Chapter 3: Basic Elements of Supply and Demand

Question 1

Give some examples of factors that affect the demand curve:

Answer 1

1. Average Income: As the income rises, the demand also tends to increase and vice-versa;
2. Population: An increase in population also create an increase in consumption;
3. Prices of related goods: Rising gasoline prices tend to reduce the demand for cars;
4. Tastes: Having a car becomes a status symbol;
5. Special influences: Alternatives, safety and expectation of future prices.

Question 2

Shifts in demand:

Answer 2

Shifts in demand represents a change in the quantity of a product or service that consumers seek at any price point, caused or influenced by a change in economic factors other than price.

Question 3

Give some examples of factors that affect the supply curve:

Answer 3

1. Technology;
2. Input prices;
3. Prices of related goods;
4. Government policies;
5. Special influences: e.g. the internet allows buyers to compare prices of various suppliers, driving high-cost suppliers out of business.

Question 4

Shifts in supply:

Answer 4

A change in supply leads to a shift in the supply curve, which causes an imbalance in the market that is corrected by changing prices and demand.