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Questions and Answers
According to the law of demand, an increase in the price of a good will lead to a decrease in the quantity demanded, assuming all other factors remain constant.
According to the law of demand, an increase in the price of a good will lead to a decrease in the quantity demanded, assuming all other factors remain constant.
True (A)
A change in consumer income will always result in a movement along the demand curve, not a shift of the demand curve.
A change in consumer income will always result in a movement along the demand curve, not a shift of the demand curve.
False (B)
The equilibrium price in a market exists where the quantity demanded surpasses the quantity supplied, resulting in a surplus.
The equilibrium price in a market exists where the quantity demanded surpasses the quantity supplied, resulting in a surplus.
False (B)
If a market is in equilibrium, total surplus is maximized, indicating resources are allocated inefficiently.
If a market is in equilibrium, total surplus is maximized, indicating resources are allocated inefficiently.
A market is simply defined as a physical location where goods are sold, like a grocery store or farmer's market.
A market is simply defined as a physical location where goods are sold, like a grocery store or farmer's market.
If the price of steel, a key component in car manufacturing, decreases, the supply curve for cars will shift to the left.
If the price of steel, a key component in car manufacturing, decreases, the supply curve for cars will shift to the left.
If both the supply and demand for a good increase simultaneously, the equilibrium price will definitely increase.
If both the supply and demand for a good increase simultaneously, the equilibrium price will definitely increase.
The 'willingness and ability' of buyers to purchase a good at different prices defines 'demand'.
The 'willingness and ability' of buyers to purchase a good at different prices defines 'demand'.
The law of demand states that as the price of a good increases, the quantity demanded decreases, assuming all other factors remain constant, also known as ceteris paribus.
The law of demand states that as the price of a good increases, the quantity demanded decreases, assuming all other factors remain constant, also known as ceteris paribus.
Representing the law of demand is limited to using words and constructing a demand curve.
Representing the law of demand is limited to using words and constructing a demand curve.
A demand schedule is a graphical representation of the quantity demanded of a good at different prices.
A demand schedule is a graphical representation of the quantity demanded of a good at different prices.
The law of diminishing marginal utility suggests that the satisfaction derived from consuming each additional cup of coffee remains constant, regardless of the number of cups already consumed.
The law of diminishing marginal utility suggests that the satisfaction derived from consuming each additional cup of coffee remains constant, regardless of the number of cups already consumed.
Consumers tend to substitute lower-priced goods for higher-priced goods, and the law of increasing marginal utility influence the inverse relationship between price and quantity demanded.
Consumers tend to substitute lower-priced goods for higher-priced goods, and the law of increasing marginal utility influence the inverse relationship between price and quantity demanded.
An individual demand curve reflects the aggregate demand of all consumers in the market.
An individual demand curve reflects the aggregate demand of all consumers in the market.
If the price of gasoline increases, the demand curve for large, fuel-inefficient SUVs will likely shift to the left, indicating a decrease in demand.
If the price of gasoline increases, the demand curve for large, fuel-inefficient SUVs will likely shift to the left, indicating a decrease in demand.
Market demand is derived by multiplying individual demand curves.
Market demand is derived by multiplying individual demand curves.
A change in demand represents a movement along the existing demand curve, influenced by price variations.
A change in demand represents a movement along the existing demand curve, influenced by price variations.
An increase in demand is graphically represented by a rightward shift of the demand curve.
An increase in demand is graphically represented by a rightward shift of the demand curve.
If an individual's salary decreases and, as a result, they purchase more instant noodles, then instant noodles are considered a normal good for that individual.
If an individual's salary decreases and, as a result, they purchase more instant noodles, then instant noodles are considered a normal good for that individual.
If people expect the price of gasoline to rise next week, the demand curve for gasoline today will shift to the right.
If people expect the price of gasoline to rise next week, the demand curve for gasoline today will shift to the right.
If the price of tennis rackets decreases, the demand for tennis balls, a complementary good, will likely decrease as well.
If the price of tennis rackets decreases, the demand for tennis balls, a complementary good, will likely decrease as well.
A shift in the demand curve can be caused by changes in the price of the good itself.
A shift in the demand curve can be caused by changes in the price of the good itself.
An increase in the number of buyers in a market will cause a movement along the demand curve.
An increase in the number of buyers in a market will cause a movement along the demand curve.
If coffee and tea are substitutes, a significant decrease in the price of tea will cause the demand curve for coffee to shift to the left.
If coffee and tea are substitutes, a significant decrease in the price of tea will cause the demand curve for coffee to shift to the left.
An increase in the price of carrots will cause a rightward shift in the demand curve for carrots.
An increase in the price of carrots will cause a rightward shift in the demand curve for carrots.
If the price of zucchini, a substitute for carrots, decreases, the demand curve for carrots will shift to the right.
If the price of zucchini, a substitute for carrots, decreases, the demand curve for carrots will shift to the right.
If buyers of steel expect the price of steel six months from now to be significantly higher, the current demand curve for steel would shift to the right.
If buyers of steel expect the price of steel six months from now to be significantly higher, the current demand curve for steel would shift to the right.
For a normal good, when buyers' income decreases, the demand curve will shift to the left.
For a normal good, when buyers' income decreases, the demand curve will shift to the left.
For an inferior good, when buyers’ income rises, the result would be a rightward shift of the current demand curve.
For an inferior good, when buyers’ income rises, the result would be a rightward shift of the current demand curve.
Supply refers to the willingness and ability of buyers to purchase different quantities of a good at different prices during a specific period.
Supply refers to the willingness and ability of buyers to purchase different quantities of a good at different prices during a specific period.
According to the law of supply, as the price of a good decreases, the quantity supplied of that good also decreases, all other things being equal.
According to the law of supply, as the price of a good decreases, the quantity supplied of that good also decreases, all other things being equal.
Supply curves are typically downward sloping due to the law of increasing marginal returns.
Supply curves are typically downward sloping due to the law of increasing marginal returns.
Consumer's surplus is calculated by subtracting the minimum selling price from the actual price paid.
Consumer's surplus is calculated by subtracting the minimum selling price from the actual price paid.
Producer's surplus represents the benefit sellers receive from selling at a price higher than the highest price they would have accepted.
Producer's surplus represents the benefit sellers receive from selling at a price higher than the highest price they would have accepted.
Total surplus is the mathematical product of consumer's surplus and producer's surplus.
Total surplus is the mathematical product of consumer's surplus and producer's surplus.
If the maximum buying price is $30 and the price actually paid is $20, the consumer's surplus is $10.
If the maximum buying price is $30 and the price actually paid is $20, the consumer's surplus is $10.
If the price sellers receive for a good is $15 and the minimum price they would have accepted is $10, then the producer's surplus is $25.
If the price sellers receive for a good is $15 and the minimum price they would have accepted is $10, then the producer's surplus is $25.
In equilibrium analysis, the first step is to shift the curve, followed by identifying the relevant factor.
In equilibrium analysis, the first step is to shift the curve, followed by identifying the relevant factor.
If the quantity demanded of a good is less than the quantity supplied, the price of the good will be greater than the equilibrium price.
If the quantity demanded of a good is less than the quantity supplied, the price of the good will be greater than the equilibrium price.
If the price falls below the equilibrium level, the quantity demanded will exceed the quantity supplied, leading to a shortage.
If the price falls below the equilibrium level, the quantity demanded will exceed the quantity supplied, leading to a shortage.
Flashcards
Market
Market
Any place where buyers and sellers interact to exchange goods or services.
Demand
Demand
The desire and capacity of consumers to buy varying amounts of a product at different prices during a particular time frame.
Law of Demand
Law of Demand
As the price of a good increases, quantity demanded decreases; conversely, as the price decreases, quantity demanded increases.
Demand Curve
Demand Curve
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Movement Along the Demand Curve
Movement Along the Demand Curve
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Shift of the Demand Curve
Shift of the Demand Curve
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Law of Supply
Law of Supply
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Surplus
Surplus
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Demand Schedule
Demand Schedule
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Law of Diminishing Marginal Utility
Law of Diminishing Marginal Utility
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Substitution Effect
Substitution Effect
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Individual Demand Curve
Individual Demand Curve
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Market Demand Curve
Market Demand Curve
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Creating Market Demand
Creating Market Demand
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Change in Demand
Change in Demand
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Change in Quantity Demanded
Change in Quantity Demanded
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Normal Good
Normal Good
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Inferior Good
Inferior Good
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Substitutes
Substitutes
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Complements
Complements
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More Buyers
More Buyers
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Movement along curve
Movement along curve
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Demand Curve: Shift vs. Movement
Demand Curve: Shift vs. Movement
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Supply Curve: Shift vs. Movement
Supply Curve: Shift vs. Movement
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Market Equilibrium
Market Equilibrium
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Shift in Demand: Carrots
Shift in Demand: Carrots
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Future Price Expectations
Future Price Expectations
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Inferior Good Demand
Inferior Good Demand
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Supply
Supply
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Supply Curve
Supply Curve
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Supply Curve Slope
Supply Curve Slope
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Reason for the Supply Curve slope
Reason for the Supply Curve slope
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Consumer Surplus (CS)
Consumer Surplus (CS)
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Producer Surplus (PS)
Producer Surplus (PS)
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Total Surplus (TS)
Total Surplus (TS)
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Equilibrium Change Steps
Equilibrium Change Steps
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CS and PS Values
CS and PS Values
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Quantity Demanded vs Supplied
Quantity Demanded vs Supplied
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Willingness to Pay
Willingness to Pay
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Willingness to Sell
Willingness to Sell
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Study Notes
Demand
- A market is any place people come together to trade.
- Demand indicates the willingness and ability of buyers to purchase different quantities of a good at different prices during a specific period.
Law of Demand
- Law of Demand states that as the price of a good rises, the quantity demanded of the good falls, and vice versa, ceteris paribus.
- P increases, Qd decreases or P decreases, Qd increases, ceteris paribus
Ways to Represent the Law of Demand
- Representing Law of Demand can be done using:
- Words
- Symbols
- Demand Schedule
- Demand Curve
Demand Schedule
- A Demand Schedule is the numerical tabulation of the quantity demanded of a good at different prices.
- A graphical representation of the law of demand is a demand curve.
Law of Diminishing Marginal Utility
- Over a given period, the marginal utility/satisfaction gained by consuming equal successive units of a good declines with increased consumption.
- Consumers tend to substitute lower-priced goods for higher-priced ones because of this law.
Individual vs Market Demand Curve
- Individual demand curve represents the price-quantity combinations for a single buyer.
- Market demand curve represents the price-quantity combinations for all buyers; derived by adding up individual demand curves.
Change in Quantity Demanded vs Change in Demand
- Change in demand results in a shift in the demand curve.
- An increase in demand is a rightward shift in the demand curve.
- A decrease in demand is a leftward shift in the demand curve.
- Change in quantity demanded is a movement from one point to another on the same demand curve due to a change in the price of the good.
Factors that Cause the Demand Curve Shift
- Shift in the demand curve is from any of these factors:
- Income
- Normal Good: Demand rises/falls as income rises/falls.
- Inferior Good: Demand falls/rises as income rises/falls.
- Neutral Good: Demand does not change as income rises or falls.
- Preferences
- Prices of Related Goods
- Substitutes: Satisfy similar needs/desires.
- Complements: Used jointly in consumption.
- Number of Buyers.
- Expectations of Future Price.
Supply
- Supply is the willingness and ability of sellers to produce and offer to sell different quantities of a good at different prices during a specific period.
Law of Supply
- As the price of a good rises, the quantity supplied of the good rises, and vice versa, ceteris paribus.
- P increases, Qs increases or P decreases, Qs decreases, ceteris paribus
Supply Curve
- Supply curve is the graphical representation of the law of supply.
- Most supply curves are upward sloping.
Change in Quantity Supplied vs Change in Supply
- Change in supply results in a shift in the supply curve.
- Increase in supply: Supply curve shifts rightward.
- Decrease in supply: Supply curve shifts leftward.
- Change in quantity supplied is a movement from one point to another on the same supply curve due to a change in the price of the good.
Factors That Cause the Supply Curve to Shift
- Changes to these factors can cause change in supply:
- Prices of relevant resources
- Technology
- Prices of other goods
- Number of sellers
- Expectations of future price
- Taxes and subsidies
- Government restrictions
Auction Model
- Surplus (Excess Supply): Quantity supplied exceeds quantity demanded; occurs at prices above equilibrium.
- Shortage (Excess Demand): Quantity demanded exceeds quantity supplied; occurs at prices below equilibrium.
Moving to Equilibrium
- Equilibrium: "At rest"; market price-quantity combination where buyers/sellers do not tend to move away.
- Graphically, equilibrium is the intersection point of the supply and demand curves.
- The price falls when there is a surplus and rises when there is a shortage.
- Equilibrium Quantity: The quantity corresponding to the equilibrium price where the amount buyers are willing/able to buy equals the amount sellers are willing/able to sell. Equilibrium Price (Market-Clearing Price): The price at which Qd=Qs
Surplus
- Consumer Surplus (CS): Difference between the maximum price a buyer is willing to pay and the price actually paid.
- CS = Maximum buying price - Price paid
- Producer Surplus (PS): Difference between the price sellers receive and the minimum price for which they would sell the good
- PS = Price received - Minimum selling price
- Total Surplus (TS): Sum of consumers' surplus and producers' surplus.
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- Total Surplus Consumers' Surplus + Producers' Surplus*
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Description
Test your knowledge of basic economic principles. This quiz covers the law of demand, market equilibrium, supply and demand shifts, and related concepts. Perfect for economics students!
