Chapter 3

Question 1

Why demand curves are downward sloping and why supply curves are upward sloping

Answer 1

The Law of Demand: (negative relationship)
As price increases demand falls/ Price decreases, and demand increases
Law of Supply: (positive relationship)
price increases, supplies increase, vice versa

Question 2

Price is the guiding force in a market economy: what questions does Supply and Demand answer?

Answer 2

1. What or how much to produce?
2. How or by whom to produce?
3. For who is it produced?

Question 3

How to determine the amount of a surplus or shortage in a supply and demand graph, and predict
what will happen to correct the market (bring it back to equilibrium).

Answer 3

Above equilibrium=Surplus excess supply
Below equilibrium=Shortage excess demand
Surplus: quantity demanded - quantity supplied
Shortage: quantity supplied - quantity demanded.

Question 4

Shifts vs Movements

Answer 4

Shifts: A change in Supply or Demand
Movements: change in quantity supplied or demanded

Question 5

Shifts

Answer 5

right=more
left=less

Question 6

Simultaneous shifts

Answer 6

one shift (demand OR supply) means that we know two outcomes (price & quantity)
Two shifts (demand & supply) means that we know one outcome (price OR quantity)