Demand, supply and market equilibrium

Question 1

What is the definition of Demand?

Answer 1

Demand refers to the quantity of a good or service that consumers are willing and able to buy at a given price, in a given time period.

Question 2

What does movement along the demand curve indicate?

Answer 2

Changes in price lead to movements along the demand curve.

Question 3

What happens to quantity demanded when price decreases?

Answer 3

A decrease in price causes an increase in the quantity demanded (movement down the curve).

Question 4

What happens to quantity demanded when price increases?

Answer 4

An increase in price causes a decrease in the quantity demanded (movement up the curve).

Question 5

What does a rightward shift in the demand curve indicate?

Answer 5

A shift to the right indicates an increase in demand (more is demanded at each price).

Question 6

What does a leftward shift in the demand curve indicate?

Answer 6

A shift to the left indicates a decrease in demand (less is demanded at each price).

Question 7

How can advertising affect demand?

Answer 7

Effective advertising can increase demand by influencing consumer preferences.

Question 8

How does consumer income affect demand for normal and inferior goods?

Answer 8

As consumer income rises, demand for normal goods increases, and demand for inferior goods decreases.

Question 9

How do fashion and tastes impact demand?

Answer 9

Changes in consumer preferences can increase or decrease demand for specific goods.

Question 10

What is the effect of a price increase of substitute goods on demand?

Answer 10

If the price of a substitute rises, demand for the original good increases (e.g., if the price of tea rises, demand for coffee may increase).

Question 11

What happens to demand if the price of complementary goods rises?

Answer 11

If the price of a complementary good rises, demand for the original good may decrease.

Question 12

How do demographic changes affect demand?

Answer 12

Changes in the size and composition of the population can affect demand for certain goods and services (e.g., aging population increases demand for healthcare).

Question 13

What is the definition of Supply?

Answer 13

Supply refers to the quantity of a good or service that producers are willing and able to offer for sale at a given price, in a given time period.

Question 14

What does movement along the supply curve indicate?

Answer 14

Changes in price lead to movements along the supply curve.

Question 15

What happens to quantity supplied when price increases?

Answer 15

An increase in price causes an increase in the quantity supplied (movement up the curve).

Question 16

What happens to quantity supplied when price decreases?

Answer 16

A decrease in price causes a decrease in the quantity supplied (movement down the curve).

Question 17

What does a rightward shift in the supply curve indicate?

Answer 17

A shift to the right indicates an increase in supply (more is supplied at each price).

Question 18

What does a leftward shift in the supply curve indicate?

Answer 18

A shift to the left indicates a decrease in supply (less is supplied at each price).

Question 19

How do production costs affect supply?

Answer 19

If production costs fall, supply increases (shift to the right). If costs rise, supply decreases (shift to the left).

Question 20

How can changes in technology affect supply?

Answer 20

Advances in technology can reduce production costs, leading to an increase in supply.

Question 21

What is the effect of indirect taxes on supply?

Answer 21

An increase in indirect taxes on goods increases costs, reducing supply (shift left). A decrease in taxes leads to increased supply.

Question 22

How do subsidies affect supply?

Answer 22

Government subsidies to producers lower production costs, encouraging an increase in supply (shift right).

Question 23

How do natural factors impact supply?

Answer 23

Natural disasters or adverse weather conditions can reduce supply, shifting the supply curve left. Good weather can increase supply.

Question 24

What is the equilibrium price?

Answer 24

Equilibrium price is the price at which the quantity demanded equals the quantity supplied.

Question 25

What is the equilibrium quantity?

Answer 25

Equilibrium quantity is the quantity at which demand and supply meet.

Question 26

How is equilibrium determined?

Answer 26

The equilibrium is determined by the interaction of demand and supply in the market.

Question 27

What happens to price and quantity with an increase in demand?

Answer 27

Price and quantity both increase (shift of demand curve to the right).

Question 28

What happens to price and quantity with a decrease in demand?

Answer 28

Price and quantity both decrease (shift of demand curve to the left).

Question 29

What happens to price and quantity with an increase in supply?

Answer 29

Price decreases, and quantity increases (shift of supply curve to the right).

Question 30

What happens to price and quantity with a decrease in supply?

Answer 30

Price increases, and quantity decreases (shift of supply curve to the left).

Question 31

What is excess demand?

Answer 31

Excess Demand occurs when the quantity demanded is greater than the quantity supplied at a given price.

Question 32

What does excess demand create in the market?

Answer 32

This creates a shortage, and the market will push the price up to restore equilibrium.

Question 33

What is excess supply?

Answer 33

Excess Supply occurs when the quantity supplied exceeds the quantity demanded at a given price.

Question 34

What does excess supply create in the market?

Answer 34

This creates a surplus, and the market will push the price down to restore equilibrium.

Question 35

How is excess demand calculated?

Answer 35

Excess demand = Quantity demanded - Quantity supplied.

Question 36

What diagram represents excess demand?

Answer 36

The price is below equilibrium, leading to a shortage in the market.

Question 37

How is excess supply calculated?

Answer 37

Excess supply = Quantity supplied - Quantity demanded.

Question 38

What diagram represents excess supply?

Answer 38

The price is above equilibrium, leading to a surplus in the market.

Question 39

How do market forces remove excess demand?

Answer 39

When there is excess demand, producers will increase prices, reducing quantity demanded and increasing quantity supplied until equilibrium is restored.

Question 40

How do market forces remove excess supply?

Answer 40

When there is excess supply, producers will lower prices to attract more buyers, increasing quantity demanded and reducing quantity supplied until equilibrium is restored.