Chapter 3

Question 1

What is demand?

Answer 1

Demand - How much of something people are willing and able to buy under certain circumstances

Question 2

What is quantity demand?

Answer 2

Quantity demand - Amount of a particular good that buyers in a market will purchase at a given price during a specified period

Think of yourself as a consumer when dealing with demand

Question 3

What is Law of demand?

Answer 3

Law of demand - Inverse relationship between price and quantity demanded

Question 4

What is Ceteris Paribus

Answer 4

Ceteris Paribus - To isolate the effect of a single change in the economy

Question 5

What is demand schedule?

Answer 5

Think of the price of phones to how many phones have been sold.

If the phone is cheap than the amount of phones sold is high

If the phone is expensive than the amount of phones sold is low

Question 6

What is Demand Curve?

Answer 6

Represents consumers’ willingness to buy and highest amount they will pay for a given quantity

This curve is a downward sloping curve

Question 7

What is are Determinates of Demand?

Answer 7

1. Consumer preferences
2. Prices of related goods
   Substitute versus complementary
3. Incomes
   Normal goods
   Inferior goods
4. Expectations
5. Number of buyers

The demand for normal goods increases when consumer income rises.

The demand for inferior goods decreases when consumer income rises.

Question 8

Substitute Goods vs. Complementary Goods

Answer 8

Substitute Goods: Goods we use in place of another (coca cola to pepsi, substitute one over another)

Complementary Goods: Goods that we consume or utilize together (toothpaste with toothbrush or CD player and a CD)

Question 9

Shifts in the Demand Curve versus Movement along the Demand Curve

Answer 9

A change in one or more of the non-price determinants (income, tastes, etc.) will lead to a change in demand.

This is a shift of the curve.

Increase in Demand = Moves right
Decrease in Demand = Moves left

A change in a good’s own price leads to a change in quantity demanded.

This is a movement along the curve.

Question 10

Shifts in the Demand Curve

Answer 10

When demand decreases, the demand curve shifts to the left

When demand increases, the demand curve shifts to the right

Question 11

Movement along the demand Curve

Answer 11

A price increase causes a movement along the demand curve

Question 12

What is supply?

Answer 12

Supply - how much of a good or service is offered for sale under given circumstances

Question 13

What is Quantity supplied?

Answer 13

Quantity supplied - amount of good or service offered for sale at a given price during a specified period
Each producer has different price point to decide
viability to supply

Question 14

What is Law of Supply?

Answer 14

Law of Supply - quantity supplied increases as price increases and vice versa
Decision to produce a good concerns trade-off of
producer benefit from selling and cost to
produce it

Question 15

Supply Curve

Answer 15

As price increases quantity supply increases

Question 15

What is a Supply Schedule?

Answer 15

As the price of the phone increases, supply of phone increases

As the price of phone is lower, the supply of the phone is also lower

Think of yourself as the business owner when thinking about Supply

Question 15

What are Determinants of Supply?

Answer 15

Prices of related goods; Example: Bakery, if price of bread is more attractive than price of cake than the bakery will make more cake

Technology; Example: If you use horses vs tractor, the tractor will be more productive

Prices of inputs (The cost of production); Example: The money we pay to buy ingredients, if it is expensive to buy the things to make a cake than they make less cake, if it is cheaper than it is easier to make more cake

Expectations; Example: If the bakery is expecting that down the road bread will be cheaper than they may sell more currently to make the most bang for their buck

Number of sellers; Example: Subsidies make the production of corn more profitable, so more farmers plant corn; the supply of corn increases

Question 15

Determinants of Supply Further Explained

Answer 15

A change in one or more of the non-price determinants will lead to a change in supply.

A change in a good’s own price leads to
a change in quantity supplied

Question 15

What is Market Equilibrium? X Graph Explained

Answer 15

The x axis is amount of phones sold

The y axis is the price of phones

The upper portion of the X Graph represents:
Surplus - quantity supplied is higher than the demand;
Excess quantity supplied; incentive to lower price

The exact middle of the graph (the X) represents:
The market equilibrium point, the quantity supplied equals the quantity demanded.

The lower portion of the X represents:
Shortage or excess quantity demand - demand higher than supplied; incentive is to raise prices

Question 15

Change in the market equilibrium explained during demand and supply

Answer 15

Demand -
An increase in demand shift the demand curve to the right pushing the equilibrium point up along the supply curve
Red line moves up and to the right along the blue line moving the middle of the graph (equilibrium point with it)

Supply -
An increase in supply shifts the supply curve to the right pushing the equilibrium down along the demand curve

The blue line moves down and to the right along the red line also moving the equilibrium point

Question 15

Change in the market equilibrium prediction explained

Answer 15

When supply/demand move in thesamedirection, we can predict the direction of the change in quantity but not the direction of the change in price

When supply/demand move inoppositedirections, the change in price is predictable but the change in quantity is not

Both supply and demand increase, buyers and sellers agree that at any given price the quantity they are willing to exchange is higher