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Questions and Answers
What does a supply curve represent?
What does a supply curve represent?
A supply curve slopes downward.
A supply curve slopes downward.
False
What does an upward-sloping supply curve indicate?
What does an upward-sloping supply curve indicate?
As price rises, quantity supplied rises.
The _____ supplied in the market is the total amount provided by all sellers at each price.
The _____ supplied in the market is the total amount provided by all sellers at each price.
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Match the following sellers with their contribution to market supply:
Match the following sellers with their contribution to market supply:
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What occurs when the market price is set below the equilibrium price?
What occurs when the market price is set below the equilibrium price?
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At equilibrium, quantity demanded is equal to quantity supplied.
At equilibrium, quantity demanded is equal to quantity supplied.
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Define equilibrium price.
Define equilibrium price.
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If the quantity demanded exceeds the quantity supplied, it results in a __________.
If the quantity demanded exceeds the quantity supplied, it results in a __________.
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Match the following concepts with their definitions:
Match the following concepts with their definitions:
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What is the quantity demanded at a price of $1.00?
What is the quantity demanded at a price of $1.00?
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The demand curve slopes downward due to the law of increasing utility.
The demand curve slopes downward due to the law of increasing utility.
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Name one reason for the downward slope of demand curves.
Name one reason for the downward slope of demand curves.
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If the price of Pizza Hut increases, the quantity demanded of Pizza Hut will __________.
If the price of Pizza Hut increases, the quantity demanded of Pizza Hut will __________.
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Match the reasons for the downward sloping demand curve with their descriptions:
Match the reasons for the downward sloping demand curve with their descriptions:
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At what price do Ali and Abu together demand a total of 8 CD's?
At what price do Ali and Abu together demand a total of 8 CD's?
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The income effect implies that lower prices decrease purchasing power.
The income effect implies that lower prices decrease purchasing power.
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What happens to the quantity demanded when the price of a good decreases?
What happens to the quantity demanded when the price of a good decreases?
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What effect do higher input prices have on the supply curve?
What effect do higher input prices have on the supply curve?
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An increase in the number of suppliers will decrease the supply of a good.
An increase in the number of suppliers will decrease the supply of a good.
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What is a substitute in production?
What is a substitute in production?
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A rise in prices of palm oil may cause farmers to switch from rubber to __________.
A rise in prices of palm oil may cause farmers to switch from rubber to __________.
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Which determinant of supply involves technological advancements?
Which determinant of supply involves technological advancements?
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Match the determinants of supply with their effects:
Match the determinants of supply with their effects:
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Producers will supply more now if they expect a price decrease in the future.
Producers will supply more now if they expect a price decrease in the future.
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An increase in the price of related products may __________ the supply of another product.
An increase in the price of related products may __________ the supply of another product.
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What does a change in the price of a good lead to?
What does a change in the price of a good lead to?
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An increase in the price of a substitute good will cause an increase in demand for the other substitute good.
An increase in the price of a substitute good will cause an increase in demand for the other substitute good.
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What term is used to describe goods that are consumed together?
What term is used to describe goods that are consumed together?
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An increase in the demand for a good occurs when one of the determinants of demand changes, except for the _____ of the good.
An increase in the demand for a good occurs when one of the determinants of demand changes, except for the _____ of the good.
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Match the determinant of demand with its description:
Match the determinant of demand with its description:
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Which of the following is NOT a determinant of demand?
Which of the following is NOT a determinant of demand?
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A decrease in the price of a complement good will result in an increase in the demand for the other good.
A decrease in the price of a complement good will result in an increase in the demand for the other good.
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What happens to the demand curve when there is a change in demand?
What happens to the demand curve when there is a change in demand?
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What happens to the equilibrium quantity when the demand curve shifts to the right?
What happens to the equilibrium quantity when the demand curve shifts to the right?
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An unchanged supply curve with a leftward shift of the demand curve results in an increase in equilibrium price.
An unchanged supply curve with a leftward shift of the demand curve results in an increase in equilibrium price.
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What is the effect on equilibrium price when the supply curve shifts to the left with unchanged demand?
What is the effect on equilibrium price when the supply curve shifts to the left with unchanged demand?
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When the demand curve shifts right and the supply curve remains unchanged, the equilibrium price will _____.
When the demand curve shifts right and the supply curve remains unchanged, the equilibrium price will _____.
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Match the following shifts to their effects on equilibrium quantity:
Match the following shifts to their effects on equilibrium quantity:
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Which of the following can lead to a shift in the demand curve?
Which of the following can lead to a shift in the demand curve?
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What is the primary effect of an increase in the price of gas on the demand for hybrid cars?
What is the primary effect of an increase in the price of gas on the demand for hybrid cars?
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An increase in technology that reduces production costs for hybrid cars shifts the supply curve to the left.
An increase in technology that reduces production costs for hybrid cars shifts the supply curve to the left.
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Study Notes
Market Demand and Supply
- Market: The process of buyers and sellers exchanging goods and services. Examples include supermarkets, online stores, and restaurants.
- Demand Side: Buyers determine the demand side of the market, whether it's consumers purchasing goods or businesses buying resources.
- Supply Side: Sellers determine the supply side, whether it's producers selling goods or resource owners.
- Market prices and output are determined by the interactions of buyers and sellers through the forces of demand and supply.
- Demand: The willingness and ability of buyers to purchase different quantities of goods and services at various prices during a specific time.
Learning Objectives for the Topic
- Market Demand (Week 3)
- Market Supply (Week 4)
Demand
- Definition of demand: The willingness and ability of buyers to purchase different quantities of goods & services at various prices during a specific time period.
- Law of Demand: When the price of a good or service falls, quantity demanded increases (and vice versa). This is an inverse relationship, assuming all else is equal.
- Demand schedule: A table showing the quantity demanded of a good at various prices.
- Demand curve: A graphical representation of a demand schedule, usually showing price on the vertical axis and quantity demanded on the horizontal axis. The curve slopes downwards.
- Individual demand vs market demand: Market demand is the sum of all individual demands at each price.
Reasons for Downward Sloping Demand Curves
- Observed Behavior: Consumers generally buy more at lower prices.
- Diminishing Marginal Utility: Each additional unit of a good tends to provide less satisfaction to the consumer.
- Substitution Effect and Income Effects: Price rises for one good (e.g. Pizza Hut) encourages customers to substitute to another (e.g. Domino's) and/or increase their purchasing power for other goods if prices fall.
Determinants of Demand
- Prices of related goods (substitutes/complements): A rise in the price of a substitute good increases the demand for the original good, and vice versa; a rise in the price of a complementary good decreases the demand for the original good, and vice versa.
- Incomes of demanders (normal/inferior goods): Normal goods see higher demand with increased income; inferior goods see lower demand.
- Number of demanders/buyers: More potential buyers increases the overall demand.
- Taste and preferences: Shifting tastes or preferences for a good impact demand (e.g., trends).
- Expectations of demanders: Expectations about future price changes affect current demand.
- A change in price causes a movement along the demand curve.
- All other factors (non-price determinants) cause a shift of the demand curve.
Supply
- Definition of supply: The willingness and ability of sellers to offer differing quantities of a good or service at differing prices during a specific time.
- Law of Supply: When the price of a good or service increases, quantity supplied increases; when price decreases, quantity supplied decreases. The relationship is positive.
Determinants of Supply
- Input prices: Higher input costs reduce supply, lower input costs increase supply.
- Prices of related products: When the competing product's price rises, supply of the original item decreases.
- Expectations: If the price is expected to be higher in the future, supply will decrease now. If expected to be lower it increases.
- Number of suppliers: More suppliers increase supply.
- Technology: Advancements in technology increase productivity and, thus, supply.
- Government regulations: Regulations that increase costs reduce supply; those that decrease costs increase supply.
- Weather: Good weather often increases supply, while bad weather reduces it.
Market Equilibrium
- Equilibrium: The point where the supply and demand curves intersect.
- Equilibrium price: The price at the intersection of the supply and demand curves, where quantity supplied equals quantity demanded.
- Equilibrium quantity: The quantity exchanged at the market's equilibrium price.
- Shortage: occurs when quantity demanded exceeds quantity supplied at a given price (price below equilibrium).
- Surplus: occurs when quantity supplied exceeds quantity demanded at a given price (price above equilibrium).
Changes in Equilibrium
- Events that change demand and/or supply cause shifts in the equilibrium. Determine (1) which curves are affected and (2) direction of the shifts to identify the likely changes in equilibrium price & quantity.
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Description
Test your knowledge on the concepts of supply and demand with this engaging quiz. Explore important terms like equilibrium price, market supply, and the characteristics of the supply and demand curves. Challenge yourself with matching questions and scenarios to reinforce your understanding of economic principles.
