Supply and Demand Model in Competitive Markets
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Questions and Answers

If the price of a substitute good rises, what is likely to happen to the demand for the original good?

  • The demand for the original good will become perfectly elastic
  • The demand for the original good will remain unchanged
  • The demand for the original good will increase (demand curve shifts right) (correct)
  • The demand for the original good will decrease (demand curve shifts left)

    • What happens to the demand for a good if the price of a complementary good falls?

  • The demand for the good will become perfectly elastic
  • The demand for the good will increase (demand curve shifts right) (correct)
  • The demand for the good will remain unchanged
  • The demand for the good will decrease (demand curve shifts left)

    • What does an increase in population generally lead to in terms of demand?

  • An increase in supply
  • An increase in demand (correct)
  • No change in demand
  • A decrease in demand

    • Which of these is NOT an important demand shifter according to the text?

    <p>Changes in government policies</p> Signup and view all the answers

    What happens to the demand curve if there is an increase in income for a normal good?

    <p>The demand curve shifts right</p> Signup and view all the answers

    For which type of goods does a fall in income lead to an increase in demand?

    <p>Inferior goods</p> Signup and view all the answers

    What happens to the demand for normal goods when income increases?

    <p>Demand increases</p> Signup and view all the answers

    How do changes in preferences and tastes affect the demand for a good?

    <p>Demand increases when tastes change in favor of the good</p> Signup and view all the answers

    What effect does an expectation of a future rise in price of a good have on current demand?

    <p>Increases current demand</p> Signup and view all the answers

    How does an increase in population affect the demand for a good?

    <p>Increases demand for the good</p> Signup and view all the answers

    What does market demand refer to?

    <p>Sum of all individual demand for a particular good or service</p> Signup and view all the answers

    What does a supply curve show?

    <p>Quantity supplied at various prices</p> Signup and view all the answers

    How do improvements in technology affect the supply curve?

    <p>Shifts the supply curve right</p> Signup and view all the answers

    What do sellers do if there is excess supply or a surplus in the market?

    <p>Lower the price to increase sales and move toward equilibrium</p> Signup and view all the answers

    What are the three steps to analyzing changes in equilibrium?

    <p>Decide whether an event shifts the supply or demand curve (or both), decide whether the curve(s) shift(s) to the left or to the right, use the supply and demand model to see how the shift affects equilibrium price and quantity.</p> Signup and view all the answers

    What happens when there is excess demand or shortage in the market?

    <p>Suppliers raise the price to decrease sales and move toward equilibrium</p> Signup and view all the answers

    How does an expectation of a future rise in price of a good affect the demand today?

    <p>Increases demand today</p> Signup and view all the answers

    What happens to the supply curve if there is an increase in the number of producers of a good?

    <p>Shifts right</p> Signup and view all the answers

    What happens to the equilibrium price and quantity when the demand curve shifts to the right?

    <p>Price increases, quantity increases</p> Signup and view all the answers

    What is the effect on supply if there is a decrease in the price of an input?

    <p>Increases supply</p> Signup and view all the answers

    How do changes in preferences and tastes affect the demand for a good?

    <p>Increase demand for the good</p> Signup and view all the answers

    What happens to sales this year if prices for houses are expected to increase next year?

    <p>Increase due to expectation of future rise in price</p> Signup and view all the answers

    What happens to the demand for a good if the price of a complementary good falls?

    <p>The demand for the good will increase (demand curve shifts right)</p> Signup and view all the answers

    What do changes in tastes affect in terms of demand for a good?

    <p>The quantity demanded at various prices</p> Signup and view all the answers

    What happens to the demand for a good if there is an increase in income?

    <p>It depends on whether the good is normal or inferior</p> Signup and view all the answers

    What happens to the market equilibrium if both supply and demand increase?

    <p>The equilibrium quantity increases, but the change in equilibrium price is ambiguous</p> Signup and view all the answers

    What happens to the demand for a good if there is an expectation of a future rise in price?

    <p>The current demand for the good increases</p> Signup and view all the answers

    What happens to the market equilibrium if supply decreases and demand increases?

    <p>The equilibrium price increases, but the change in equilibrium quantity is ambiguous</p> Signup and view all the answers

    What happens to the demand for an inferior good when income increases?

    <p>Demand decreases</p> Signup and view all the answers

    How do changes in tastes and preferences affect the demand for a good?

    <p>It depends on the nature of the good</p> Signup and view all the answers

    What causes a supply curve to shift left?

    <p>Expectation of future rise in price of the good</p> Signup and view all the answers

    What does market demand refer to?

    <p>The demand for a good by all consumers in the market</p> Signup and view all the answers

    What is the effect on supply if there are substitutes in production processes?

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

    What happens to equilibrium price and quantity when both supply and demand curve shift right?

    <p>Equilibrium price and quantity both increase</p> Signup and view all the answers

    What causes a decrease in profits and discourages supply?

    <p>Expectation of future fall in price of the good</p> Signup and view all the answers

    What happens to sales this year if prices for houses are expected to decrease next year?

    <p>Sales this year will decrease</p> Signup and view all the answers

    What is the effect on supply if there are complements in production processes?

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

    What happens to the demand for a good if consumers expect a future decrease in price?

    <p>The demand decreases today</p> Signup and view all the answers

    How do changes in technology affect the supply curve?

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

    What does an increase in population generally lead to in terms of demand?

    <p>Increase in demand for goods</p> Signup and view all the answers

    What happens to the equilibrium price and quantity when the supply curve shifts to the left and the demand curve shifts to the right?

    <p>Price increases, quantity increases</p> Signup and view all the answers

    What happens to sellers if there is excess demand or a shortage in the market?

    <p>They raise the price due to too many buyers chasing too few goods</p> Signup and view all the answers

    What causes a supply curve to shift left?

    <p>Expectation of a future rise in price of a good</p> Signup and view all the answers

    What happens to individual demand curves when summed horizontally?

    <p>They form market demand curve</p> Signup and view all the answers

    How do changes in preferences and tastes affect the demand for a good?

    <p>They cause a shift of the entire demand curve</p> Signup and view all the answers

    What happens to sales if prices for houses are expected to increase next year?

    <p>Sales decrease this year due to anticipation of higher prices next year</p> Signup and view all the answers

    What does market demand refer to?

    <p>Sum of all individual demands for a particular good or service</p> Signup and view all the answers

    How do changes in income affect normal goods?

    <p>Demand increases when income increases</p> Signup and view all the answers

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