2: Demand and Supply

Question 1

define a market

Answer 1

the group of buyers and sellers for a given good or service

Question 2

what is the demand schedule?

Answer 2

the TABLE that shows the relationship between the price of the good and the quantity demanded

Question 3

is the demand curve downward or upward?

Answer 3

downward

Question 4

what is the law of demand?

Answer 4

as price increases, demand quantity decreases

Question 5

Ceteris paribus

Answer 5

“all other things being equal”

Question 6

determinants of demand

Answer 6

Tastes and Fashion
Income
Price of complements and substitutes
Size and Nature of population

Question 7

How does a price change affect the demand?

Answer 7

No change in demand, only in the quantity demanded

Question 8

What is a normal good?

Answer 8

Quantity demanded increases as income increases

Question 9

What is an inferior good?

Answer 9

Quantity demanded increases as income decreases

Question 10

Key point of substitute goods

Answer 10

price increase in one increases demand for the other

Question 11

Key point of complement goods

Answer 11

price increase in one decreases the demand for the other

Question 12

What is quantity supplied

Answer 12

the amount of goods that sellers are willing and able to sell at every given price

Question 13

What is the supply schedule

Answer 13

the table that shows the relationship between the price of the good and the quantity supplied

Question 14

What is the supply curve?

Answer 14

the upward-sloping line relating price to quantity supplied

Question 15

What is the law of supply?

Answer 15

As price of the good increases, the quantity supplied increases

Question 16

Market supply

Answer 16

sum of all individual supplies of all the sellers for a particular good or service

Question 17

Determinants of supply

Answer 17

Costs of production
Environment
Number of suppliers
Technology

Question 18

What is the difference between a change in supply versus a change in quantity supplied?

Answer 18

Change in supply: SHIFT of the supply curve, NOT caused by price change

Question 19

Which direction does the supply curve shift as technology advances?

Answer 19

To the right, (due to increased production)

Question 20

two possible states of disequilibrium and their causative reasons

Answer 20

excess demand: shortage of goods

excess supply: surplus of goods

Question 21

How to calculate surpluses and shortages?

Answer 21

the difference between the quantity demanded and the quantity willing to be sold at a certain price