Podcast
Questions and Answers
According to the law of demand, assuming ceteris paribus, what happens to the quantity demanded of a normal product when the price of that product increases?
According to the law of demand, assuming ceteris paribus, what happens to the quantity demanded of a normal product when the price of that product increases?
- The quantity demanded increases.
- The quantity demanded remains the same.
- The quantity supplied increases to match demand.
- The quantity demanded decreases. (correct)
A company is considering changing the price of its product to increase profits. According to the theory of demand, what is the MOST important factor the company should consider?
A company is considering changing the price of its product to increase profits. According to the theory of demand, what is the MOST important factor the company should consider?
- The actions of its competitors in the market.
- The cost of raw materials required to produce the product.
- The current inflation rate.
- The relationship between the product's price and the quantity consumers will demand. (correct)
Which of the following scenarios best illustrates the law of demand, assuming ceteris paribus?
Which of the following scenarios best illustrates the law of demand, assuming ceteris paribus?
- A popular tech company releases a new phone at a high price, and it sells out immediately.
- Due to an increase in income, consumers buy more luxury cars despite stable pricing.
- A local coffee shop lowers its prices, and as a result, sells more cups of coffee. (correct)
- A severe frost destroys orange crops, causing the price of orange juice to increase and the quantity demanded to increase as well.
A local bakery decides to increase the price of its signature bread by 15%. Based on the law of demand, what is the MOST likely immediate outcome?
A local bakery decides to increase the price of its signature bread by 15%. Based on the law of demand, what is the MOST likely immediate outcome?
A car manufacturing company reduces the price of its electric vehicle model by $$2,000$. Assuming ceteris paribus, what is the MOST likely result according to the law of demand?
A car manufacturing company reduces the price of its electric vehicle model by $$2,000$. Assuming ceteris paribus, what is the MOST likely result according to the law of demand?
Assuming I-phones are a normal good, how would a significant increase in the average consumer income likely affect the demand curve for I-phones?
Assuming I-phones are a normal good, how would a significant increase in the average consumer income likely affect the demand curve for I-phones?
If a significant flaw is discovered in the latest model of I-phones, how would this likely impact the demand curve for I-phones?
If a significant flaw is discovered in the latest model of I-phones, how would this likely impact the demand curve for I-phones?
How would the introduction of a near-identical smartphone by Sony at half the price likely affect the demand curve for I-phones?
How would the introduction of a near-identical smartphone by Sony at half the price likely affect the demand curve for I-phones?
According to the law of supply, what relationship exists between the price of a product and the quantity supplied?
According to the law of supply, what relationship exists between the price of a product and the quantity supplied?
Assuming all other factors are constant, if the price of a popular brand of running shoes increases significantly, what would the law of supply predict?
Assuming all other factors are constant, if the price of a popular brand of running shoes increases significantly, what would the law of supply predict?
What is the most likely outcome when consumer income increases, assuming a product is a normal good?
What is the most likely outcome when consumer income increases, assuming a product is a normal good?
A firm adopts a new technology that significantly reduces its production costs. How does this affect the market equilibrium?
A firm adopts a new technology that significantly reduces its production costs. How does this affect the market equilibrium?
If the price of a key raw material used in the production of a good increases, what is the most likely direct effect on the market?
If the price of a key raw material used in the production of a good increases, what is the most likely direct effect on the market?
What happens to the equilibrium price and quantity of a product if both the demand and supply curves shift to the right?
What happens to the equilibrium price and quantity of a product if both the demand and supply curves shift to the right?
Suppose a government imposes a new tax on the production of a good. What is the likely impact on the market equilibrium?
Suppose a government imposes a new tax on the production of a good. What is the likely impact on the market equilibrium?
If a new study reveals that a particular product has significant health benefits, how would this most likely affect the market equilibrium for that product?
If a new study reveals that a particular product has significant health benefits, how would this most likely affect the market equilibrium for that product?
Consider a market where consumers anticipate a significant price increase in the near future. What immediate impact would this expectation likely have?
Consider a market where consumers anticipate a significant price increase in the near future. What immediate impact would this expectation likely have?
If both the cost of production increases and consumer preferences for a product decrease, what can be expected in the market?
If both the cost of production increases and consumer preferences for a product decrease, what can be expected in the market?
Which of the following factors would most likely cause a shift in the supply curve for crude oil?
Which of the following factors would most likely cause a shift in the supply curve for crude oil?
Assume the market for smartphones is in equilibrium. What is most likely to happen if there's a simultaneous increase in both consumer income and the cost of producing smartphones?
Assume the market for smartphones is in equilibrium. What is most likely to happen if there's a simultaneous increase in both consumer income and the cost of producing smartphones?
If the market price for a product is above the equilibrium price, which of the following is most likely to occur?
If the market price for a product is above the equilibrium price, which of the following is most likely to occur?
Which scenario would most likely lead to an increase in the equilibrium price and a decrease in the equilibrium quantity of a good?
Which scenario would most likely lead to an increase in the equilibrium price and a decrease in the equilibrium quantity of a good?
Which of the following is LEAST likely to cause a shift in the supply curve of a particular good?
Which of the following is LEAST likely to cause a shift in the supply curve of a particular good?
If manufacturers expect the price of their goods to increase substantially in the near future, what action are they most likely to take now?
If manufacturers expect the price of their goods to increase substantially in the near future, what action are they most likely to take now?
Assume the supply of a particular type of car is driven by revenue maximization. All else being equal, how would reduced steel prices affect supply?
Assume the supply of a particular type of car is driven by revenue maximization. All else being equal, how would reduced steel prices affect supply?
What best describes 'joint supply'?
What best describes 'joint supply'?
If a new, more efficient harvesting technology is introduced in the potato market, what would be the likely effect on the equilibrium price and quantity of potatoes?
If a new, more efficient harvesting technology is introduced in the potato market, what would be the likely effect on the equilibrium price and quantity of potatoes?
If the price of fertilizer, which is used in potato farming, increases, what is the most likely impact on the supply curve for potatoes?
If the price of fertilizer, which is used in potato farming, increases, what is the most likely impact on the supply curve for potatoes?
In a market, if there is a surplus of a good, what adjustment is most likely to occur to restore equilibrium?
In a market, if there is a surplus of a good, what adjustment is most likely to occur to restore equilibrium?
Assume the market for beef is in equilibrium. What would most likely happen to the equilibrium price and quantity of beef if a widespread disease decimates the cattle population?
Assume the market for beef is in equilibrium. What would most likely happen to the equilibrium price and quantity of beef if a widespread disease decimates the cattle population?
What is the most direct effect of a successful advertising campaign on a product's market equilibrium, assuming all other factors remain constant?
What is the most direct effect of a successful advertising campaign on a product's market equilibrium, assuming all other factors remain constant?
If the demand for a product increases while the supply decreases, what is the most predictable effect on the equilibrium price?
If the demand for a product increases while the supply decreases, what is the most predictable effect on the equilibrium price?
How would a government subsidy to potato farmers most likely affect the market equilibrium for potatoes?
How would a government subsidy to potato farmers most likely affect the market equilibrium for potatoes?
Flashcards
Economics
Economics
The study of how individuals and societies make decisions about allocating scarce resources to satisfy unlimited wants.
Demand
Demand
The quantity of a good or service that buyers are willing and able to purchase at various prices during a specific period.
Market Mechanism
Market Mechanism
A model that explains how prices and quantities are determined in a market through the interaction of supply and demand.
Demand Curve
Demand Curve
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Law of Demand
Law of Demand
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Income Increase Effect on Demand
Income Increase Effect on Demand
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Product Fault Effect on Demand
Product Fault Effect on Demand
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Effect of Cheaper Alternatives on Demand
Effect of Cheaper Alternatives on Demand
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Law of Supply
Law of Supply
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Price as a Determinant of Supply
Price as a Determinant of Supply
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Non-Price Determinants of Demand
Non-Price Determinants of Demand
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Tastes and Trends
Tastes and Trends
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Substitute Goods
Substitute Goods
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Complementary Goods
Complementary Goods
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Income
Income
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Expectations
Expectations
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Movements vs. Shifts in the Demand Curve
Movements vs. Shifts in the Demand Curve
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Determinants of Demand
Determinants of Demand
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Shift in Demand Curve
Shift in Demand Curve
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Determinants of Supply
Determinants of Supply
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Shift in Supply Curve
Shift in Supply Curve
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Equilibrium Price
Equilibrium Price
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Equilibrium Quantity
Equilibrium Quantity
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Causes of Price Changes
Causes of Price Changes
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Effect of shifts in demand and supply
Effect of shifts in demand and supply
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Supply Curve
Supply Curve
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Change in Supply vs. Quantity Supplied
Change in Supply vs. Quantity Supplied
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Market Equilibrium
Market Equilibrium
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Equilibrium Output
Equilibrium Output
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Shortage
Shortage
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Surplus
Surplus
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Price Increase (Shortage)
Price Increase (Shortage)
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Price Decrease (Surplus)
Price Decrease (Surplus)
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Impact of Shifts on Equilibrium
Impact of Shifts on Equilibrium
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Substitutes in Supply
Substitutes in Supply
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Joint Supply
Joint Supply
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Random Shocks
Random Shocks
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Price Change Drivers
Price Change Drivers
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Study Notes
- Firms consider modifying price, output, or product to increase profits.
- Market mechanism refers to how supply and demand interact to set prices and outputs in a market.
- Lecture 3 focuses on Demand, Supply, and Equilibrium.
Learning Objectives
- Understanding the demand curve and its determinants
- Understanding the supply curve and its determinants
- Grasping equilibrium price and output
- Identifying Causes of Change in Equilibrium Price
- Graphically illustrating price changes
Law of Demand
- The law of demand explains that the price of a normal product goes down when demand goes up, keeping all other factors constant (Ceteris paribus).
- As price increases, the demand goes down; and as price decreases, the demand goes up.
- The quantity demanded, or the amount purchased, is primarily determined by the price.
Demand Curve Example: Potatoes
- Examining the monthly demand for potatoes, considering price, individual demand, and market demand:
- When the price is 20 pence per kg: Tracey's demand is 28 kg, Darren's demand is 16 kg, and the overall market demand totals 700 tonnes.
- When the price is 40 pence per kg: Tracey's demand reduces to 15 kg, Darren's demand lessens to 11 kg, and the overall market demand decreases to 500 tonnes.
- When the price is 60 pence per kg: Tracey's demand is at 5 kg, Darren's demand reaches 9 kg, with the total market demand recorded at 350 tonnes.
- When the price goes up to 80 pence per kg: Tracey's demand sharply declines to 1 kg, Darren demands 7 kg, and the total market demand drops to 200 tonnes.
- When the price is at 100 pence per kg: Tracey's demand reduces to 0 kg, Darren demands 6 kg, and the overall market demand bottoms out at 100 tonnes.
Determinants of Demand (Non-Price)
- Tastes and Preferences are key determinants of the demand curve.
- The price and number of substitute goods and complementary goods matter.
- Income and expectations also influence demand.
Shifts in the Demand Curve
- Price change causes movement along the curve
- Changes in other determinants shifts the curve
- Increase in demand shifts the curve to the the right,
- Decrease in demand shifts the curve to the left
Supply
- The law of supply establishes a connection between the price of a standard item and how much of it ends up being manufactured:
- An increase in price results in more of that product being supplied.
- A decrease in price results in less of that product being supplied.
- The price serves as the primary element in regulating how much of a product gets supplied.
Supply Curve, Example of potatoes(monthly)
- At 20 (pence per kg), Farmer X supplies 50 (tonnes) with total market supply 100 (tonnes: 000s)
- At 40 (pence per kg), Farmer X supplies 70 (tonnes) with total market supply 200 (tonnes: 000s)
- At 60 (pence per kg), Farmer X supplies 100 (tonnes) with total market supply 350 (tonnes: 000s)
- At 80 (pence per kg), Farmer X supplies 120 (tonnes) with total market supply 530 (tonnes: 000s)
- At 100 (pence per kg), Farmer X supplies 130 (tonnes) with total market supply 700 (tonnes: 000s)
Other Determinants of Supply
- Costs of production, willingness, ability, and profit impacts supply.
- The profitability of alternative products(substitutes in supply) price rise or cost of production fall
- Profitability of goods, nature, random shocks, producer aims, and expectations shift the supply curve.
Price and Quantity Determination
- Equilibrium price and output is a point where the market clears, responding to shortages and surpluses and finding significance.
- With demand and supply curves. Understanding how prices being above or below equilibrium impacts it.
Equilibrium Price and Output Example: Potatoes (Monthly)
- The market demand and supply of potatoes helps determine equilibrium:
- At 20 (pence per kilo) Total Market Demand is 700 tonnes.
- At 20 (pence per kilo) Total Market Supply is 100 tonnes.
- At 40 (pence per kilo) Total Market Demand is 500 tonnes.
- At 40 (pence per kilo) Total Market Supply is 200 tonnes.
- At 60 (pence per kilo) Total Market Demand is 350 tonnes.
- At 60 (pence per kilo) Total Market Supply is 350 tonnes.
- At 80 (pence per kilo) Total Market Demand is 200 tonnes.
- At 80 (pence per kilo) Total Market Supply is 530 tonnes.
- At 100 (pence per kilo) Total Market Demand is 100 tonnes.
- Supply is 700 tonnes.
Price Changes
- The price of a product will change because of changes in determinants of demand and supply in a competitive market.
- Changes in any determinants of demand or supply will then cause the respective curves to shift.
- This thereby changes the equilibrium price of the product.
Key Terms
- The law of demand
- Determinants of demand
- The law of supply
- Determinants of supply
- How price of a product is determined
- Causes of price changes
- How to illustrate change in price of a product
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Description
This quiz tests your understanding of the law of demand in economics. Questions cover price elasticity, consumer behavior, and market reactions to price changes. Test your knowledge!
