Supply & Demand

Question 1

What is Supply?

Answer 1

how much of some good is AVAILABLE

Question 2

What is Demand?

Answer 2

how much consumers WANT a good

Question 3

Supply & Demand determines _____

Answer 3

price

Question 4

What is Equilibrium?

Answer 4

Price at which there is no tendency to change

Question 5

What is a Surplus?

Answer 5

Qs > Qd

Price is too HIGH —> Quantity supplied EXCEEDS Quantity demanded

Question 6

What is a Shortage?

Answer 6

Qd > Qs

Price is too LOW —> Quantity supplied doesn’t meet Quantity demanded

Question 7

What is a Shock?

Answer 7

an abrupt change to market conditions that CHANGES SUPPLY or DEMAND & SHIFTS EQUILIBRIUM

Question 8

What are the 7 Factors that determine a shock?

Answer 8

Increase in Overall Income
Decrease in Overall Income
Compliments 
Substitutes
Cost of Inputs 
Technology 
Random Factors (weather, tastes, style)

Question 9

What happens when there is an INCREASE in Overall Income?

Answer 9

Inferior Goods -»> Superior Goods

Question 10

What happens when there is a DECREASE in Overall Income?

Answer 10

Superior Goods -»> Inferior Goods

Question 11

What happens to COMPLIMENTARY goods?

Answer 11

(OPPOSITES)

INCREASE in PRICE of one good = DECREASE in CONSUMPTION of RELATED good

or

DECREASE in PRICE of one good = INCREASE in CONSUMPTION of RELATED good

Question 12

What happens to SUBSTITUTE goods?

Answer 12

(SAME)

INCREASE in PRICE of one good = INCREASE CONSUMPTION of ANOTHER good

or

DECREASE in PRICE of one good = DECREASE CONSUMPTION of ANOTHER good

Question 13

What happens to Cost of Inputs?

Answer 13

INCREASE in COST of PRODUCTION = Decrease Supply

DECREASE in COST of PRODUCTION = Increase Supply