Week 3: demand and supply continued; elasticity

Question 1

Demand

Answer 1

• the relationship between a product’s price and quantity demanded
• shown using a schedule or curve

Question 2

Law of demand

Answer 2

• states that price and quantity demanded are inversely related

Question 2

Market demand

Answer 2

the sum of quantities demanded by all consumers in a market

Question 3

Changes in Demand

Answer 3

• are shown by shifts in the demand curve
• are caused by changes in demand factors

Question 4

5 Demand Factors

Answer 4

• Number of buyers
• Income
• Prices of other products
• Consumer preferences
• Consumer expectations

Question 5

Number of buyers

Answer 5

• increase causes a rightward shift in demand
• caused by pop growth or more people wanting to buy it

Question 6

Income

Answer 6

• normal products
• inferior products

Question 7

Normal products

Answer 7

products that consumers demand more of as income increases

ex. expensive steak

Question 8

Inferior products

Answer 8

products that consumers demand less of as income decreases

ex. McDonalds

Question 9

Prices of other products

Answer 9

• substitutable products
• complementary products

Question 10

Substitutable products

Answer 10

• products that can be consumed in place of one another
• rise in another product’s price causes a rightward shift in demand

ex. butter and margarine

Question 11

Complementary products

Answer 11

• products that are consumed together
• rise in another product’s price causes a leftward shift in demand

ex. milk and cereal

Question 12

Consumer preferences

Answer 12

• trends
• marketing

Question 13

Consumer expectations

Answer 13

ex. if most consumers expect the price of laptop computers to fall, the current demand for laptops decreases

ex. if they expect their standard of living to rise—their current demand for normal products will increase, and their current demand for inferior products will decrease

Question 14

Quantity Demanded

Answer 14

the amount of a product consumers are willing to purchase at each price

Question 15

Changes in Quantity Demanded

Answer 15

• movements of points along the demand curve
• only change bc of price (y-axis)

Question 16

Supply

Answer 16

• the relationship between a product’s price and quantity supplied
• shown using a schedule or curve

Question 17

Law of supply

Answer 17

states that there is a direct relationship between price and quantity supplied

Question 18

Changes in Supply

Answer 18

• are shown by shifts in the supply curve
• are caused by changes in supply factors

Question 19

6 Supply Factors

Answer 19

• Number of producers
• Resource prices
• State of technology
• Prices of related products
• Changes in nature
• Producer expectations

Question 20

Number of producers

Answer 20

an increase causes a rightward shift in supply

Question 21

Resource prices

Answer 21

an increase causes a leftward shift in supply

Question 21

State of technology

Answer 21

an improvement causes a rightward shift in supply

Question 22

Prices of related products

Answer 22

an increase in the price of a related product causes a leftward shift in supply

Question 23

Changes in nature

Answer 23

for some products, an improvement causes a rightward shift in supply

Question 24

Producer expectations

Answer 24

an expectation of lower prices in the future causes an immediate rightward shift in supply

Question 25

Quantity Supplied

Answer 25

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

Question 26

Changes in Quantity Supplied

Answer 26

• are shown by movements along the supply curve • are caused by price changes

Question 27

Law of Supply and Demand

Answer 27

• where both curves intersect • customers happy with price and firms are happy to produce that product at that low price • surplus • shortage

Question 28

Surplus

Answer 28

• too much supply • price is pushed down

Question 29

Shortage

Answer 29

• too much demand • price is pushed up

Question 30

Equilibrium

Answer 30

point at which demand and supply curves intersect

Question 31

Price elasticity of demand

Answer 31

shows how responsive consumers are to changes in price

Question 32

elastic demand

Answer 32

means that the % change in quantity demanded is more than the % change in price ex. coffee

Question 33

inelastic demand

Answer 33

means that the % change in quantity demanded is less than the % change in price ex. insulin for diabetics

Question 34

unit-elastic demand

Answer 34

• means that the % change in quantity demand equals the % change in price • they equal each other

Question 35

Perfectly elastic demand

Answer 35

means that there is a constant price and a horizontal demand curve (perfect competition)

Question 36

Perfectly inelastic demand

Answer 36

means that there is a constant quantity demanded and a vertical demand curve

Question 37

4 determinants of price elasticity of demand

Answer 37

• portion of consumer incomes • access to substitutes • necessities versus luxuries • time

Question 38

portion of consumer incomes

Answer 38

products with smaller portions more inelastic

Question 39

access to substitutes

Answer 39

products with more substitutes more elastic

Question 40

necessities versus luxuries

Answer 40

more inelastic for necessities and more elastic for luxuries

Question 41

time

Answer 41

more elastic with the passage of time

Question 42

> 0 to < 1

Answer 42

inelastic demand

Question 43

1

Answer 43

unitary elasticity

Question 44

> 1

Answer 44

elastic demand