Chapter 3 - Demand, Supply and Price

Question 1

Differentiate quantity demanded and quantity bought

Answer 1

QD: desired quantity
QB: actual purchases

Question 2

Demand can be influenced by (6)

Answer 2

Products' own price
Consumers' income
Prices of other products
Tastes
Population
Expectations about the future

Question 3

The price of a product and the QD are _ related

Answer 3

Negatively

Question 4

_ the price = higher the QD

higher the price = _ the QD

Answer 4

Lower, lower

Question 5

What will shift the demand curve?

Answer 5

A change in variables other than price

Question 6

What does a rightward shift indicate? Leftward?

Answer 6

Increase in demand

Decrease in demand

Question 7

Differentiate change in demand vs change in QD

Answer 7

Change in demand: shift of entire curve

Change in QD: moving along the curve

Question 8

Changes in the price of product imply moves _ the curve

Answer 8

Along

Question 9

Change in variables other than the price of product _ the whole curve

Answer 9

Shifts

Question 10

If demand shifts outwards, quantity increases and price _

Answer 10

Stays the same

Question 11

Differentiate normal and inferior goods using income

Answer 11

When income rises,
Normal: QD increases, DC shifts right
Inferior: QD decreases, DC shifts left

Question 12

Differentiate complementary and substitute goods

Answer 12

Complementary: consumed together, price of one increase and demand of the other decreases
Substitute: consumed in lieu of each other, price of one increases and demand of the other increases

Question 13

Give examples of complementary and substitute

Answer 13

Complementary: milk and cereal
Substitute: coffee and tea

Question 14

If milk price increases, QD _ but DC (does/doesn’t shift), meaning you move _ the curve

Answer 14

Decreases, doesn’t, along

Question 15

For cereal, if milk price increases, the DC for cereal _ and the curve shifts _

Answer 15

Decreases, left

Question 16

If tea price decreases, _ consumption of tea, meaning you move _ the curve

Answer 16

Increase, along

Question 17

For coffee, if tea price decreases, DC for coffee _ and the curve shifts _

Answer 17

Decreases, left

Question 18

What other 3 factors can shift demand?

Answer 18

Population, tastes, expectations about the future

Question 19

Demand is _ and supply is _ _

Answer 19

Negative, positive

Question 20

What is quantity supplied?

Answer 20

Amount desired to sell

Question 21

The price of product and quantity supplied are _ related. Why?

Answer 21

Positively

Because producers are interested in profits

Question 22

What will shift the supply curve?

Answer 22

A change in variables other than price

Question 23

Differentiate change in supply vs change in QS

Answer 23

Change in demand: shift of entire curve

Change in QD: moving along the curve

Question 24

If P substitute increases, demand shifts _ and supply shifts _

Answer 24

Right, left

Question 25

If P complement increases, demand shifts _ and supply shifts _

Answer 25

Left, right

Question 26

In a perfectly competitive market, buyers and sellers are _ _

Answer 26

Price takers

Question 27

What is the equilibrium price?

Answer 27

Every buyer finds a seller and every seller finds a buyer, the market "clears"

Question 28

Excess demand is (above/below) the EP causing an _ pressure on prices

Answer 28

Below, upward

Question 29

Excess supply is (above/below) the EP causing a _ pressure on prices

Answer 29

Above, downward

Question 30

What is the demand equation? Supply?

Answer 30

Demand: Q=a-bP Supply: Q=c+dP

Question 31

How do you find P?

Answer 31

Equate the two equations | P=(a-c)/(b+d)

Question 32

Does minimum wage (inc.) effect supply and demand?

Answer 32

Effects supply not demand | Supply curve shifts lefts, demand curve doesn't change

Question 33

What does an increase in demand cause?

Answer 33

Increase in both eq. price and eq. quantity | DC shifts right

Question 34

What does a decrease in demand cause?

Answer 34

Decrease in both eq. price and eq. quantity | DC shifts left

Question 35

What does an increase in supply cause?

Answer 35

Decrease in eq. price and increase in eq. quantity | SC shifts right

Question 36

What does a decrease in supply cause?

Answer 36

Increase in eq. price and decrease in eq. quantity | SC shifts left

Question 37

Wage effects _ and income effects _

Answer 37

Supply, demand

Question 38

What is absolute price?

Answer 38

Amount of money that must be spent to acquire one unit of that product

Question 39

What is relative price?

Answer 39

Price of one good in terms of another