Questions and Answers
According to the law of demand, what happens when the price of a good goes up?
People will buy less of that good.
Adding the quantities demanded by all consumers at every price will yield what?
The market demand curve.
What does any improvement in overall production technology that permits more output cause?
A rightward shift in the supply curve.
What is the only way to move along a given supply curve for a product?
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If both the demand for and the supply of tablet computers are increasing, what can we say about the price?
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If more buyers enter the market for a good, what would we expect to see in the market demand curve?
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If the price of Apple cell phones goes down, what will happen to the demand for Samsung phones?
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What is an economic system in which relative prices change to reflect changes in supply and demand called?
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What happens in a free market when there is a shortage?
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What does it mean if the price of an item can freely adjust?
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In a market system, which component conveys information about scarcity and abundance?
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If there were 6 pizza shops last year and only 4 this year, what will happen to the quantity supplied at each price?
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Markets are a mechanism through which what is determined?
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What happens if there is an increase in wages for workers making pizza?
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If Pam notices she buys less hamburger after her income rises, is she violating the law of demand?
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What can be concluded if Sara changes her consumption patterns after a salary increase?
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What is a normal good?
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What is an inferior good?
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If new research finds that eating turmeric has health benefits, what will happen to the demand for turmeric?
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What occurs in the market for hamburger if consumer income decreases and hamburger is an inferior good?
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What must have occurred if you are told that the equilibrium price of iPhones has increased, while the equilibrium quantity has fallen?
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What does the concept of demand in economics refer to?
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What does the law of supply state?
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When does the equilibrium or market clearing price occur?
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What factor would cause a movement along the demand curve for pizza?
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What does the law of demand predict about an increase in the price of a good?
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Study Notes
Law of Demand
- When prices rise, the quantity demanded decreases, assuming all other factors remain constant.
Market Demand Curve
- Total quantities demanded by all consumers at each price point yield the overall market demand curve.
Supply Curve Shifts
- Technological improvements can lead to a rightward shift in the supply curve, enabling greater output with the same inputs.
Movement Along Supply Curves
- Changes in the price of a product are necessary to move along its supply curve while holding other factors constant.
Demand and Supply Interactions
- An increase in both demand and supply for a product creates uncertainty in price movements.
Market Demand Curve Adjustments
- An influx of buyers results in a shift of the market demand curve outward, upward, and to the right.
Substitute Goods
- A decrease in the price of one substitute (e.g., apple cell phones) can lead to a decrease in demand for another substitute (e.g., Samsung phones).
Market System
- An economic system where prices adjust to depict changes in supply and demand for various commodities.
Shortage Response
- In free markets, shortages result in consumers offering higher prices, pushing prices toward equilibrium levels.
Market Dynamics
- Market adjustments tend toward equilibrium when prices can freely change.
Information Conveyed by Prices
- Prices in a market system indicate the relative scarcity or abundance of goods and services.
Supply Decrease
- A reduction in the number of suppliers (e.g., from 6 to 4 pizza shops) leads to a decrease in the quantity supplied at every price point.
Market Mechanism
- Markets function as mechanisms where the forces of supply and demand determine the prices of goods and services.
Wage Impact on Supply
- Increased wages for workers affect supply negatively, leading to a reduction in the quantity supplied.
Demand and Income Dynamics
- An individual's consumption changes in response to income variations; for example, if income rises but hamburger consumption decreases, hamburger is classified as an inferior good.
Definitions of Goods
- Normal good: Demand increases as income rises.
- Inferior good: Demand decreases as income rises.
Impact of Consumer Behavior
- Positive scientific findings about a product (e.g., turmeric) increase its demand.
Inferior Goods and Market Trends
- For inferior goods like hamburgers, a decrease in consumer income results in an increase in both market clearing and equilibrium prices.
Supply Decrease
- If the equilibrium price increases while the equilibrium quantity decreases, it indicates a decrease in supply.
Concept of Demand
- Demand in economics considers various quantities of a good or service consumers will purchase at differing price levels.
Law of Supply
- Indicates that an increase in price leads to an increase in the quantity supplied, maintaining all else constant.
Market Equilibrium
- The equilibrium price is identified where quantity demanded matches quantity supplied.
Demand Curve Movement
- A reduction in the price of pizza is an example of a factor that would cause a movement along its demand curve.
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Description
This quiz focuses on the fundamental concepts related to the law of demand in economics. It includes key definitions and explanations that help understand how price changes affect consumer behavior and market demand. Perfect for students preparing for exams or anyone looking to refresh their economics knowledge.
