Chapter 4 P2

Question 1

Why does the demand curve slope downwards?

Answer 1

…because of the law of demand—other things equal, when the price of a good rises, the quantity demanded of the good falls.

People buy less of a good when its price rises, both because they cannot afford to buy as much and because they switch to purchasing other goods.

Question 2

Quantity supplied

Answer 2

Quantity supplied is the amount of a good that sellers are willing and able to sell.

Question 3

The law of supply

Answer 3

The law of supply states that, ceteris paribus, the quantity supplied of a good rises when the price of the good rises and when the price falls, the quanDty of goods supplied falls as well.

[Good price, sellers want to sell more]

Question 4

Supply schedule ​

Answer 4

A table that shows the relationship between the price of a good and the quanlity supplied.

Question 5

Supply curve

Answer 5

A graph of the relationship between the price of a good and the quanlity supplied – direct relationship hence it slopes upward as higher price leads to greater quanlity
supplied.

Question 6

Firm supply versus market supply

Answer 6

Question 7

Answer 7

Question 8

Variables that Affect the Quanlity Supplied

Answer 8

Question 9

Equilibrium - terminologies

Answer 9

Question 10

What Happens if There is More Supply or More Demand?

Answer 10

- Surplus – a situation in which the quanlity supplied is greater than the quanlity demanded.

- Shortage – a situation in which quanlity demanded is greater than quanlity supplied.

Question 14

• *The Least Squares Method**
• *Example:**

Answer 14

Consider the relationship between advertising expenditure and sales

Question 17

Analysing Equilibrium Changes
Including 3 steps

Answer 17

• First, determine whether the event shifts the supply curve or the demand curve, or both.
• Second, decide whether the curve shift to the right or to the left.
• Third, use the supply and demand curve diagram to compare the original and the new equilibrium, which will show how the shift affects the equilibrium price and quanlity.

Differences – Change in demand/supply is a shift in the
demand/supply curve. Change in the quanlity demanded/supplied means a movement along the fixed demand/supply curve.

Question 18

The law of supply and demand

Answer 18

That claims that the price of any good adjusts to bring the supply and demand for that good into balance.

Question 19

Comparative statics

Answer 19

It involves comparing two static situations—an old and a new equilibrium.
1/ Start in equilibrium

2/ Change a determining factors.

3/ Determine whether the change affects demand or supple and then direction of that change.