Economics Essay Test (Supply-Demand Equilibrium)

Question 1

Definition of equilibrium

Answer 1

1. State of balance between different forces such that there is no tendency to change.
2. Occurs when quantity demanded = quantity supplied.

Question 2

State the law of demand

Answer 2

There is a negative relationship between the price of a good and the quantity demanded over a particular time period, ceteris paribus.

Question 3

State the law of supply

Answer 3

There is a positive relationship between the price of a good and the quantity supplied, ceteris paribus.

Question 4

Factors of demand: income (normal good)

Answer 4

Good whose demand increases with income.

1. As income increases, purchasing power increases.
2. For a given price demand increases, shifts to the right.

Question 5

Factors of demand: definition of an inferior good

Answer 5

Good whose demand decreases with increasing income.

1. As income increases, purchasing power increases.
2. For a given price, demand decreases, shifts to the left.