Economics: Demand and Supply Principles
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Questions and Answers

What is the relationship between price and quantity demanded in the law of demand?

  • A direct relationship; as price increases, quantity demanded increases.
  • An indirect relationship; as price increases, quantity demanded decreases. (correct)
  • No relationship; price and quantity demanded are independent of each other.
  • A constant relationship; price and quantity demanded remain unchanged.

What does the term "ceteris paribus" mean in economics?

All other things being equal

The supply curve shows the relationship between price and quantity supplied, with a downward slope.

False (B)

What is the point where the demand and supply curves intersect called?

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

What happens to the equilibrium price and quantity when there is an increase in demand?

<p>Equilibrium price increases, and quantity increases. (D)</p> Signup and view all the answers

What happens to the equilibrium price and quantity when there is a decrease in supply?

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

A price ceiling is a government-imposed maximum price for a good or service.

<p>True (A)</p> Signup and view all the answers

A price floor is a government-imposed minimum price for a good or service.

<p>True (A)</p> Signup and view all the answers

What is the main economic principle that explains the interaction of supply and demand in determining market prices?

<p>The Law of Supply and Demand</p> Signup and view all the answers

What are the non-price factors that can influence the demand for a product?

<p>Consumer preferences, income, population, technology, input prices, and government policies.</p> Signup and view all the answers

What are the non-price factors that can influence the supply of a product?

<p>Price of inputs, price of related commodities, number of firms, and expectations regarding future prices</p> Signup and view all the answers

Explain how a surplus of a product, such as strawberries, can lead to both financial losses for farmers and food wastage.

<p>A surplus of strawberries drives down prices, diminishing farmers' revenue and potentially causing financial losses. At the same time, the excess supply can make it difficult for farmers to sell all of their produce before it spoils, leading to wasted strawberries.</p> Signup and view all the answers

In the context of the Black Friday sale, what are some factors that might influence the demand for Nike products?

<p>Consumer preferences, income levels, the prices of related goods, expectations regarding future prices, and the marketing efforts of Nike and its competitors</p> Signup and view all the answers

Flashcards

Law of Demand

The relationship between the price of a good or service and the quantity demanded by consumers, where a higher price leads to lower demand and vice versa.

Demand Function

A mathematical equation expressing the relationship between quantity demanded (Qd) and price (P), showing the inverse relationship between the two.

Demand Schedule

A table showing the relationship between different prices and the corresponding quantity demanded at each price level.

Demand Curve

A graphical representation of the demand function showing the inverse relationship between price and quantity demanded.

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Law of Supply

The relationship between the price of a good or service and the quantity supplied by producers, where a higher price leads to higher supply and vice versa.

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Supply Function

A mathematical equation showing the relationship between quantity supplied (Qs) and price (P), illustrating the direct relationship between the two.

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Supply Schedule

A table showing the relationship between different prices and the corresponding quantity supplied by the producers at each price.

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Supply Curve

A graphical representation of the supply function showing the direct relationship between price and quantity supplied.

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Market Equilibrium

The point where the demand curve and the supply curve intersect, representing the price and quantity at which the quantity demanded equals the quantity supplied.

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Quantity Demanded

The quantity of goods or services that consumers are willing and able to buy at a specific price.

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Quantity Supplied

The quantity of goods or services that producers are willing and able to sell at a specific price.

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Non-Price Determinants of Demand

Factors other than price that influence the demand for a good or service.

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Income

The amount of money available to consumers to spend on goods and services.

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Substitutes

Goods that can be used in place of each other.

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Complements

Goods that are used together.

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Non-Price Determinants of Supply

Factors other than price that influence the supply of a good or service.

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Price of Inputs

The cost of resources used in producing a good or service.

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Shortage

A situation where the quantity demanded exceeds the quantity supplied at a given price.

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Surplus

A situation where the quantity supplied exceeds the quantity demanded at a given price.

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Price Ceiling

A maximum price set by the government for a specific good or service, usually to make it more affordable.

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Price Floor

A minimum price set by the government for a specific good or service, usually to protect producers.

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Shift in Demand

The change in the position of the entire demand curve, caused by factors other than price changes.

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Shift in Supply

The change in the position of the entire supply curve, caused by factors other than price changes.

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Consumer Preferences

Consumers' willingness to buy a good or service based on their tastes and preferences.

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Income Levels

The level of income available to consumers, affecting their ability to spend.

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Prices of Related Goods

The prices of goods or services that are related to the good or service in question.

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Goods and Services

The goods and services that satisfy consumer wants and needs.

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Production

The process of creating goods and services using resources like labor, capital, and land.

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Government Regulations

The rules and regulations established by governments to influence economic activity.

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Taxes

Taxes levied by governments on goods, services, or income.

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Exchange Rates

The rate at which one currency can be exchanged for another.

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International Trade

The buying and selling of goods and services across national borders

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Study Notes

Demand and Supply

  • Black Friday is a time when consumers are eager to buy new products, like sneakers, at affordable prices

  • Consumers are closely monitoring product prices to determine if they can afford products within their budget

  • The announcements of Black Friday sales create buzz and market interest, influencing competitors' pricing strategies

  • Price and quantity of goods and services are determined by demand and supply

  • Demand is the value consumers place on goods and services they are willing and able to purchase

  • Supply is the willingness and ability of producers to sell goods and services

  • Demand is inversely related to price; as price increases, quantity demanded decreases

  • Law of demand states that as product prices increase, the quantity demanded decreases, and vice versa

  • The law of demand shows an inverse relationship between price and quantity demanded

  • This relationship can be shown in a demand function (Qd = a - bP) and a demand schedule

  • Qd = quantity demanded

  • a= all factors other than price that affect demand (ex. income)

  • b= slope of the demand curve

  • P = Price of the good

  • Supply is directly related to price; as price increases, the quantity supplied increases

  • Law of supply states that as the price of a product increases the quantity supplied by producers also increases; and vice versa

  • This positive relationship between price and quantity supplied can be shown in a supply function (Qs = c + dP)

  • Qs = quantity supplied

  • c = plots the start point of the supply curve, typically on the Y-axis

  • d = slope of the supply curve

  • P = Price of the good

  • Market equilibrium occurs when quantity demanded (Qd) equals quantity supplied (Qs).

  • Equilibrium price is the price at which Qd and Qs are equal.

  • Equilibrium quantity is the quantity at which Qd and Qs are equal.

  • Graphs can be used to graphically depict the relationship between price and quantity for demand and supply

  • Supply and demand curves visually represent the relationship between price and quantity on a graph for a particular market.

Factors Affecting Demand

  • Consumer income: higher income leads to higher demand for normal goods
  • Prices of related goods (substitutes and complements): increases in substitute prices increase demand, and increased prices of complements decrease demand

Factors Affecting Supply

  • Prices of inputs: rise in input prices decrease supply
  • Number of Firms: more sellers in a market lead to higher competition, and prices tend to fall
  • Expectations of future prices: future price increases cause decrease in present supply
  • Technology: advancements typically lead to increases in supply

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Demand and Supply (2024-2025) PDF

Description

This quiz explores the fundamental principles of demand and supply, particularly in the context of consumer behavior during events like Black Friday. Understand how pricing strategies influence consumer demand and the relationship between price and quantity. Test your knowledge on the law of demand and its implications.

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