Quarter 1 Module 3: Market Supply and Demand

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Questions and Answers

What does the Law of Demand state?

As the price of a good rises, the quantity demanded falls. (correct)

As the price of a good rises, the quantity demanded also rises.

As the price of a good falls, the quantity demanded remains unchanged.

As the price of a good changes, the demand curve shifts right.

What does 'ceteris paribus' imply in the context of the Law of Demand?

All other factors must be considered when evaluating demand.

Changes in income do not affect demand.

It means that nothing else changes while analyzing demand. (correct)

Only price changes will affect the quantity demanded.

Which statement about demand is correct?

Demand is only influenced by the income level of buyers.

Demand refers only to the quantity purchased at a fixed price.

Demand and supply are identical concepts in economics.

Demand is the willingness and ability to purchase at different prices over time. (correct)

What is the graphical representation of the Law of Demand?

A downward-sloping curve. Signup and view all the answers

What distinguishes a change in quantity demanded from a change in demand?

A change in demand refers to a shift in the demand curve due to factors like income. Signup and view all the answers

What happens to the quantity demanded of gasoline when its price increases?

Quantity demanded decreases Signup and view all the answers

How does the increase in gasoline prices affect the sale of cars?

Car sales decline Signup and view all the answers

Which of the following best summarizes the Law of Supply?

As the price of a good decreases, quantity supplied decreases Signup and view all the answers

In which of the following forms can the Law of Supply be represented?

In words, symbols, and supply schedule Signup and view all the answers

What is the primary relationship stated in the Law of Supply?

Higher prices result in higher quantity supplied Signup and view all the answers

What does 'quantity demanded' refer to?

The willingness and ability of buyers to purchase a specific quantity at a specific price Signup and view all the answers

What causes a movement along the demand curve?

A change in the price of the good Signup and view all the answers

What is indicated by a shift in the demand curve?

A change in demand caused by non-price factors Signup and view all the answers

According to the law of diminishing marginal utility, what happens when the amount of a good consumed increases?

The marginal utility gained from each additional unit consumed declines Signup and view all the answers

Which of the following is NOT a factor that can cause a shift in the demand curve?

Decrease in the quantity of the good produced Signup and view all the answers

Why does quantity demanded generally decrease when price increases?

People substitute lower-priced goods for higher-priced goods Signup and view all the answers

Which factor is NOT typically considered a determinant of demand?

Government regulations Signup and view all the answers

How does an increase in consumer income typically affect demand for normal goods?

It increases demand for normal goods Signup and view all the answers

What does a change in quantity supplied refer to?

Movement from one point to another on the same supply curve Signup and view all the answers

Which of the following factors does NOT cause a shift in the supply curve?

Changes in the price of the good itself Signup and view all the answers

Why are most supply curves considered upward sloping?

Because higher prices attract more suppliers Signup and view all the answers

What condition describes a surplus in the market?

Quantity supplied is greater than quantity demanded Signup and view all the answers

What is meant by market equilibrium?

The balance where quantity demanded equals quantity supplied Signup and view all the answers

Which statement corrects the misunderstanding about market disequilibrium?

It indicates a temporary imbalance due to external factors Signup and view all the answers

What can trigger a shift in the supply curve to the left?

An increase in the prices of relevant resources Signup and view all the answers

Which of the following describes the law of diminishing marginal returns?

Adding more variable input eventually leads to decreased marginal output Signup and view all the answers

Study Notes

Market Concepts

Demand Definition: The willingness and ability of buyers to purchase various quantities of a good at different prices within a specific time frame.
Market Defined: A place where buyers and sellers interact to conduct transactions for goods and services.

The Law of Demand

Basic Principle: As the price of a good increases, the quantity demanded decreases; conversely, as the price decreases, the quantity demanded increases, assuming all else remains constant (ceteris paribus).
Ceteris Paribus: A Latin term meaning "all other things constant," used to isolate the effect of one variable on another.
Representation Methods: Includes verbal descriptions, symbolic representations, demand schedules, and graphical demand curves (which slope downward).

Demand Dynamics

Change in Demand vs. Change in Quantity Demanded:
- Change in Quantity Demanded: Movement along the same demand curve triggered by a price change.
- Change in Demand: A shift of the entire demand curve caused by factors other than price, such as buyer preferences and income levels.

Factors Influencing Demand

Substitution Effect: Consumers shift to lower-priced alternatives when the price of a good rises.
Law of Diminishing Marginal Utility: Satisfaction decreases with the consumption of additional units, leading to reduced demand as prices rise.
Determinants of Demand: Include consumer income, tastes and preferences, market size, and prices of related goods.

Practical Examples

Gasoline Demand: Higher gasoline prices lead to decreased driving, affecting overall demand for gasoline. Conversely, lower prices encourage more driving.
Complementary Goods: Rising gasoline prices can reduce car sales, as cars and gasoline are interdependent.

Supply Concepts

Supply Definition: The willingness and ability of sellers to offer various quantities of a good at different prices within a specific time frame.

The Law of Supply

Basic Principle: As the price of a good increases, the quantity supplied increases; as the price decreases, the quantity supplied decreases, assuming all else remains constant.
Representation Methods: Can be illustrated in words, symbols, supply schedules, and supply curves (which slope upward).

Supply Dynamics

Change in Supply vs. Change in Quantity Supplied:
- Change in Quantity Supplied: Movement along the same supply curve caused by a price change.
- Change in Supply: A shift of the entire supply curve, influenced by factors such as resource prices and technology advancements.

Factors Influencing Supply

Determinants of Supply: Include government policies, production costs, technology advancements, and prices of related goods.

Market Equilibrium

Equilibrium Concept: Occurs when quantity demanded equals quantity supplied, creating a balanced price and quantity for goods and services.
Surplus Condition: Exists when the quantity supplied exceeds quantity demanded, typically above the equilibrium price.

Conclusion

Understanding demand and supply concepts is vital for analyzing market dynamics and predicting price movements.

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Description

This quiz covers the fundamentals of market supply and demand, focusing on the concepts of demand, supply, and market equilibrium. You will learn to differentiate between demand and supply, identify the factors affecting both, and graphically illustrate their interactions. Perfect for students eager to enhance their understanding of economic principles.