Choices

Question 1

What is a demand curve?

Answer 1

This is a function that shows the quantity demanded at different prices.

Question 2

What is the quantity demanded?

Answer 2

The quantity that buyers are willing and able to buy at a certain price.

Question 3

What is the law of demand?

Answer 3

typically negatively sloped
The higher the price the lower the quantity demanded.

Question 4

What is consumer surplus?

Answer 4

The difference between the price is a consumer is willing to pay for a certain quantity and the market price (Consumers gain from exchange)

Question 5

How do you find the total consumer surplus?

Answer 5

The area beneath the demand curve and above the price.

Question 6

What are the six demand shifters? (6 marks)

Answer 6

Tastes
Income
Population
Price of Substitutes
Price of Complements
Expectations

Question 7

How does TASTE shift demand?

Answer 7

Changes in taste increase or decrease the demand for a certain good.

Question 8

How does INCOME shift demand?

Answer 8

The reacher people get the more stuff they buy.

Question 9

What is it called when an increase in income increases demand for a good?

Answer 9

Normal good

Question 10

What is it called when a decrease in income decreases the demand for a good?

Answer 10

Inferior good

Question 11

How does POPULATION shift demand?

Answer 11

An increase in population typically increases demand.
Shifts in subpopulations change the demand for certain goods e.g. aging and young.

Question 12

How do PRICES OF SUBSTITUTES shift demand?

Answer 12

A substitute = dupe
A decrease in the price of a substitute will decrease the demand for the other good.

Question 13

How do PRICES OF COMPLEMENTS shift demand?

Answer 13

A complement is a good that goes together with another (e.g. iPhone + Airpods)

A drop in the price of a complementary good will increase its demand.

Question 14

How do EXPECTATIONS shift demand?

Answer 14

If the future supply is predicted to decrease, the current demand of the good will increase.

Question 15

What is a supply curve?

Answer 15

This is a function that shows the quantity supplied at different prices.

Question 16

What is the quantity supplied?

Answer 16

This is a quantity that sellers are willing and able to sell at a certain price.

Question 17

What is the law of supply?

Answer 17

Usually positively sloped

The higher the price the greater the quantity supplied.

Question 18

What is producer surplus?

Answer 18

The difference between the market price and the minimum price at which a producer would be willing to sell a particular quantity.

Question 19

Total Producer Surplus

Answer 19

The area above the supply curve and below the price.

Question 20

What are the five supply shifters? (5 marks)

Answer 20

Technological innovations
Taxes and Subsidies
Expectations
Entry and Exit of producers
Changes in Opportunity costs

Question 21

How do TECHNOLOGY INNOVATIONS shift supply? What else can change the supply?

Answer 21

Improvements in technology can reduce costs thus increasing supply.

A reduction in input prices also reduces costs and has a similar effect.

Question 22

How do TAXES AND SUBSIDIES shift the supply?

Answer 22

A tax on output has the same effect as an increase in costs.

A subsidy is the reverse of a tax

Question 23

How do EXPECTATIONS shift supply?

Answer 23

Suppliers who expect prices to increase will store goods for future sales and sell less today, decreasing the current supply.

The supply curve today shifts left.

Question 24

How does the ENTRY & EXIT of producers shift supply?

Answer 24

The entry of new producers increases supply, shifting the curve down and
to the right.

Question 25

How does change in OPPORTUNITY COST shift supply?

Answer 25

An increase in opportunity costs reduces supply.

With the new legal option to grow hemp, the
the opportunity cost of growing wheat increases.

Some farmers will shift away from producing
wheat, and will start growing hemp

The supply curve of wheat shifts to the left

Question 26

What is market equilibrium?

Answer 26

The price at which the quantity demanded is equal to the quantity supplied.

Question 27

What is comparative advantage?

Answer 27

The ability to produce goods with a lower opportunity cost than another producer.