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Questions and Answers
What occurs when the quantity supplied exceeds the quantity demanded at the ruling price?
How is the equilibrium price calculated using supply and demand functions?
Which factor is likely to shift the supply curve to the right?
What effect does a price control such as a price ceiling typically have on market supply?
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What describes the relationship between substitutes in production and a supply curve?
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Which of the following would NOT cause a shift in the supply curve?
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Which statement about the supply curve is accurate?
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What happens to supplier's production if they expect prices to fall in the future?
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Study Notes
Supply and Demand
- Supply refers to the quantity of a good sellers are willing to sell at a given price.
- Excess Supply occurs when the quantity supplied exceeds the quantity demanded at the prevailing price. This situation leads to a decrease in price towards equilibrium.
- Excess Demand occurs when the quantity demanded exceeds the quantity supplied at the prevailing price. This situation leads to an increase in price towards equilibrium.
- Equilibrium Price is the price at which the quantity supplied equals the quantity demanded. This is the point where the supply and demand curves intersect.
Supply Function
- Direct Supply Function: Q = c - dP, where Q is quantity supplied, c is a positive constant, d is a positive/negative constant, and P is price.
- Inverse Supply Function: P = (a/b) - (1/b)Q
- Equilibrium Price: (a-c) / (b+d)
Supply Curve
- A supply curve shows the quantity supplied at any given price.
- It is the horizontal sum of the individual supply curves of all firms in a market.
- The quantity supplied represents the amount producers are willing to produce at a particular price.
Factors Affecting Supply Curve Shifts
- Technology: Improvements in technology shift the supply curve rightward due to lower production costs.
- Input Costs: Lower input prices shift the supply curve rightward as producers can supply more at each price.
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Government Intervention:
- Subsidies: Shift the supply curve rightward.
- Taxes: Shift the supply curve leftward.
- Regulation: Can impact supply curve shifts depending on the nature of the regulation.
- Price Controls: Government-imposed price floors or ceilings that prevent prices from adjusting to market clearing levels can lead to imbalances between supply and demand.
- Supplier Expectations: If suppliers expect a price decrease, they may produce more now, shifting the supply curve rightward.
- Number of Suppliers: An increase in the number of suppliers shifts the supply curve rightward.
Substitutes in Production
- Unlike substitutes in demand, substitutes in production involve goods that can be produced using the same resources.
- A shift in production towards a more profitable good can lead to a leftward shift in the supply curve for the less profitable substitute.
Complements in Supply
- Unlike complements in demand, complements in supply involve goods that are jointly produced as by-products.
- A rise in the price of one product can lead to an increase in the supply of its by-product, even if the demand for the by-product remains unchanged.
Analyzing Changes in Equilibrium
- Step 1: Identify which curve(s) is/are shifting.
- Step 2: Determine whether the curve shift is leftward or rightward.
- Step 3: Analyze the impact of the shift(s) on equilibrium price and quantity.
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Description
This quiz covers key concepts of supply and demand, including definitions of excess supply and demand, equilibrium price, and the supply function. It also explains how supply curves represent these concepts. Test your understanding of these fundamental economic principles!
