Chapter 2

Question 1

Demand curve

Answer 1

Relationship btw Quantity of good that consumers willing to buy and the price of that good

𝑄𝐷 = 𝑄𝐷(𝑃) where, 𝑄𝐷 is the quantity demanded, P is the price of the good.

Usually, it is Downward Sloping (slope of demand curve smaller than 0)

Question 2

Law Of demand

Answer 2

States that there is Negative or inverse relationship btw price and quantity of good demanded and its price

Question 3

Movement along the demand curve(graph included )

Answer 3

Cause only by Changes in price of good

Question 4

Shifts in demand Curve

Answer 4

shifts in the demand curve of a good is caused by factors other than the price of that good that may have impact on the demand of a good. Factors may shifts the demand curve: changes in income, preferences, or prices of other goods or services.

Question 5

Normal and inferior goods

and the impact of higher income on demand(Graph included)

Answer 5

Normal goods: goods for which demand goes up when income is higher and for which demand goes down when income is lower.

Inferior Goods: goods for which demand falls when income rises and vise-versa

Question 6

Substitutes and complements

And the impact of a change in the price of related goods(Graph included)

Answer 6

Substitutes: are goods that can serve as replacements for one another; when the price of one increases, demand for the other goes up. Perfect substitutes are identical products

Complements: Complements are goods that “go together”; a decrease in the price of one results in an increase in demand for the other, and vice versa

Question 7

HouseHold demand vs market demand

Answer 7

Market demand is the sum of all the quantities of a good or service demanded per period by all the households buying in the market for that good or service

Question 8

Supply curve

Answer 8

the relationship between the quantity of a good that producers are willing to sell and the price of the good.

𝑄𝑆 = 𝑄𝑆(𝑃) where, 𝑄𝑆 is the quantity supplied by the producer, and P is the of the good.​

The supply curve is usually sloped upward (the slope of the supply curve is greater than 0).

Question 9

Law of supply

Answer 9

positive relationship between price and quantity of a good supplied.

Question 10

Movement along the supply and shifts(Graph included)

Give example of leftward and rightward shift

Answer 10

1. Movement along the supply curve: A movement along the supply curve for a good is caused and only can be caused by the changes in the price of that good
2. Change/shifts in supply curve: factors other than the price of that good may shift the supply curve of the interested good. changes in production costs, input prices, technology, or prices of related goods and services.

• An increase in the cost of production, input prices will shift the supply curve to the left (or a decrease in supply);
• An improvement of technology that reduces the production cost of goods will shift the supply curve to the right (or an increase in supply).

Question 11

Market Mechanism

Answer 11

tendency in a free market for price to change until the market clears. The operation of the market depends on the interaction between buyers and sellers.

Question 12

Market equilibrium and surplus/shortage(graph included)

Answer 12

An equilibrium is the condition that exists when quantity supplied and quantity demanded are equal. At equilibrium, there is no tendency for the market price to change.

Equilibrium price (market-clearing price) is the price that equates the quantity supplied to the quantity demanded.

Surplus: Situation in which the quantity supplied exceeds the quantity demanded;​

Shortage: Situation in which the quantity demanded exceeds the quantity supplied.​

Question 13

Changes in Market Equilibrium(Graph: lower demand leads to , lower supply leads to, higher demand leads to, higher supply leads to)

Answer 13

Question 14

Relative Magnitudes of change

Answer 14