9 Questions
What is the definition of supply in the context of economics?
The amount of a good or service that producers are willing and able to produce and sell at a given price level.
What happens to the quantity supplied when the price of a good increases, according to the Law of Supply?
It increases.
What is the result of an increase in demand for a good?
A shortage at the original price level.
What happens to the equilibrium price when there is an increase in supply and a decrease in demand?
It decreases.
What is a factor that affects the supply of a good?
Production costs.
What is the result of a decrease in supply for a good?
A shortage at the original price level.
What is the definition of equilibrium in the context of economics?
The point where the supply and demand curves intersect.
What is the result of an increase in supply and an increase in demand for a good?
The equilibrium price and quantity both increase.
What is a factor that affects the demand of a good?
Income.
Study Notes
Supply and Demand
Definition
- Supply: The amount of a good or service that producers are willing and able to produce and sell at a given price level.
- Demand: The amount of a good or service that consumers are willing and able to buy at a given price level.
Law of Supply
- As the price of a good increases, the quantity supplied also increases.
- As the price of a good decreases, the quantity supplied also decreases.
Law of Demand
- As the price of a good increases, the quantity demanded decreases.
- As the price of a good decreases, the quantity demanded increases.
Equilibrium
- Occurs when the quantity supplied equals the quantity demanded.
- Equilibrium price: The price at which the supply and demand curves intersect.
- Equilibrium quantity: The quantity at which the supply and demand curves intersect.
Shifts in Supply and Demand
-
Increase in Supply:
- Shifts the supply curve to the right.
- Causes a surplus at the original price level.
-
Decrease in Supply:
- Shifts the supply curve to the left.
- Causes a shortage at the original price level.
-
Increase in Demand:
- Shifts the demand curve to the right.
- Causes a shortage at the original price level.
-
Decrease in Demand:
- Shifts the demand curve to the left.
- Causes a surplus at the original price level.
Factors Affecting Supply and Demand
-
Supply:
- Production costs
- Technology
- Expectations
- Government policies
-
Demand:
- Price of related goods
- Consumer preferences
- Income
- Population and demographics
Supply and Demand
Definition
- Supply refers to the amount of a good or service that producers are willing and able to produce and sell at a given price level.
- Demand refers to the amount of a good or service that consumers are willing and able to buy at a given price level.
Law of Supply
- A direct relationship exists between the price of a good and the quantity supplied: as the price increases, the quantity supplied also increases.
- Conversely, as the price of a good decreases, the quantity supplied also decreases.
Law of Demand
- An inverse relationship exists between the price of a good and the quantity demanded: as the price increases, the quantity demanded decreases.
- Conversely, as the price of a good decreases, the quantity demanded increases.
Equilibrium
- Equilibrium occurs when the quantity supplied equals the quantity demanded.
- The equilibrium price is the price at which the supply and demand curves intersect.
- The equilibrium quantity is the quantity at which the supply and demand curves intersect.
Shifts in Supply and Demand
- An increase in supply shifts the supply curve to the right, causing a surplus at the original price level.
- A decrease in supply shifts the supply curve to the left, causing a shortage at the original price level.
- An increase in demand shifts the demand curve to the right, causing a shortage at the original price level.
- A decrease in demand shifts the demand curve to the left, causing a surplus at the original price level.
Factors Affecting Supply and Demand
- Supply is affected by:
- Production costs
- Technology
- Expectations
- Government policies
- Demand is affected by:
- Price of related goods
- Consumer preferences
- Income
- Population and demographics
Quiz on the concepts of supply and demand, including the law of supply and demand in economics
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