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Questions and Answers
What does the Law of Demand state?
What does the Law of Demand state?
- Demand is unaffected by changes in price.
- When the price of a product decreases, the quantity demanded will increase. (correct)
- When the price of a product rises, the quantity demanded will rise.
- When the price of a product falls, the quantity demanded will decrease.
What effect explains the change in quantity demanded as a product becomes cheaper relative to substitutes?
What effect explains the change in quantity demanded as a product becomes cheaper relative to substitutes?
- Market effect
- Demand effect
- Substitution effect (correct)
- Income effect
What happens when there is an increase in demand?
What happens when there is an increase in demand?
- The quantity demanded decreases at all prices.
- The price remains constant while demand decreases.
- The demand curve shifts to the left.
- The demand curve shifts to the right. (correct)
What occurs due to the income effect when the price of a normal good decreases?
What occurs due to the income effect when the price of a normal good decreases?
If the price of a product increases and the entire demand curve shifts left, this indicates what type of change?
If the price of a product increases and the entire demand curve shifts left, this indicates what type of change?
Which of the following factors would NOT cause a shift in the demand curve?
Which of the following factors would NOT cause a shift in the demand curve?
What is the likely effect on demand for a normal good if consumer incomes decrease?
What is the likely effect on demand for a normal good if consumer incomes decrease?
How does the quantity demanded change when the demand curve shifts, regardless of the price?
How does the quantity demanded change when the demand curve shifts, regardless of the price?
What happens to the demand for a normal good when consumer income increases?
What happens to the demand for a normal good when consumer income increases?
What is the effect on the demand for a substitute good if the price of that substitute increases?
What is the effect on the demand for a substitute good if the price of that substitute increases?
Which of the following is an example of an inferior good?
Which of the following is an example of an inferior good?
How does a change in consumer tastes affect the demand for fast food if health consciousness increases?
How does a change in consumer tastes affect the demand for fast food if health consciousness increases?
What is the relationship between complementary goods in terms of demand?
What is the relationship between complementary goods in terms of demand?
What effect does having more people in a population have on the demand for a given product?
What effect does having more people in a population have on the demand for a given product?
Which of the following correctly describes the impact of expected future prices on current demand?
Which of the following correctly describes the impact of expected future prices on current demand?
If the price of McDonald's fries increases, what is the likely effect on the demand for Big Macs?
If the price of McDonald's fries increases, what is the likely effect on the demand for Big Macs?
What is the law of supply?
What is the law of supply?
What happens to the supply curve when there is an increase in supply?
What happens to the supply curve when there is an increase in supply?
Which of the following factors can shift the supply curve?
Which of the following factors can shift the supply curve?
What effect does an increase in the price of input goods typically have on supply?
What effect does an increase in the price of input goods typically have on supply?
How does a decrease in the price of an input good affect supply?
How does a decrease in the price of an input good affect supply?
What is the implication of supply curves regarding their slope?
What is the implication of supply curves regarding their slope?
Which scenario describes a decrease in supply?
Which scenario describes a decrease in supply?
What occurs to the quantity supplied if the supply curve shifts leftward at constant prices?
What occurs to the quantity supplied if the supply curve shifts leftward at constant prices?
What likely happens to the demand for a product if consumers expect its price to increase in the future?
What likely happens to the demand for a product if consumers expect its price to increase in the future?
Which scenario illustrates a change in quantity demanded?
Which scenario illustrates a change in quantity demanded?
What is the primary difference between a change in demand and a change in quantity demanded?
What is the primary difference between a change in demand and a change in quantity demanded?
How does Apple's policy on product speculation align with the concept of substitutes affecting demand?
How does Apple's policy on product speculation align with the concept of substitutes affecting demand?
What does a supply schedule display?
What does a supply schedule display?
What effect can an anticipated decrease in future prices have on current demand?
What effect can an anticipated decrease in future prices have on current demand?
What does a supply curve illustrate?
What does a supply curve illustrate?
Why might an increase in the elderly population affect demand for specific services?
Why might an increase in the elderly population affect demand for specific services?
What happens to the equilibrium price and quantity when there is an increase in supply?
What happens to the equilibrium price and quantity when there is an increase in supply?
When incomes increase for consumers of smartphones, what is the resulting effect on demand?
When incomes increase for consumers of smartphones, what is the resulting effect on demand?
If both demand and supply increase simultaneously, what is certain about equilibrium quantity?
If both demand and supply increase simultaneously, what is certain about equilibrium quantity?
Which of the following statements regarding price is accurate when demand increases while supply remains unchanged?
Which of the following statements regarding price is accurate when demand increases while supply remains unchanged?
What can be said about the direction of equilibrium price and quantity following a shift in demand to the right?
What can be said about the direction of equilibrium price and quantity following a shift in demand to the right?
What is the effect on equilibrium price when supply decreases while demand remains constant?
What is the effect on equilibrium price when supply decreases while demand remains constant?
Which of the following impacts both equilibrium price and quantity when supply increases more than demand?
Which of the following impacts both equilibrium price and quantity when supply increases more than demand?
In the market where both supply and demand are shifting to the right, what is uncertain about the equilibrium price?
In the market where both supply and demand are shifting to the right, what is uncertain about the equilibrium price?
Study Notes
The Law of Demand
- The law of demand states that when the price of a product falls, the quantity demanded will increase, and when the price rises, the quantity demanded will decrease.
- The demand curve slopes downward.
Factors Explaining the Law of Demand
- Substitution Effect: Consumers substitute towards a cheaper product relative to other options.
- Income Effect: Consumers have greater purchasing power when prices fall and choose to purchase more goods overall.
Increase and Decrease in Demand
- Increase in demand: A shift in the entire demand curve to the right (D1 to D2), meaning consumers are willing to purchase more at every price.
- Decrease in demand: A shift in the entire demand curve to the left (D1 to D3), meaning consumers are willing to purchase less at every price.
Factors that Influence Market Demand
- Income of Consumers:
- Normal Good: Demand increases as income rises and decreases as income falls.
- Inferior Good: Demand decreases as income rises and increases as income falls.
- Prices of Related Goods:
- Substitutes: An increase in the price of a substitute good increases the demand for the other good.
- Complements: An increase in the price of a complementary good decreases the demand for the other good.
- Tastes: Changes in consumer preferences can lead to increased or decreased demand.
- Population and Demographics: An increase in the population or a change in demographics may increase demand for certain products.
- Expected Future Prices: Expectations of higher prices can increase current demand, while expectations of lower prices can decrease current demand.
Change in Demand vs. Change in Quantity Demanded
- Change in Quantity Demanded: Movement along the demand curve due to a change in the price of the product itself.
- Change in Demand: A shift in the entire demand curve caused by factors other than the price of the product.
The Law of Supply
- The law of supply states that when the price of a product increases, the quantity supplied will also increase, and when the price decreases, the quantity supplied will decrease.
- The supply curve slopes upward.
Increase and Decrease in Supply
- Increase in supply: A shift in the entire supply curve to the right (S1 to S3), meaning suppliers are willing to offer more at every price.
- Decrease in supply: A shift in the entire supply curve to the left (S1 to S2), meaning suppliers are willing to offer less at every price.
Factors that Influence Market Supply
- Prices of Inputs: A decrease in the price of inputs (resources used in production) will increase supply, while an increase in input prices will decrease supply.
- Technological Change: Advances in technology can lead to increased efficiency, lowering production costs and increasing supply.
- Prices of Substitutes in Production: If the price of a good that can also be produced decreases, its supply may increase, leading to a decrease in the supply of the original good.
- Number of Firms in the Market: Increasing the number of producers will increase supply, while decreasing the number of firms will decrease supply.
- Expected Future Prices: Expectations of higher future prices can decrease current supply, while expectations of lower future prices can increase current supply.
The Effect of Shifts in Supply on Equilibrium
- An increase in supply will lead to a lower equilibrium price and a higher equilibrium quantity.
The Effect of Shifts in Demand on Equilibrium
- An increase in demand will lead to a higher equilibrium price and a higher equilibrium quantity.
Shifts in Demand and Supply Over Time
- Over time, both demand and supply are likely to change.
- If demand shifts more than supply, equilibrium quantity will increase, but the effect on price is not certain.
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Description
Test your understanding of the Law of Demand, including factors such as the substitution and income effects. Explore how changes in price can cause shifts in the demand curve and what influences market demand. This quiz is a great way to reinforce key concepts in microeconomics.
