Chapter 4 Section Reviews

Question 1

State the law of supply

Answer 1

The higher the price buyers are willing to pay, other things being constant, the greater the quantity a supplier will be willing to produce, and the inverse is true.

Question 2

Which way does a supply curve slope and why?

Answer 2

To the right, which is a positive slope, indicating the greater the price buyers are willing to pay for the product, the greater quantity firms will supply.

Question 3

What three factors could lead to a change in supply?

Answer 3

1. Changes in technology
2. Changes in production costs
3. Changes in the prices of related goods

Question 4

At what point do supply and demand intersect?

Answer 4

The market equilibrium point

Question 5

What occurs when the price of a product is higher than the price at which supply equals demand?

Answer 5

Surplus

Question 6

What is the simplest solution to a surplus?

Answer 6

Producer lowers the price until the quantity demanded equals the quantity he has to supply.

Question 7

What condition causes a shortage, and what are its possible
solutions?

Answer 7

A shortage is caused when a products price is lower than the market equilibrium price. The possible solutions are:

1. Discouraging demand for the product
2. Increasing the supply of the product
3. Allowing the price to rise to the equilibrium level

Question 8

Who are suppliers?

Answer 8

All sellers of goods and services

Question 9

What does a leftward shift in the supply curve indicate?

Answer 9

A decrease in supply

Question 10

Do changes in technology cause an increase or a decrease in
supply?

Answer 10

Increase in supply

Question 11

Alfred Marshall is best known for his model illustrating what
economic law?

Answer 11

Law of supply and demand