Chapter 2 part 1 from class: demand and supply

Question 1

difference between quantity demanded and demand?

Answer 1

quantity demanded corresponds to a single price

demand is the entire demand curve

Question 2

normal good

Answer 2

bought by people with higher income

Question 3

inferior good

Answer 3

bough less with higher income

Question 4

what can shift the demand curves

Answer 4

expectations

income

tastes

etc

basically, anything other than price that affects consumers will shift the demand curve

Question 5

explain supply curve

Answer 5

increase in price creates increased quantity supplied

anything other change of price will change the supply

Question 6

what will an increase in cost of production to the supply curve? why?

Answer 6

the supply curve will curve to the left

since its more expensive to produce, you’re going to want to increase price for same quantity supplied

Question 7

surplus

Answer 7

when quantity supplied is greater than quantity demanded

Question 8

what do sellers do in a surplus?

Answer 8

decrease the price to get more people to buy until it reaches an equilibrium

Question 9

shortage

Answer 9

when quantity demanded is greater than quantity supplied

Question 10

what is the formula for price elasticity of demand

point elasticity

Answer 10

(Delta Q / Delta P) * (P/ Q)

(Delta Q / Delta P) is the slope of the demand function

when there is only one point given

you’re either going to be given the slope or ways to find it

Question 11

price elasticity of demand

Answer 11

measures how much Qd responds to a change in P

Question 12

arc elasticity

Answer 12

using a midpoint

when there is two points given

you find the midpoint

(Delta Q / Delta P) * ( Average P/ Average Q)

Question 13

q demanded

Answer 13

any good is the amount of the good that buyers are willing and able to purchase at a given price

Question 14

what does the demand curve show?

Answer 14

how price affects quantity demanded, other things being equal

Question 15

how is demand for a normal good positively related to income?

Answer 15

Increase in income causes increase in quantity demanded at each price

this means a shift to the right to the entire demand curve

Question 16

how is demand for an inferior good is negatively related to income)

Answer 16

An increase in income shifts D curves for inferior goods to the left

Question 17

substitutes

Answer 17

competitors that will clash and can replace each other

Price of one will affect the whole demand curve of the other

an increase in the price of one causes an increase in demand for the other

Question 18

complements

Answer 18

they go well together

Price of one will affect the whole demand curve of the other

an increase in the price of one causes a fall in demand for the other

Question 19

what does a change in price of a product do?

Answer 19

causes a movement along the D curve

Question 20

what are the variables that will shift demand curve?

Answer 20

the amount of buyers

income

price of related goods

tastes

expectations

Question 21

quantity supplied

Answer 21

the amount that sellers are willing and able to sell at a given price

Question 22

what are supply curve shifters

Answer 22

input prices (cost of production)

technology advancements

amount of sellers

expectations

etc

Question 23

what does an increase of sellers do to supply curve

Answer 23

sellers increases the quantity supplied at each price

shifts S curve to the right

Question 24

what does a cost saving tech advancement to to supply curve

Answer 24

shifts S curve to the right

Question 25

equilibrium

Answer 25

the level where quantity supplied equals quantity demanded

Question 26

surplus

Answer 26

when quantity supplied is greater than quantity demanded

Question 27

what do sellers do when facing surplus in free market?

Answer 27

sellers try to increase sales by cutting price

Question 28

shortage

Answer 28

when quantity demanded is greater than quantity supplied

Question 29

what do sellers do when facing shortage?

Answer 29

sellers raise the price

Question 30

change in supply?

Answer 30

a shift in the S curve occurs when a non-price determinant of supply changes (like technology or costs)

Question 31

change in quantity supplied

Answer 31

a movement along a fixed S curve occurs when P changes

Question 32

change in demand

Answer 32

a shift in the D curve occurs when a non-price determinant of demand changes (like income or # of buyers)

Question 33

change in quantity demanded

Answer 33

a movement along a fixed D curve occurs when P changes