Demand, Supply, and Price Determination

Question 1

What are the determinants of supply?

Answer 1

Price, production costs, technology, taxes and subsidies, prices of other goods, and expectations of future prices.

Question 2

What is meant by “consumer surplus”?

Answer 2

The difference between what consumers are willing to pay and what they actually pay.

Question 3

How does a subsidy affect the supply curve?

Answer 3

It shifts the supply curve to the right (downward), reducing prices and increasing quantity supplied.

Question 4

What are the determinants of demand?

Answer 4

Price, income, tastes and preferences, prices of substitutes/complements, and expectations of future prices.

Question 5

How is equilibrium price determined in a market?

Answer 5

At the intersection of the demand and supply curves where quantity demanded equals quantity supplied.

Question 6

What happens to equilibrium price and quantity when demand increases?

Answer 6

Both equilibrium price and quantity rise.