Unit 8 Supply and demand

Question 1

Difference between demand and quantity demanded

Answer 1

Demand - amount consumers want to buy at each different price; this is the ENTIRE demand curve
- change in demand = shift in the entire DC, caused by a change in 1/5 factors

Quantity demanded - amount consumers want to buy for a specific price; ONE point on the DC
- change in Q demanded = movement ALONG the DC, occurs when the good’s OWN price changes

Eg ‘How does good X’s price changing affect demand for good X?’ → Not at all. That would be a change in quantity demanded

Question 2

Consumer surplus

Answer 2

WTP higher than actual price

Question 3

Producer surplus

Answer 3

when OC is lower than price received

Question 4

Factors shifting demand

Answer 4

• Change in price of related goods
• change in consumer income
• changes in tastes and preferences
• changes in future expectations
• change in number of consumers

Question 5

Change in demand - graphically

Answer 5

• increase in demand shifts DC out
• decrease shifts DC in

Question 6

Factors shifting supply

Answer 6

• price of inputs
• substitutes and complements in production
• technology
• future expectations
• change in number of producers

Question 7

Change in supply - graphically

Answer 7

…

Question 8

Taxes and elasticity

Answer 8

• burden of an excise tax mainly falls on the more inelastic side of the market

Question 9

Why do taxes create DWL?

Answer 9

prevents mutually beneifcial trades from occurring

Question 10

Binding price ceiling and floors

Answer 10

• below the equilibrium
• above
• both lead to inefficient allocations