Understanding Supply and Demand

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Questions and Answers

If consumer income increases, how would this likely affect the market for luxury cars, assuming luxury cars are normal goods?

  • The demand curve shifts leftward, leading to a lower equilibrium price and quantity.
  • The supply curve shifts leftward, leading to a higher equilibrium price and a lower quantity.
  • The demand curve shifts rightward, leading to a higher equilibrium price and quantity. (correct)
  • The supply curve shifts rightward, leading to a lower equilibrium price and a higher quantity.

What happens to the equilibrium price and quantity of electric vehicles if the government offers a significant subsidy to manufacturers?

  • Equilibrium price decreases, and equilibrium quantity increases. (correct)
  • Equilibrium price and quantity both decrease.
  • Equilibrium price increases, and equilibrium quantity decreases.
  • Equilibrium price and quantity both increase.

If a new technology drastically reduces the cost of producing smartphones, what is the likely effect on the smartphone market?

  • The demand curve shifts rightward, leading to higher prices.
  • The demand curve shifts leftward, leading to lower prices.
  • The supply curve shifts leftward, leading to higher prices.
  • The supply curve shifts rightward, leading to lower prices. (correct)

Suppose the price of coffee beans increases substantially. How would this price change affect the supply of coffee?

<p>The supply curve shifts leftward, decreasing the quantity of coffee supplied at each price. (D)</p> Signup and view all the answers

If a country experiences a significant increase in its population, how would this demographic shift likely affect the market demand for housing?

<p>The demand curve shifts rightward, leading to higher housing prices. (D)</p> Signup and view all the answers

If consumers expect the price of a popular gaming console to decrease significantly in the next month, how would this expectation likely affect the current demand for the console?

<p>The demand curve shifts leftward as consumers delay purchases in anticipation of lower prices. (C)</p> Signup and view all the answers

Assume that the market for apples is in equilibrium. If a widespread disease affects apple orchards, destroying a significant portion of the crop, what will be the likely effect on the equilibrium price and quantity of apples?

<p>Equilibrium price will increase, and equilibrium quantity will decrease. (B)</p> Signup and view all the answers

How would a tax imposed on suppliers of a particular good affect the market equilibrium for that good?

<p>The supply curve shifts upward, leading to a higher equilibrium price and a lower quantity. (C)</p> Signup and view all the answers

If the price of gasoline increases sharply, what is the likely effect on the demand for fuel-efficient cars?

<p>The demand curve for fuel-efficient cars shifts rightward, leading to higher prices. (D)</p> Signup and view all the answers

Assume that the market for wheat is perfectly competitive. If there is an improvement in farming technology that allows farmers to produce more wheat with the same amount of resources, what will be the effect on the market equilibrium?

<p>Equilibrium price will decrease, and equilibrium quantity will increase. (C)</p> Signup and view all the answers

Flashcards

Law of Demand

As price decreases, quantity demanded increases; as price increases, quantity demanded decreases.

Law of Supply

As price increases, quantity supplied increases; as price decreases, quantity supplied decreases.

Market Equilibrium

The point where supply and demand curves intersect, creating market balance.

Demand Shifters

Factors that cause the demand curve to move, like changes in income or preferences.

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Supply Shifters

Factors that cause the supply curve to move, such as production costs or technology.

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Rightward shift in demand

Increase in demand; curve shifts right, leading to higher price and quantity.

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Leftward shift in supply

Decrease in supply; curve shifts left, leading to higher price and lower quantity.

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Study Notes

  • Supply and demand are fundamental economic concepts

Law of Demand

  • As price decreases, quantity demanded increases
  • As price increases, quantity demanded decreases
  • This inverse relationship creates a downward-sloping demand curve

Law of Supply

  • As price increases, quantity supplied increases
  • As price decreases, quantity supplied decreases
  • This direct relationship creates an upward-sloping supply curve

Market Equilibrium

  • The intersection of supply and demand curves indicates the equilibrium price and quantity
  • At equilibrium, quantity supplied equals quantity demanded
  • There is no surplus or shortage in the market at equilibrium

Shifts in Demand

  • Changes in consumer income shift the demand curve
  • Changes in consumer preferences shift the demand curve
  • Changes in prices of related goods shift the demand curve
  • Changes in expectations shift the demand curve
  • Changes in the number of buyers shift the demand curve

Shifts in Supply

  • Changes in production costs shift the supply curve
  • Technological advancements shift the supply curve
  • Taxes and subsidies shift the supply curve
  • Changes in expectations shift the supply curve
  • Changes in the number of sellers shift the supply curve

Effects of Shifts

  • A rightward shift in the demand curve means demand is increasing
  • Increased demand results in higher equilibrium price and quantity
  • A leftward shift in the supply curve indicates a decrease in supply
  • Decreased supply results in a higher equilibrium price and lower equilibrium quantity
  • Understanding supply and demand is essential for analyzing market prices and quantities
  • Analyzing supply and demand helps to understand economic activity

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