Class Notes

Question 1

Quantity demanded:

Answer 1

specific amount of the good buyers are willing and able to purchase at a particular price

(Qd)

Question 2

Law of demand:

Answer 2

all else held constant, price and Qd have an inverse relationship.

Price goes up, Qd goes down, and vice versa

Question 3

Diminishing returns:

Answer 3

more of a product you buy, the less utility (aka happiness) it provides

Question 4

Demand:

Change in buyer/consumer income

Answer 4

income increases, you are able to buy more goods (Demand increases)
Income Decreases, LESS able, Demand decreases

inferior goods (i.e. cup-o-noodles)- the opposite

Question 5

Demand

Change in the price of related goods

1. Substitutes
2. Compliments

Answer 5

1. P of powerade increases => Qd of powerade decreases, but Qd of gatorade increases
   opposite is also true
2. P of Chips increases => Qd of Chips Decreases, Qd of Dip also decreases
   opposite is also true

Question 6

Demand

Change in tastes and preferences

Answer 6

increase in desirability of the good => Demand increase (maybe a celeb endorsement)
& opposite is true

Question 7

Demand:

Change in price expectations (price in future)

Answer 7

expect prices to fall in future => demand TODAY will decrease
expect prices to rise in future => demand TODAY will increase

Question 8

Demand

Change in the number of buyers

Answer 8

more buyers => increase in demand
& opposite

Question 9

Change in taxes and subsidies

Answer 9

does not SHIFT demand curve, just moves along it

Question 10

A CHANGE IN QUANTITY DEMANDED DOES NOT EQUAL

Answer 10

CHANGE IN DEMAND

this is just a change of point on demand
curve (movement ALONG curve)

change in demand changes the
WHOLE CURVE (movement OF curve)

Question 11

Quantity supplied:

Answer 11

specific amount of the good sellers are willing and able to sell at a particular price
Qs

Question 12

Law of supply:

Answer 12

Direct relationship between P and Qs

Price goes up, Qs goes up

& Opposite

Companies want to sell expensive stuff therefore will concentrate their supply on stuff that people want to spend money on

Question 13

Supply

Change in cost of inputs
(Or resources)

Answer 13

P increases > more expensive to produce > Supply Decreases

Opposite is also true

Question 14

Supply

Change in technology/production process

Answer 14

innovations => decrease time and cost to produce good => supply increase

tech destruction => increase time and cost to produce good => supply decrease
(war, natural disasters, etc)

(like assembly line)

Question 15

Supply

Change in Taxes and Subsidies

Answer 15

Taxes on production > Supply Decreases

Subsidies on Production > Supply increases

Question 16

Supply

Change in Price expectations

Answer 16

Producers expect price to increase in future > Supply decreases (they want to wait to sell in future)

Opposite is true as well

Question 17

Supply

Change in number of sellers

Answer 17

More suppliers > More Supply

Less Suppliers > Less Supply

Question 18

A Change in Quantity Supplied does NOT equal

Answer 18

A Change in Supply

Change in supply is shift of curve, change of quantity supplied is movement along curve

Question 19

Shortages

Answer 19

Happens when price is below equilibrium making Qd>Qs

This creates secondary markets where someone can buy something and sell it for more, driving P to equilibrium

Question 20

Surplus