Chapter 4 Supply And Demand

Question 1

How is the value a goods determined.

Answer 1

By the interaction of supply and demand

Question 2

Demand

Answer 2

Is the quantity of goods that consumers are willing and able to buy at a given price.
We expect an inverse relationship between quantity demand and price.

Question 3

Demand is shifted by

Answer 3

Changes in the prices of other goods, income, number of consumers and taste. Other goods include complements and substitutes.

Question 4

Supply

Answer 4

Is the quantity of goods that producers are willing and able to sell at a given price.
We expect a direct relationship between quantity supplied and price.

Question 5

Supply is shifted by

Answer 5

Changes in cost of production, alternative use of resources, number of sellers and technology

Question 6

Both supply and demand increase by

Answer 6

Shifting right wards

Question 7

Both demand and supply decrease by

Answer 7

Shifting leftwards

Question 8

Equilibrium

Answer 8

The point where supply and demand cross.

Question 9

A price higher than the equilibrium price creates a

Answer 9

Surplus of goods.

Question 10

A price below the equilibrium price

Answer 10

Creates a shortage

Question 11

How do markets control price

Answer 11

Through price ceilings or floors.
These may leave a market in disequilibrium .
If they are effective, they are said to be binding.

Question 12

Revenue

Answer 12

Equals price times quantity sold

Question 13

How can any supply and demand problem be solved?

Answer 13

Determine which of supply and demand is affected.
Determine if it will increase or decrease.
Determine what happens to equilibrium price and quantity and interpret the outcome.

Question 14

Law of demand

Answer 14

-States that there should be an inverse relationship between price and on quantity demanded of any good.
When the price of a good rises , The law of demand says that the quantity demanded of that good should fall and vice versa

Question 15

Law of supply

Answer 15

-States that there should be a direct relationship between price and the quantity supplied of any good.
When the price of a good rises, the law of supply says that the quantity supplied of that good should rise and vice versa.

Question 16

Quantity demanded

Answer 16

-The amount of a good or service that consumers are willing and able to buy at a specific price

Question 17

Quantity supplied

Answer 17

-The amount of a good or service that producers are willing and able to offer for sale at a specific price

Question 18

Substitute

Answer 18

-Goods that are alternatives to each other. eg coffee and tea

They are purchased instead of each other.

You buy one OR the other

Question 19

Complement

Answer 19

-Goods that are consumed together. eg coffee and muffin

They are purchased together with each other

You buy BOTH together

Question 20

Taste

Answer 20

-reflect the likes and dislikes of consumers at the moment.

Question 21

Equilibrium

Answer 21

-Is a position where either no forces are acting on a system or equally balanced forces are acting

Question 22

Disequilibrium

Answer 22

disequilibrium occurs when..

it occurs when quantity SUPPLIED is not equal to quantity DEMANDED

Question 23

Price ceiling

Answer 23

-keeps the price from getting higher; maximum; causes a shortage; below the equilibrium

Question 24

Price floor

Answer 24

-keeps the price from going lower; minimum; causes a surplus; above the equilibrium

Question 25

Binding

Answer 25

-affecting the market