Chapter 2: Demand and Supply

Question 1

What is the definition of demand?

Answer 1

Demand is defined as the amount of goods that consumers are willing and able to buy at various prices over a given period of time, cetpar.

Question 2

What does the demand graph look like?

Axes-Direction-Shift

Answer 2

With price on x-axis
Qty on y-axis.
Graph slopes downwards, and can shift left or right when there is a change in demand.

Question 3

What factors affect demand?

EGYPTO

Answer 3

Expectations about future price changes
Govt policies
Consumer Income (Y)
Prices of related goods*
Tastes
Other factors

O- Seasonal Factor

For P- Substitute/Complements/Goods in Derived Demand

Question 4

What is the change in demand?

Answer 4

When change in amount purchased for one good occurs because of non-price factors, there is s change in demand.
Demand curve shifts LEFT OR RIGHT

Question 5

What is the definition of supply?

Answer 5

Supply refers to the amount of a good that producers are willing and able to sell at various prices over a given period of time, ceteris paribus

Question 6

What does the supply graph look like?

Answer 6

Slopes upwards
Supply increase- shifts right
Supply decrease- shifts left

Question 7

What factors affect supply?

WETPIGS

Answer 7

Weather
Expectations
Tech
Production
Inputs (Factor)
Govt policies
Suppliers

Question 8

What is the answer framework for shift in DD or SS?

Answer 8

1. Shift in DD or SS curve
2. Identify shortage/surplus
3. Explain price adjustment
4. Establish new eq price and qty
5. Effect of /\ demand or supply on eq price, qty, TE/TR

Question 9

What happens when there is an increase in both demand and supply?

Answer 9

^Demand > ^Supply: Eq price increases, Eq qty increases
^Demand<^Supply: Eq price decreases, Eq qty increases

Question 10

What happens when demand and supply decrease?

Answer 10

↓Demand>↓Supply: EP ↓, EQ↓
↓Demand < ↓Supply: EP↑, EQ↓

Question 11

What happens when demand increase and supply decrease?

Answer 11

^demand> ↓ Supply: EP^,EQ^
^demand< ↓ Supply: EP^< EQ ↓

Question 12

What happens when decrease in demand and increase in supply?

Answer 12

↓Demand>^Supply: ↓EP,↓EQ
↓Demand<^Supply: ↓EP, ^EQ

Question 13

Define consumer surplus.

Answer 13

Consumer surplus is the difference between what the consumer is willing and abke to pay for a good and the actual price for it.