CH3: Demand, Supply, & Prices

Question 1

What is demand in economics?

Answer 1

Demand is the quantity of a good or service that buyers are willing and able to purchase at various prices during a specific time period.

Question 2

What are the main determinants of demand?

Answer 2

Price of the good, prices of related goods (substitutes and complements), income, consumer preferences, and size of the household.

Question 3

What is the law of demand?

Answer 3

As the price of a good increases, the quantity demanded decreases, ceteris paribus.

Question 4

What is the difference between a change in quantity demanded and a change in demand?

Answer 4

A change in quantity demanded is a movement along the same demand curve due to a price change, while a change in demand is a shift of the entire curve due to changes in other factors like income or preferences.

Question 5

Define the demand curve.

Answer 5

A graphical representation showing the relationship between the price of a good and the quantity demanded, ceteris paribus. It usually slopes downward.

Question 6

What is supply in economics?

Answer 6

Supply is the amount of a good or service a producer is willing and able to offer for sale at various prices over a period of time.

Question 7

What are the main determinants of supply?

Answer 7

Price of the good, prices of alternative products, input costs, expected future prices, and technology.

Question 8

What is the law of supply?

Answer 8

As the price of a good increases, the quantity supplied increases, ceteris paribus.

Question 9

What is the difference between a change in quantity supplied and a change in supply?

Answer 9

A change in quantity supplied is a movement along the supply curve due to price change; a change in supply is a shift of the entire supply curve due to changes in input costs, technology, etc.

Question 10

What is market equilibrium?

Answer 10

Market equilibrium occurs where the quantity demanded equals the quantity supplied. At this point, the market-clearing price is achieved, and there is no tendency for the price to change.

Question 11

What happens if the price is above equilibrium?

Answer 11

There is a surplus; quantity supplied exceeds quantity demanded, creating pressure for the price to fall.

Question 12

What happens if the price is below equilibrium?

Answer 12

There is a shortage; quantity demanded exceeds quantity supplied, creating pressure for the price to rise.

Question 13

What is demand in economics?

Answer 13

Demand is the quantity of a good or service that buyers are willing and able to purchase at various prices during a specific time period.

Question 14

What are the main determinants of demand?

Answer 14

Price of the good, prices of related goods (substitutes and complements), income, consumer preferences, and size of the household.

Question 15

What is the law of demand?

Answer 15

As the price of a good increases, the quantity demanded decreases, ceteris paribus.

Question 16

What is the difference between a change in quantity demanded and a change in demand?

Answer 16

A change in quantity demanded is a movement along the same demand curve due to a price change, while a change in demand is a shift of the entire curve due to changes in other factors like income or preferences.

Question 17

Define the demand curve.

Answer 17

A graphical representation showing the relationship between the price of a good and the quantity demanded, ceteris paribus. It usually slopes downward.

Question 18

What is supply in economics?

Answer 18

Supply is the amount of a good or service a producer is willing and able to offer for sale at various prices over a period of time.

Question 19

What are the main determinants of supply?

Answer 19

Price of the good, prices of alternative products, input costs, expected future prices, and technology.

Question 20

What is the law of supply?

Answer 20

As the price of a good increases, the quantity supplied increases, ceteris paribus.

Question 21

What is the difference between a change in quantity supplied and a change in supply?

Answer 21

A change in quantity supplied is a movement along the supply curve due to price change; a change in supply is a shift of the entire supply curve due to changes in input costs, technology, etc.

Question 22

What is market equilibrium?

Answer 22

Market equilibrium occurs where the quantity demanded equals the quantity supplied. At this point, the market-clearing price is achieved, and there is no tendency for the price to change.

Question 23

What happens if the price is above equilibrium?

Answer 23

There is a surplus; quantity supplied exceeds quantity demanded, creating pressure for the price to fall.

Question 24

What happens if the price is below equilibrium?

Answer 24

There is a shortage; quantity demanded exceeds quantity supplied, creating pressure for the price to rise.

Question 25

What happens to the demand curve when demand increases or decreases?

Answer 25

An increase in demand shifts the demand curve to the right; a decrease shifts it to the left.

Question 26

What happens to the supply curve when supply increases or decreases?

Answer 26

An increase in supply shifts the supply curve to the right; a decrease shifts it to the left.

Question 27

What factors can cause the demand curve to shift?

Answer 27

Price of substitute goods, price of complementary goods, expected future prices, consumer income, expected future income, population size, and consumer preferences/taste.

Question 28

What factors can cause the supply curve to shift?

Answer 28

Cost of production factors, prices of related goods, availability of substitutes and complements, expected future prices, number of suppliers, and changes in technology.

Question 29

What is consumer surplus?

Answer 29

Consumer surplus is the difference between what consumers are willing to pay and what they actually pay. It reflects extra benefit received by paying less than expected.

Question 30

What is producer surplus?

Answer 30

Producer surplus is the difference between the market price and the minimum price at which producers are willing to supply. It shows extra gain to producers.

Question 31

How are consumer and producer surplus shown at market equilibrium?

Answer 31

Consumer surplus is the triangle above the equilibrium price and below the demand curve (DP1E); producer surplus is the triangle below the equilibrium price and above the supply curve (SP1E).