Chapter 3 : Supply and Demand

Question 1

What does qt demanded refer to?

Answer 1

A flow, as opposed to a stock

Question 2

What 5 variables influence demand?

Answer 2

1. Consumer’s income
2. Price of other products
3. Consumer’s preferences
4. Population
5. Significant changes in weather

Question 3

Other things being equal in latin?

Answer 3

Ceteris paribus

Question 4

Who came up with the law of demand?

Answer 4

Alfred Marshall

Question 5

Difference between demand and qt demanded?

Answer 5

Qt demanded = influenced by price only. One point on the curve

Demand = influenced by many variables. Shift in the entire demand curve

Question 6

Difference between normal and inferior goods

Answer 6

Normal : demand of a good increases with the consumer’s income

Inferior : demand of a good decreases with the consumer’s income

Question 7

Substitutes vs Complements and impact on price of original good

Answer 7

Substitute = something that can replace a good

Complement = something that is bought with a good

Price of substitute increases = more demand of original good
Price of substitute decreases = less demand of original good

Price of complement increases = less demand of original good
Price of complement decreases = more demand of original good

Question 8

Factors impacting supply

Answer 8

Other than product’s own price (impacts qt. supplied)
1. Price of inputs
2. Technology
3. Government taxes and subsidies
4. Significant changes in weather
5. Number of suppliers

Question 9

Slope of demand curve

Answer 9

Negative

Question 10

Slope of supply curve

Answer 10

Positive

Question 11

What are inputs? How do they impact the supply curve?

Answer 11

Inputs : everything used to make a product (labor, machines, material)

Price of inputs increases = decrease in supply

Price of inputs decreases = increase in supply

Question 12

What is the impact on the supply curve of a cost-saving innovation?

Answer 12

Rightward shift of the supply curve (more supply)

Question 13

Effects of taxes and subsidies on supply

Answer 13

Government taxes decrease supply
Subsidies increase supply

Question 14

Complement and substitute prices’ impacts on the supply of a good

Answer 14

Decrease in the price of an item (not profitable for suppliers anymore) = increase of the supply of its substitute (more profitable for suppliers)

Question 15

What can a change in the quantity supplied be due to?

Answer 15

1. Change in supply with the price constant
2. Movement along the curve due to a change in price
3. Both

Question 16

What is a market?

Answer 16

Any place in which buyers and sellers can negotiate the exchange of goods and services

Question 17

What is a perfectly competitive market?

Answer 17

Markets in which the number of buyers and sellers is sufficiently large that none of them have an influence on the market prices (market price is only determined by the equilibrium)

Question 18

What are the consequences of a desequilibrium price?

Answer 18

Excess demand or excess supply

Question 19

Impact of increased and decreased demands on the market equilibrium

Answer 19

Increased demand : more qt exchanged, at a higher equilibrium price

Decreased demand : less qt exchanged, at a lower equilibrium price

Question 20

Impact of increased and decreased supplies on the market equilibrium

Answer 20

Increased supply : more qt exchanged, lower equilibrium price

Decreased supply : less qt exchanged, higher equilibrium price

Question 21

Mathematical equation of the equilibrium

Answer 21

Qd = Qs

Question 22

What are the three conditions that must be satisfied in order for the price determination to be well-described by the demand-and-supply model?

Answer 22

1. Large number of consumers (each one small relative to the size of the market)
2. Large number of produces (each one small relative to the size of the market)
3. Producers must be selling “homogenous” versions of their product

Question 23

How did governments react to the changes in demand and supply changes due to the pandemic?

Answer 23

Governments increased their spendings by borrowing and issued new bonds : IOUs