MODULE 2

Question 1

What is demand?

Answer 1

The relationship between the various possible prices of a product and the quantities consumers will purchase at each price

Question 2

What is the independent variable in demand?

Answer 2

Price

Question 3

What is quantity demanded?

Answer 3

The amount of the product that consumers are willing to purchase at each price - is the dependent variable

Question 4

What is the law of demand?

Answer 4

The inverse relationship between price and quantity demanded when all other factors are kept constant

Question 5

What is market demand?

Answer 5

The sum of all consumers’ purchases, or quantity demanded, at each price

Question 6

What causes changes in demand?

Answer 6

Demand factors, that can cause an increase or decrease in a products demand, shown by shifts in the demand curve

Question 7

What is an increase in demand?

Answer 7

When the number of buyers for a certain product increases, more purchases are made, whatever its price. Causes demand curve to shift to the right

Question 8

What is a decrease in demand?

Answer 8

When the number of buyers in a market decreases, the amount of the product demanded also decreases at every price. This causes the entire demand curve to shift to the left

Question 9

What way does the demand curve shift when there is an increase in demand?

Answer 9

To the right

Question 10

What way does the demand curve shift with a decrease in demand?

Answer 10

To the left

Question 11

What are some demand factors?

Answer 11

Number of buyers, income, prices of other products, consumer preferences, consumer expectations

Question 12

What are changes in quantity demanded?

Answer 12

Are caused by changes in price, and are shown by movements ALONG the demand curve

Question 13

What is supply?

Answer 13

The relationship between the various possible prices of a product and the quantities of the product that businesses are willing to supply

Question 14

What is the independent variable in supply?

Answer 14

Price

Question 15

What is the depended variable in supply?

Answer 15

Quantity supplied

Question 16

What is quantity supplied?

Answer 16

The amount of the product that businesses are willing to supply at each price

Question 17

What relationship do price and quantity supplied have?

Answer 17

Direct

Question 18

What is market supply?

Answer 18

The sum of all producers quantities supplied at each price

Question 19

What is the law of supply?

Answer 19

When price changes, quantity supplied changes in the same direction, when all factors are kept constant

Question 20

What are changes in supply?

Answer 20

They are shown by shifts in the supply curve, and are caused by changes in supply factors

Question 21

What is increase in supply?

Answer 21

An increase in the number of businesses in an industry causes an increase in supply, giving a higher quantity supplied at each price

Question 22

What is decrease in supply?

Answer 22

A decrease in the number of businesses in the industry creates a decrease in supply

Question 23

What are some supply factors?

Answer 23

Number of producers, resource prices, state of technology, prices of related products, changes in nature, producer expectations

Question 24

What way does the supply curve shift with an increase in supply?

Answer 24

Right

Question 25

What way does the supply curve shift with a decrease in supply?

Answer 25

Left

Question 26

What are changes in quantity supplied?

Answer 26

Are shown by movements ALONG the supply curve, are caused by price changes

Question 27

What is market equilibrium?

Answer 27

Changes in price drive quantities demanded and supplied to a point of stability, where the demand and supply curves intersect

Question 28

What happens when the market is out of equilibrium?

Answer 28

Quantity supplied cannot keep up with quantity demanded

Question 29

What is a surplus?

Answer 29

An excess of quantity supplied over quantity demanded

Question 30

What are the effects of a surplus?

Answer 30

It causes price to fall, and consumers buy more at a lower price and the quantity demanded rises

Question 31

What is a shortage?

Answer 31

An excess of quantity demanded over quantity supplied

Question 32

What are the effects of a shortage?

Answer 32

Prices are pushed higher, consumers purchase less, decreasing quantity demanded

Question 33

What is the role of price?

Answer 33

If there is either a shortage or a surplus, the price in a competitive market changes until equilibrium is reached

Question 34

What is the effect of a demand increase?

Answer 34

When demand increases and supply stays the same, equilibrium price and quantity both rise

Question 35

What is the effect of a supply increase?

Answer 35

When supply increases and demand stays the same, equilibrium price falls and equilibrium quantity rises

Question 36

What is the effect of an increase in demand and supply?

Answer 36

Quantity rises and the effect on price depends on the sizes of the two shifts. Price rises with a bigger shift in demand and falls with a bigger shift in supply

Question 37

What is the effect of a demand increase and supply decrease?

Answer 37

Price rises and the effect on quantity depends on the sizes of the two shifts. Quantity rises with a bigger shift in demand and falls with a bigger shift in supply

Question 38

Who is William Stanley Jevon’s?

Answer 38

Assumed measurable utility, outlined the law of diminishing marginal utility, showed how this law can be illustrated using the downward sloping marginal utility graph

Question 39

What is the law of diminishing marginal utility?

Answer 39

A consumers total utility- or overall satisfaction gained from consuming a particular product- depends on the number of units they purchase. As consumption of an item rises, the consumer’s marginal utility- or extra satisfaction- falls while total utility rises by smaller increments

Question 40

What is the utility maximizing rule?

Answer 40

Applies no matter how many items are being bought, by following the rule, consumers maximize their overall satisfaction, or total utility, from a whole range of products