Chapter 2- Supply and Demand

Question 0

What is demand?

Answer 0

➡️relat’ship b/w the possible prices of product and the quants consumers will buy @each price
➡️is the independent variable (y axis)
➡️quantity demanded is amount of product that consumers r willing to buy @ each price; ceteris paribus

Question 1

Where do product markets exist?

Answer 1

Product markets exist where-ever households and businesses buy/sell consumer products

Question 2

What is the law of demand?

Answer 2

the law of demand is that an increase in the product’s price decreases the quantity demanded and vice versa

Question 3

What is the Change in Quantity Demanded?

Answer 3

it is the movement along the demand curve

Question 4

What is Market Demand?

Answer 4

it is the sum of all consumer purchase

Question 5

What are Demand Determinants?

Answer 5

factors that can cause the entire market demand curve to shift

Question 6

What do Increases in Demand do? When do they occur?

Answer 6

➡️causes demand curve to shift

➡️occurs when there is an increase in the quantity demanded of a product at all prices

Question 7

What happens when the #of buyers increase/decrease??

Answer 7

➡️when the #of buyers increase, demand increases

➡️when the #of buyers decrease demand decreases

Question 8

What happens when income rises?

Answer 8

➡️more luxury products purchased
➡️more basic items purchased but in smaller amounts
➡️more normal products purchased (above two arrows)
➡️less inferior products purchased

Question 9

What are normal products?

Answer 9

Products where the demand changes directly with income (when income rises the purchase of these products rise)

Question 10

What are inferior products?

Answer 10

Products whose demand changes inversely with income (as income rises less of these products are purchased)

Question 11

What are Substitute products?

Answer 11

Products that can be consumed in place of one another

Question 12

What are Complementary Products?

Answer 12

Products that are consumed together
E.g. cars and gas

➡️increase in the price of one product causes a decrease in demand for its compliment

Question 13

What do Consumer Preferences affect?

Answer 13

People’s preferences will affect buying patterns

E.g. as people become healthier, demand for nutritious foods go up

Question 14

What do consumer expectations affect?

Answer 14

Consumer expectations about future price changes and income will have an affect on current purchases

Question 15

What is The role of Supply?

Answer 15

In product markets supply is related to the selling activity of businesses

Question 16

What is supply?

Answer 16

Supply is the relationship between the various possible pieces of a product and the quantity of the product that businesses are willing to put on the market.

Question 17

What is the quantity supplied?

Answer 17

The quantity supplied is the amount of product that businesses are willing to supply at each price

Question 18

Why does the supply curve gave a positive upwards slope?

Answer 18

The supply curve’s positive upwards slop reflects the law of supply (an increase in the product’s price increases the quantity supplied and vice versa)

Question 19

What is market supply?

Answer 19

Market supply is the sum of all producer’s quantities supplied at each price

Question 20

What are Supply Determinants?

Answer 20

Supply Determinants are factors that can cause an increase or decrease in product’s supply

Question 21

What does an increase in supply cause?

Answer 21

An increase in supply causes the supply curve to shift right (down)

Question 22

When does an increase in supply occur?

Answer 22

an increase in supply occurs when there is an increase in quantity supplied of a product at all prices.

Question 23

what does a decrease in supply cause?

Answer 23

a decrease in supply causes the supply to shift left (up)

Question 24

When does a decrease in supply occur?

Answer 24

a decrease in supply occurs when there is a decrease in the quantity supplied of a product of all prices

Question 25

What happens when the # of producers for a certain product increases?

Answer 25

When the # of producers for a certain product increases the supply increases; curve shifts down (right)

Question 26

What happens when the # of producers for a certain product decreases?

Answer 26

When the # of producers for a certain product decreases, the supply decreases; curve shifts up (left)

Question 27

If there is a price increase for a resource used in a particular industry, what happens to the costs for businesses in that industry. What happens to the supply?

Answer 27

the costs for businesses increase - resulting in a decrease of supply (supply curve shifts up)

Question 28

How does technology affect a business?

Answer 28

With new technology there is increased efficiency, the higher efficiency increases a company's supply of goods.

Question 29

What do changes in Nature affect?

Answer 29

Changes in nature affect the supply of goods - usually in agriculture

Question 30

What influences a product's supply?

Answer 30

A product's supply is influenced by changes in the prices of other products E.g. if the price of wheat decreases, farmers may change their crop production to a product that will earn them more$ causing wheat supply to decrease

Question 31

What would happen if producers expected the price of their item to drop?

Answer 31

Producers would produce as much as possible now to try to benefit from the high price; thus supply will go up.

Question 32

What is market equilibrium?

Answer 32

market equilibrium is the stable point at which demand and supply curves intersect. The market will always try to right itself when not in this state

Question 33

What happens when a product is in surplus?

Answer 33

➡️excess supply ➡️price is pushed down

Question 34

What happens when a product is in shortage?

Answer 34

➡️there is excess demand ➡️the price is pushed up

Question 35

What does a change in demand do?

Answer 35

It pushes quantity supplied in same direction

Question 36

What does a change in supply do?

Answer 36

It pushes quantity demanded in the same direction

Question 37

Describe budget constraint

Answer 37

➡️household consumption choices are constrained by their fixed income and the price of goods/services ➡️household budget line describes the limits to its consumption choices ➡️constraint will change when either price or income changes

Question 38

What is total utility?

Answer 38

total utility is the total benefit that a person gets from the consumption of goods/services

Question 39

What is marginal utility?

Answer 39

marginal utility is the change in a total utility that results from a one-unit increase in the quantity of a good consumed

Question 40

Describe maximizing utility

Answer 40

a household's income and the prices that it faces limit the household's consumption choices

Question 41

What is the marginal utility theory?

Answer 41

assuming households choose their consumption to maximize their utility

Question 42

Total utility is maximized when…?

Answer 42

all the consumer's available income is spent and when the marginal utility per dollar spent is equal for all goods

Question 43

What is an indifference curve?

Answer 43

a line that shows combinations of goods among which a consumer is indifferent

Question 44

what does one assume to predict consumer behaviour?

Answer 44

consumer is on their budget line consumer is on their highest attainable curve

Question 45

What is the price effect?

Answer 45

the effect of a change in price on the quantity of a good consumed

Question 46

What is the income effect?

Answer 46

the effect of a change in income on consumptions