Market Demand ,Supply and equilibrium

Question 1

What is a market in economics?

Answer 1

A market is a group of buyers and sellers of a particular good or service. It can be organized or unorganized.

Question 2

What are the characteristics of a perfectly competitive market?

Answer 2

1. Identical goods
2. Price takers
3. Perfect information among buyers and sellers

Question 3

Define quantity demanded.

Answer 3

The amount of a good that buyers are willing and able to purchase at a given price.

Question 4

What is the Law of Demand?

Answer 4

There is an inverse relationship between price and quantity demanded, ceteris paribus.

Question 5

What causes a shift in the demand curve?

Answer 5

1. Income (Normal vs Inferior goods)
2. Prices of related goods (Substitutes and Complements)
3. Tastes
4. Expectations
5. Number of buyers

Question 6

What is quantity supplied?

Answer 6

The amount of a good that sellers are willing and able to sell at a given price.

Question 7

What is the Law of Supply?

Answer 7

There is a positive relationship between price and quantity supplied, holding other factors constant.

Question 8

What causes a shift in the supply curve?

Answer 8

1. Input prices
2. Technology
3. Expectations
4. Number of sellers

Question 9

What is market equilibrium?

Answer 9

It’s the point where quantity demanded equals quantity supplied; the price at this point is called the equilibrium price.

Question 10

Define surplus and shortage.

Answer 10

Surplus: Quantity supplied > Quantity demanded

Shortage: Quantity demanded > Quantity supplied

Question 12

What is a demand schedule?

Answer 12

A table that shows the relationship between the price of a good and the quantity demanded.

Question 13

What is a demand curve?

Answer 13

A graphical representation of the demand schedule, showing the inverse relationship between price and quantity demanded.

Question 14

What is market demand?

Answer 14

The horizontal summation of all individual demands for a good or service at each price level.

Question 15

What is a supply schedule?

Answer 15

A table showing the relationship between the price of a good and the quantity supplied.

Question 16

What is a supply curve?

Answer 16

A graphical representation of the supply schedule, typically upward sloping.

Question 17

What is market supply?

Answer 17

The sum of all individual supplies of a particular good or service at each price level.

Question 18

What happens to equilibrium price and quantity when demand increases?

Answer 18

Equilibrium price and quantity both increase.

Question 19

What happens to equilibrium price and quantity when supply increases?

Answer 19

Equilibrium price decreases, and quantity increases.

Question 20

What happens when both demand and supply shift simultaneously?

Answer 20

The effect on price and quantity depends on the magnitude of the shifts.

Question 21

What is the difference between a movement along the curve and a shift of the curve?

Answer 21

A movement occurs due to a price change; a shift occurs due to a change in non-price factors.

Question 22

What is a demand schedule?

Answer 22

A table that shows the relationship between the price of a good and the quantity demanded.

Question 23

What is a demand curve?

Answer 23

A graphical representation of the demand schedule, showing the inverse relationship between price and quantity demanded.

Question 24

What is market demand?

Answer 24

The horizontal summation of all individual demands for a good or service at each price level.

Question 25

What is a supply schedule?

Answer 25

A table showing the relationship between the price of a good and the quantity supplied.

Question 26

What is a supply curve?

Answer 26

A graphical representation of the supply schedule, typically upward sloping.

Question 27

What is market supply?

Answer 27

The sum of all individual supplies of a particular good or service at each price level.

Question 28

What happens to equilibrium price and quantity when demand increases?

Answer 28

Equilibrium price and quantity both increase.

Question 29

What happens to equilibrium price and quantity when supply increases?

Answer 29

Equilibrium price decreases, and quantity increases.

Question 30

What happens when both demand and supply shift simultaneously?

Answer 30

The effect on price and quantity depends on the magnitude of the shifts.

Question 31

What is the difference between a movement along the curve and a shift of the curve?

Answer 31

A movement occurs due to a price change; a shift occurs due to a change in non-price factors.

Question 32

Q: What is meant by a rightward shift in the demand curve?

Answer 32

means that at every price people now want to buy more of the good or service than before maybe because of population growth,higher income or because people just like the product more.

Question 33

A: It indicates an increase in demand at every price level

Answer 33

possibly due to higher income (for normal goods)

Question 63

Q: What is meant by a rightward shift in the demand curve?

Answer 63

A: It indicates an increase in demand at every price level, possibly due to higher income (for normal goods), more buyers, or favorable tastes.

Question 65

Q: What is a leftward shift in the supply curve and what can cause it?

Answer 65

A: It shows a decrease in supply, often caused by rising input costs, bad weather, or unfavorable government policy.

Question 66

Q: If the price of petrol increases, what happens to the demand for electric cars (assuming they’re substitutes)?

Answer 66

A: The demand for electric cars increases, because consumers switch from the now more expensive petrol cars.

Question 67

Q: How does an increase in the number of sellers affect the supply curve?

Answer 67

A: It shifts supply to the right, increasing the total quantity supplied at every price.

Question 68

Q: Why does the supply curve slope upward?

Answer 68

A: Because higher prices provide more incentive for producers to supply more goods, assuming other factors remain constant.

Question 69

Q: Explain what happens in a market surplus situation.

Answer 69

A: There’s more supply than demand. Sellers may lower prices to sell excess goods, pushing the market toward equilibrium.

Question 70

Q: What role do prices play in a perfectly competitive market?

Answer 70

A: Prices adjust automatically to balance supply and demand, guiding resources to their most efficient use.

Question 71

Q: How do expectations of future price increases affect demand today?

Answer 71

A: Consumers may buy more now to avoid higher future prices, increasing current demand.

Question 72

Q: What is the opportunity cost in the context of supply?

Answer 72

A: It’s the value of the next best alternative foregone when choosing to produce one good over another.

Question 73

Q: In real-world markets, do prices always reach equilibrium immediately?

Answer 73

A: No, real-world frictions like menu costs, contracts, or delays in information can cause temporary disequilibria.