Demand and Supply

Question 1

demand curve

Answer 1

function that shows the quantity demanded at different prices

Question 2

quantity demanded

Answer 2

quantity buyers are willing and able to purchase at a particular price

Question 3

demand curve horizontally

Answer 3

quantity buyers are willing and able to purchase at a given price

Question 4

demand curve horizontally

Answer 4

maximum price that buyers are willing to pay at a given unit of something

Question 5

consumer surplus

Answer 5

consumer’s gain from exchange

-difference between maximum price a consumer is willing to pay for a given quantity and the market price

Question 6

total consumer surplus

Answer 6

sum of consumer surplus of all buyers

measured by the area below the demand curve and above the price

Question 7

demand curve shifts due to…

Answer 7

increase and decrease in market demand

Question 8

increase in the demand curve means

Answer 8

an increase in demand means an increase in the quantity demanded at every price, or equivalently, it means an increase in the maximum willingness to pay for a given quantity. (moves right)

Question 9

what causes increase in demand

Answer 9

anything that increases the quantity demanded at a given price or that which increases the maximum willingness to pay for a given quantity.

Question 10

what factors increase in demand? Willing to pay more?

Answer 10

income, ;population, price of substitutes, price of compliments, expectations, and tastes

Question 11

effect of income

Answer 11

depends on good in question.

• normal good: demand increases when income increases. and vice.versa ex: being able to afford better goods/services
• inferior good: when income goes up, demand goes down and when income goes down, demand goes up. ex: canned soup. during recession vs boom time.

Question 12

population

Answer 12

as population of an economy changes, the number of buyers of a particular good also changes, directly influencing its demand.

ex: diapers if birth rates drop or baby boomers getting older triggering more services and goods for this particular generation - drugs, retirement, services, golf goes up

Question 13

decrease in demand

Answer 13

shift inwards towards origin. decrease in quantity demanded at every given price or a decrease in the maximum willingness to pay for each given quantity

Question 14

substitutes

Answer 14

two goods are substitutes if an increase in the price of one good leads to an increase in the demand for the good (and vice versa).

ex: nikes goes up then rebooks increase as well and vice versa. iTunes vs Spotify change in price

Question 15

compliments

Answer 15

goods that that tend to go together well.

increase in price Good A = decrease in demand for Good B

or

decrease in demand of good A = increase in demand of good B

Question 16

expectations

Answer 16

expectations of a higher (lower) price for a good in the future increases (decreases) current demand for the good

Question 17

example of expectations

Answer 17

consumers will adjust their current spending in anticipation of the direction of future prices in order to obtain the lowest price possible.

Ex: hurricane is coming - expect prices to go up, so you will buy (increase demand) now.

Question 18

xbox example of expectations

Answer 18

we expect.price to drop before xmas, therefore sales in November will be low

Question 19

apple example of expectations

Answer 19

each time people expect a new model, they stop buying current iPhones. since they don’t notify of new iPhones, sales drop

Question 20

taste

Answer 20

an important demand shifter and tastes change all the time. Tastes differ among consumers and they also differ over time because of seasonal changes or fashion or fads

ex: demand for boots in October and demands for bathing suits in June

Question 21

a change in quantity demanded is NOT

Answer 21

the same as a change in demand

Question 22

a change in quantity demanded is

Answer 22

a movement along a fixed demand curve - MOVES IN FIXED CURVE

Question 23

a change in demands

Answer 23

only happens when a non-price factor - SHIFT IN CURVE - MOVES CURVE INWARD OR OUTWARD

Question 24

a change in demand is

Answer 24

a shift in the entire demand curve

Question 25

example for a change in quantity demanded

Answer 25

he decrease in demand shifts the entire demand curve down and to the left and leads, as we know, to a lower quantity at every price. In the first case, on the left, we have a decrease in the quantity demanded—that is a movement along a fixed demand curve.

Question 26

example of change in demand

Answer 26

e have a decrease in demand. The entire demand curve shifts down and to the left. changes in price and quantity

Question 27

Supply Curve

Answer 27

represents behavior of sellers. shows the quantity supplied at different prices

Question 28

quantity supplied

Answer 28

is the quantity that producers are willing and able to sell at a particular price

Question 29

supply curve read horizontally

Answer 29

how much are suppliers willing and able to sell at a given price

Question 30

supply curve read vertically

Answer 30

the minimum price at which suppliers will set at a given quantity

Question 31

producer surplus

Answer 31

producers gain from exchange. difference between market price and minimum price producers are willing to sell at a given quantity

Question 32

total producer surplus

Answer 32

sum of the producer surplus of each seller

Question 33

graphic producer surplus

Answer 33

area above supply curve and below the price

Question 34

formula for area of a triangle

Answer 34

1/2 (base x height)

Question 35

marginal supplier

Answer 35

on margin, does not earn a producer surplus. the supplier costs are equal to price, so they do not earn a producer surplus

Question 36

increase in quantity

Answer 36

moves to the right and down. at any given price, with the new supplier, with the increased supply, suppliers are now willing to supply a greater quantity. greater quantity at the same price and willing to sell same quantity at lower price

Question 37

increase supply means

Answer 37

reduction in cost

Question 38

decrease in supply (be able to sell)

Answer 38

increase in cost

Question 39

supply shifters

Answer 39

mainly a change in costs - tech innovations - input prices - costs of productions - taxes and subsidies - expectations - entry and exit of producers - changes in opportunity costs

Question 40

technological innovation

Answer 40

lowers costs and therefore increases the supply. That means that sellers are willing to supply a greater quantity at a given price, or, equivalently, they're willing to sell a given quantity at a lower price.

Question 41

an increase in the price of an input will

Answer 41

decrease supply ex: increase environmental regulations = decrease in supply

Question 42

A tax on output is equivalent to

Answer 42

an increase in costs, and therefore a tax will decrease supply.

Question 43

subsidy

Answer 43

opposite of an tax. instead of taking from any unit produce, the gvmnt gives for any unit produced.

Question 44

a subsidy is equivalent to

Answer 44

a decrease in the firms costs and therefore increases supply

Question 45

expectations can also shift the supply curve

Answer 45

the expectation of a higher price for a good in the future increases the cost of supplying now and thus decreases current supply of the good (and vice versa)

Question 46

supply today vs increase in the future

Answer 46

put into storage with expectation of future price increase

Question 47

entry and exit of producers in the market

Answer 47

number of sellers of a particular good changes, directly influencing supply

Question 48

entry of producers =

Answer 48

more sellers in the marker, increase in supply

Question 49

exit of producers =

Answer 49

fewer sellers in the market, therefore decrease in supply

Question 50

changes in opportunity cost

Answer 50

inputs used in production have opportunity costs, and sellers will choose to employ those inputs in the production of the highest priced final goods.

Question 51

Free markets

Answer 51

maximizes the gains from trade or the gain from trade are maximized at the equilibrium price and quantity. And what this means is that the supply of goods is bought by the buyers with the highest willingness to pay. The supply of goods are sold by the suppliers with the lowest costs. And between the buyers and the sellers, there are no unexploited gains from trade and no wasteful trades. Okay, that concludes our review on to some new material.

Question 52

Vernon Smith

Answer 52

tested the supply and demand model

Question 53

In market equilibrium, there are

Answer 53

no unconsummated wealth-creating transactions.

Question 54

What happens at market equilibrium?

Answer 54

the market has identified the high-value buyers and the low-value sellers, brought them together, and set a price at which they can exchange goods. the market moves goods from lower-to higher-valued uses and thus creates wealth.

Question 55

Invisible hand

Answer 55

Economists often personify market forces by saying that the market works with an “invisible hand.”