Principle of Economics Chapter 3
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Questions and Answers

What effect does an increase in demand have on the equilibrium price?

  • It remains unchanged.
  • It becomes negative.
  • It decreases.
  • It increases. (correct)

    • What happens to the equilibrium quantity when supply increases?

  • It decreases.
  • It increases. (correct)
  • It remains constant.
  • It becomes unpredictable.

    • If both demand and supply increase, what can be inferred about the equilibrium quantity?

  • It definitely decreases.
  • It increases. (correct)
  • It is impossible to determine.
  • It remains the same.

    • When there is a decrease in demand, what is the expected change in equilibrium quantity?

    <p>It decreases.</p> Signup and view all the answers

    What is the effect on equilibrium price when supply decreases?

    <p>It definitely increases.</p> Signup and view all the answers

    What determines the change in equilibrium price when both demand and supply increase?

    <p>It is uncertain.</p> Signup and view all the answers

    In the case of decreasing demand without any change in supply, what is true about the equilibrium price?

    <p>It decreases.</p> Signup and view all the answers

    Which of the following combinations results in a decrease in equilibrium quantity?

    <p>Decrease in both demand and supply.</p> Signup and view all the answers

    What effect does a rise in price have on the quantity demanded according to the demand curve?

    <p>Decreases the quantity demanded</p> Signup and view all the answers

    How does a demand curve represent willingness to pay?

    <p>It reflects marginal benefit based on quantity availability</p> Signup and view all the answers

    What is individual demand?

    <p>The demand level of one specific consumer</p> Signup and view all the answers

    When a fall in price occurs, what happens to the movement along the demand curve?

    <p>Movement down the demand curve</p> Signup and view all the answers

    What happens when the price is set above the equilibrium price?

    <p>The quantity supplied exceeds the quantity demanded.</p> Signup and view all the answers

    How is market demand derived?

    <p>From the sum of individual demands of all consumers</p> Signup and view all the answers

    What is true about market equilibrium?

    <p>At equilibrium, buyers and sellers' plans agree.</p> Signup and view all the answers

    What effect does a rightward shift of the demand curve indicate?

    <p>There is a resultant shortage at the original price.</p> Signup and view all the answers

    What does the demand schedule illustrate?

    <p>The relationship between price and quantity demanded</p> Signup and view all the answers

    What occurs when there is a shortage in the market?

    <p>Suppliers are forced to increase prices.</p> Signup and view all the answers

    What role does ceteris paribus play in analyzing a demand curve?

    <p>It holds all other factors constant to isolate price effects</p> Signup and view all the answers

    What characterizes a surplus at a given price level?

    <p>The quantity supplied exceeds the quantity demanded.</p> Signup and view all the answers

    What does a movement up along the demand curve indicate?

    <p>An increase in quantity demanded due to increased price</p> Signup and view all the answers

    What happens when the supply curve shifts rightward?

    <p>Equilibrium price decreases.</p> Signup and view all the answers

    What results from maintaining a price below equilibrium?

    <p>A shortage of goods occurs.</p> Signup and view all the answers

    How does market equilibrium change in response to shifts in supply or demand?

    <p>Changes in supply or demand lead to predictable adjustments in equilibrium.</p> Signup and view all the answers

    What does the law of supply indicate about the relationship between price and quantity supplied?

    <p>As the price increases, the quantity supplied increases.</p> Signup and view all the answers

    What is the term used to describe the graphical representation of the law of supply?

    <p>Supply curve</p> Signup and view all the answers

    What shift occurs in the supply curve when there is an increase in supply?

    <p>It shifts rightward.</p> Signup and view all the answers

    Which factor can lead to a change in supply that does not relate to price changes?

    <p>A change in consumer preferences.</p> Signup and view all the answers

    What does market supply represent?

    <p>The total quantity supplied by all producers in the market.</p> Signup and view all the answers

    What is the primary characteristic of a supply schedule?

    <p>It illustrates the relationship between price and quantity supplied at varying prices.</p> Signup and view all the answers

    Which of the following scenarios would lead to a decrease in supply?

    <p>A natural disaster affects the production facility.</p> Signup and view all the answers

    What does 'ceteris paribus' mean in the context of supply?

    <p>All other factors are equal.</p> Signup and view all the answers

    What happens to the supply curve when the price of a factor of production rises?

    <p>The supply curve shifts leftward.</p> Signup and view all the answers

    Which statement correctly describes the relationship between substitutes in production and supply?

    <p>The supply of a good increases if the price of a substitute in production falls.</p> Signup and view all the answers

    How does an expectation of rising future prices affect current supply?

    <p>Current supply decreases.</p> Signup and view all the answers

    Which factor is least likely to influence the supply of a good?

    <p>Goals of the suppliers.</p> Signup and view all the answers

    What occurs to the supply curve when the number of suppliers increases?

    <p>The supply curve shifts rightward.</p> Signup and view all the answers

    Which of the following correctly describes the effect of government restrictions on supply?

    <p>Government restrictions can limit or decrease supply.</p> Signup and view all the answers

    If the price of a complement in production rises, what is the expected effect on the supply of the related good?

    <p>The supply increases.</p> Signup and view all the answers

    Which scenario describes a supply shock?

    <p>A sudden decrease in production due to technology failures.</p> Signup and view all the answers

    What is the primary difference between a change in quantity demanded and a change in demand?

    <p>A change in quantity demanded occurs along the demand curve due to price changes.</p> Signup and view all the answers

    Which factor does not directly determine market supply?

    <p>Consumer income levels</p> Signup and view all the answers

    In which situation would you expect an increase in the equilibrium price and quantity in a market?

    <p>A successful advertising campaign that raises consumer awareness.</p> Signup and view all the answers

    What does a shift to the left of the supply curve indicate?

    <p>A decrease in the quantity supplied at all prices.</p> Signup and view all the answers

    Which statement is true regarding consumer surplus?

    <p>It represents the net gain consumers receive from purchasing a good at a price lower than their maximum willingness to pay.</p> Signup and view all the answers

    What is an absolute price in the context of economics?

    <p>The price of a good expressed as the total cost in monetary terms.</p> Signup and view all the answers

    Which scenario would likely lead to a decrease in market equilibrium quantity?

    <p>An increase in production costs causing suppliers to reduce output.</p> Signup and view all the answers

    What is meant by market equilibrium?

    <p>The situation where the quantity demanded equals the quantity supplied.</p> Signup and view all the answers

    Study Notes

    Course Title

    • Principle of Economics

    Chapter 3

    • Demand, Supply, and Market Equilibrium

    Demand

    • Law of Demand: As the price of a good rises, the quantity demanded of the good falls; as the price falls, the quantity demanded rises, ceteris paribus.
    • Demand Curve: A graphical representation of the law of demand. It shows the relationship between price and quantity demanded.
    • Change in Quantity Demanded: A movement along a demand curve in response to a change in the good's own price.
    • Changes in Demand: A shift of the entire demand curve due to a change in factors other than the good's own price.
    • Individual Demand: Demand of an individual consumer.
    • Market Demand: The sum of the individual demands of all consumers in the market.
    • Factors Determining Demand:
      • Prices of related goods (substitute and complements)
      • Expected future prices
      • Income
      • Expected future income and credit
      • Preferences
      • Population

    Supply

    • Law of Supply: As the price of a good rises, the quantity supplied of the good rises; as the price falls, the quantity supplied falls, ceteris paribus.
    • Supply Curve: A graphical representation of the law of supply. It shows the relationship between price and quantity supplied.
    • Change in Quantity Supplied: A movement along a supply curve in response to a change in the good's own price.
    • Changes in Supply: A shift of the entire supply curve due to a change in factors other than the good's own price.
    • Individual Supply: Supply of a single producer.
    • Market Supply: The sum of the individual producers' in the market supply.
    • Factors Determining Supply:
      • Prices of factors of productions
      • Prices of related goods produced (substitute and complements)
      • Expected future prices
      • Number of suppliers
      • Technology
      • Government policy and restriction
      • State of nature

    Market Equilibrium

    • Equilibrium is the combination of price and quantity where there's no tendency for buyers or sellers to change.
    • Equilibrium Price: The price where quantity demanded equals quantity supplied.
    • Equilibrium Quantity: Quantity bought/sold at the equilibrium price.
    • Surplus: When quantity supplied exceeds quantity demanded.
    • Shortage: When quantity demanded exceeds quantity supplied.
    • Factors that influence Price Adjustments:
      • Demand increases/decreases.
      • Supply increases/decreases.

    Changes in Equilibrium

    • Changes in demand or supply will shift the equilibrium.
    • Increase in demand: higher price and quantity.
    • Decrease in demand: lower price and quantity.
    • Increase in supply: lower price and quantity.
    • Decrease in supply: higher price and quantity.
    • Changes in both demand and supply: prices/quantity are uncertain.

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    Principle Of Economics Chapter 3 PDF

    Description

    Test your understanding of demand, supply, and market equilibrium in this quiz based on Chapter 3 of Principles of Economics. You'll explore the law of demand, demand curves, and the factors affecting demand. Perfect for those looking to deepen their knowledge of economic principles!

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