self-correcting mechanisms.

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Description

Explore the fundamental concepts of demand and supply in this quiz. Understand the connections between price, quantity demanded, and how supply impacts market dynamics. Test your knowledge on key terms such as demand schedule and demand curve.