Unit 2 Supply and Demand

Question 1

Law of Demand

Answer 1

As the price of a good increases, the quantity demanded decreases

Question 2

Determinants of Demand (Shifters)

Answer 2

Tastes and preferences
Number of buyers
Income
Prices of related goods (substitutes and complements)
Expectations of future prices

Question 3

Movement vs. Shift Demand

Answer 3

Movement Along Curve: Caused by a change in the good’s own price.
Shift of Curve: Caused by changes in determinants other than the good’s own price.

Question 3

Normal vs. Inferior Goods

Answer 3

Normal Goods: Demand increases as income increases.
Inferior Goods: Demand decreases as income increases.​

Question 4

Law of Supply

Answer 4

As the price of a good increases, the quantity supplied increases

Question 5

Supply Curve

Answer 5

A graphical representation showing the direct relationship between price and quantity supplied.

Question 6

Determinants of Supply (Shifters)

Answer 6

Resource prices
Technology
Taxes and subsidies
Prices of other goods
Expectations of future prices
Number of sellers​

Question 7

Movement vs. Shift Supply Curve

Answer 7

Movement Along Curve: Caused by a change in the good’s own price.
Shift of Curve: Caused by changes in determinants other than the good’s own price.​

Question 8

Price Elasticity of Demand (PED) formula

Answer 8

Formula: PED = (% Change in Quantity Demanded) / (% Change in Price)

Question 9

Elastic vs. Inelastic Demand

Answer 9

Elastic: PED > 1; quantity demanded is sensitive to price changes.
Inelastic: PED < 1; quantity demanded is not sensitive to price changes.​

Question 10

Determinants of PED

Answer 10

Availability of substitutes
Necessity vs. luxury
Proportion of income spent on the good
Time horizon

Question 11

Total Revenue and PED (elastic vs inelastic)

Answer 11

Elastic Demand: Price and total revenue move in opposite directions.
Inelastic Demand: Price and total revenue move in the same direction.​
Wikipedia

Question 12

Price Elasticity of Supply (PES) formula

Answer 12

Formula: PES = (% Change in Quantity Supplied) / (% Change in Price)

Question 13

Income Elasticity of Demand (YED) Formula

Answer 13

Formula: YED = (% Change in Quantity Demanded) / (% Change in Income)

Question 13

Determinants of PES

Answer 13

Time period
Flexibility of production
Availability of inputs

Question 14

Elastic vs. Inelastic Supply

Answer 14

Elastic: PES > 1; quantity supplied is sensitive to price changes.
Inelastic: PES < 1; quantity supplied is not sensitive to price changes.​

Question 15

Income Elasticity of Demand (YED) positive vs negative interpretation

Answer 15

Positive YED: Normal good
Negative YED: Inferior good

Question 15

Cross-Price Elasticity of Demand (XED) Formula

Answer 15

Formula: XED = (% Change in Quantity Demanded of Good A) / (% Change in Price of Good B)

Question 16

Cross-Price Elasticity of Demand (XED) positive vs negative

Answer 16

Positive XED: Substitutes
Negative XED: Complements

Question 17

Substitute Goods

Answer 17

Goods that can replace another good

Question 18

Complementary Goods

Answer 18

Goods used together

Question 19

Market Equilibrium

Answer 19

The point where quantity demanded equals quantity supplied

Question 20

Producer Surplus

Answer 20

The difference between the price producers receive and the minimum they are willing to accept.​

Question 20

Consumer Surplus

Answer 20

The difference between what consumers are willing to pay and what they actually pay.

Question 21

Graphical Representation Consumer Surpluses

Answer 21

Area below the demand curve and above the price level.

Question 22

Graphical Representation Producer Surpluses

Answer 22

Area above the supply curve and below the price level.

Question 23

Surplus

Answer 23

Occurs when quantity supplied exceeds quantity demanded at a given price.

Question 24

Shortage

Answer 24

Occurs when quantity demanded exceeds quantity supplied at a given price.

Question 25

Demand Increase

Answer 25

Higher equilibrium price and quantity.

Question 26

Demand Decrease

Answer 26

Lower equilibrium price and quantity.

Question 27

Supply Increase

Answer 27

Lower equilibrium price and higher quantity.

Question 28

Supply Decrease

Answer 28

Higher equilibrium price and lower quantity

Question 29

Price Ceiling

Answer 29

A price ceiling is a maximum legal price set below equilibrium by the government. It is meant to make goods more affordable for consumers. It causes a shortage because quantity demanded exceeds quantity supplied. Example: Rent control.

Question 30

Price Floor

Answer 30

A price floor is a minimum legal price set above equilibrium by the government. It is meant to protect producers from prices that are too low. It causes a surplus because quantity supplied exceeds quantity demanded. Example: Minimum wage.

Question 31

Taxes

Answer 31

Increase the price buyers pay and decrease the price sellers receive, leading to a decrease in quantity traded.

Question 32

Subsidies

Answer 32

Decrease the price buyers pay and increase the price sellers receive, leading to an increase in quantity traded.

Question 32

Deadweight Loss

Answer 32

The loss of total surplus due to market distortions like taxes or subsidies.