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Questions and Answers
When there are factors affecting the demand that are not related to the ______, the demand curve shifts to the left or right.
When there are factors affecting the demand that are not related to the ______, the demand curve shifts to the left or right.
price
The ______ of demand refers to the responsiveness of the quantity demanded to changes in the price of the good.
The ______ of demand refers to the responsiveness of the quantity demanded to changes in the price of the good.
elasticity
The demand curve shows the relationship between the ______ of the good and the quantity demanded.
The demand curve shows the relationship between the ______ of the good and the quantity demanded.
price
The number of ______ is a factor that affects the demand for a good.
The number of ______ is a factor that affects the demand for a good.
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The ______ of a good can be affected by the prices of related goods, such as complements and substitutes.
The ______ of a good can be affected by the prices of related goods, such as complements and substitutes.
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What is the fundamental principle underlying the law of demand, and how does it relate to the price of a good?
What is the fundamental principle underlying the law of demand, and how does it relate to the price of a good?
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In a competitive market, what is the characteristic that ensures that no single participant can influence the market price?
In a competitive market, what is the characteristic that ensures that no single participant can influence the market price?
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What does a demand curve graphically represent, and how does it respond to changes in the price of a good?
What does a demand curve graphically represent, and how does it respond to changes in the price of a good?
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What is the difference between elastic and inelastic demand, and how do they respond to changes in the price of a good?
What is the difference between elastic and inelastic demand, and how do they respond to changes in the price of a good?
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What are the factors that determine the demand for a good, and how do they affect the demand curve?
What are the factors that determine the demand for a good, and how do they affect the demand curve?
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Study Notes
Elasticity of Supply
- The supply of goods that can be easily increased with little difficulty is elastic (e.g., CDs, books, pizza).
- The supply of goods that cannot be easily increased due to significant difficulties is inelastic (e.g., automobiles, apples).
Inelastic Supply
- Inelastic supply occurs when the quantity supplied changes very little in response to a change in price.
- Examples of inelastic supply include:
- Automobiles: increasing production requires building a new factory, hiring hundreds of workers, etc.
- Apples: increasing production requires planting more trees, which takes years to grow and produce.
Factors Affecting Supply
- There are three factors unrelated to price that affect supply:
- Change in production costs (e.g., decrease in production costs leads to an increase in supply).
- Change in resource prices (e.g., increase in labor costs leads to a decrease in supply).
- Maximization of profit (e.g., producers may increase supply to maximize profit).
Determinants of Supply
- Determinants of supply include:
- Production costs
- Resource prices
- Technology
- Number of sellers
- Expectations
Market Equilibrium
- Market equilibrium occurs when the quantity demanded equals the quantity supplied.
- The equilibrium price and quantity can be determined by finding the point where the demand and supply curves intersect.
Practice Question
- When market conditions change, the demand or supply curve shifts.
- This can result in a surplus or shortage in the market.
- The direction of the shift depends on the factor causing the change.
Price Elasticity of Demand
- Price elasticity of demand measures the responsiveness of the quantity demanded to a change in price.
- Determinants of price elasticity of demand include:
- Availability of close substitutes
- Necessities versus luxuries
- Definition of the market (e.g., food vs. ice cream)
Determinants of Demand
- Determinants of demand include:
- Price of related goods
- Number of buyers
- Complements
- Substitutes
- Income
Factors Affecting Demand
- There are four factors unrelated to price that affect demand:
- Change in income
- Change in prices of related goods
- Change in consumer preferences
- Change in population or demographics
Demand and Supply
- The demand curve shows how the quantity demanded changes in response to a change in the price.
Determinants of Demand
- There are 4 factors unrelated to price that affect demand:
- Price of related goods
- Number of buyers
- Complements and substitutes
- Expectations
Supply Curve
- The supply curve shows how the quantity supplied changes in response to a change in the price.
Determinants of Supply
- There are 3 factors unrelated to price that affect supply:
- Production costs
- Technology
- Expectations
Market Equilibrium
- Market equilibrium occurs when the quantity demanded equals the quantity supplied.
- The equilibrium price and quantity are determined by the intersection of the demand and supply curves.
Elasticity of Demand
- Elasticity of demand measures how responsive the quantity demanded is to a change in price.
- There are two types of elasticity:
- Elastic demand: the quantity demanded changes significantly in response to a small change in price.
- Inelastic demand: the quantity demanded changes very little in response to a small change in price.
Key Concepts
- The law of demand states that as the price increases, the quantity demanded decreases.
- A change in the price of a related good can shift the demand curve.
- A change in the number of buyers can shift the demand curve.
- A change in expectations can shift the demand curve.
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Description
This quiz covers the concept of elasticity of supply in economics, including the factors that affect the supply of goods and services. It explores the differences between elastic and inelastic supply.
