Demand and Supply

Question 1

What does the demand curve show?

Answer 1

The demand curve shows the relation between price and quantity demanded holding other things constant (i.e The price of related goods, Consumer incomes, Consumer preferences/tastes)

Question 2

How does the steepness affect how much you sell and the price?

Answer 2

It almost always slopes downward.
The more you want to sell,
The more you have to cut price

Question 3

What is the causality regarding the consumer and the demand curve?

Answer 3

Causality here runs from price (vertical axis) to demand (horizontal axis).

Consumers observe the price, and decide how much they want to buy

Question 4

Why does the demand curve slope downward?

Answer 4

1. Individuals vary in terms of how much they are willing to pay. Think of an auction.
2. A person is willing to pay more for a good initially. Further copies are worth less-dimishing marginal returns

Question 5

What does the supply curve show?

Answer 5

The supply curve shows the relationship between price and quantity supplied holding other things constant (ie Technology, Input costs, Government regulations)

Question 6

What is the causality regarding the supplier and the demand curve?

Answer 6

Causality here runs from price (vertical axis) to supply(horizontal axis).

the supply is in response to price

Question 7

What is the usual shape of the supply curve?

What happens to a firm as you move up the supply curve?

Answer 7

We have drawn this sloping upward.
To get firms to supply more,
We need to raise the price (usually)
. As you move up the firm is less productive

Question 8

What is demand? compared to quantity demand

Answer 8

The quantity that buyers wish to purchase at each conceivable price.
Quantity demanded is at a particular price

Question 9

What is supply? compared to quantity supplied

Answer 9

The quantity of a good that sellers which to sell at each possible price.
Quantity supplied is at a particular price

Question 10

What is market equilibrium?

Answer 10

Market equilibrium is where quantity demanded (not demand) equals quantity supplied (not supply) at the equilibrium price. This is where the market clears.

Question 11

How will the price of related good cause a shift in demand curve? and give an example

Answer 11

. Price of related goods

• rise in price of substitutues shifts demand curve right
• fall in the price complements shifts demand right

Question 12

What does a change in the demand curve mean?

Answer 12

Change in the amount concumers want to buy at each price.

Question 13

What does a change in the supply curve mean?

Answer 13

Change in the amount producers want to supply at each price

Question 14

How will government regulation cause a shift in the supply curve and give an example?

Answer 14

Suppose safety regulations are tightened, increasing producers’ costs
shift to left for supply curve

Question 15

What is a change in a quantity demanded/supplied?

Answer 15

Movement along demand/supply curves due to a price change

Question 16

When is a market in disequilibrium?

Answer 16

When the supply and demand curve do not meet leading to excess supply or excess demand

Question 17

What is excess supply?

Answer 17

When the quantity supplied exceeds the quantity demand at a given price. Usually above the equilibrium price.

Question 18

What will a firm do when there is excess supply?

Answer 18

Suppliers have excess stock so they lower their price until they reach the equilibrium price and the market clears.

Question 19

What will a firm do when there is excess demand?

Answer 19

More is demanded that supplied so sellers run out of stock. They then raise prices until reaching the equilibrium price.

Question 20

What is excess demand?

Answer 20

When the quantity demanded exceeds the quanity suppplied at a given price.

Question 21

What does the market do?

Answer 21

• decides how much of a good should be produced
  by finding the price at which the quantity demanded equals the quantity supplied
• tells us for whom the goods are produced.
  those consumers willing to pay the equilibrium price
• determines what goods are being produced
  there may be goods for which no consumer is prepared to pay a price at which firms would be willing to supply

Question 22

What are price controls?

Answer 22

Governemnt rules of laws setting price floors or ceilings that forbid the adjustment of prices to clear markets.

Question 23

What happens if there was a price ceiling below the equlibrium price?

Answer 23

This would cause excess demand. This may be done when rationing food during the war. Allows the poor to afford the food but less is supplied.

Question 24

What is a consumer surplus?

Answer 24

For a single consumer, the consumer surplus is the difference between the maximum price that she is willing to pay for a given amount of a good or service and the price she actually pays

Question 25

What is a producer surplus?

Answer 25

The producer surplus for sellers is the amount that sellers benefit by selling at a market price that is higher than they would be willing to sell for

Question 26

How will the income of the consumer cause a shift in demand curve? and give an example

Answer 26

normal and inferior

Question 27

How will the consumer preferences/tastes cause a shift in demand curve? and give an example

Answer 27

fashion

Question 28

How will technology cause a shift in the supply curve and give an example?

Answer 28

more efficient machines= right

Question 29

How will cost of inputs cause a shift in the supply curve and give an example?

Answer 29

e.g lower wages= right