introduction to markets

Question 1

what are the assumptions of the supply and demand model

Answer 1

many identical buyers and sellers
no barriers of entry and exit
perfect information so everyone knows market price

Question 2

what are exogenous variables?

Answer 2

variables determined outside the model

Question 3

what are endogenous variables?

Answer 3

variables determined within the model

Question 4

what are the exogenous variables in the supply and demand model?

Answer 4

the demand curve and the supply curve

Question 5

what are the endogenous variables in the supply and demand model?

Answer 5

market price and the quantity exchanged

Question 6

what is the demand curve?

Answer 6

The demand curve shows relationship
between quantity demanded and price, holding all other factors constant. it shows the amount demanded by consumers at any given price

Question 7

what is the formula of the linear demand curve?

Answer 7

Qd= a - b P

Question 8

what is the slope of the demand curve?

Answer 8

the demand curve slopes downwards so has negative slope

Question 9

what is th esupply curve?

Answer 9

The supply curve shows the relationship
between quantity supplied and price, holding all other factors constant . it shows the quantity of goods firms are willing to produce at a given price.

Question 10

what is the linear formula for the supply curve?

Answer 10

Qs= c + d P

Question 11

what is the equillbrium position?

Answer 11

the equillibrium is where supply is equal to demand

Question 12

when the price is greater then the equilibrium price, what occurs?

Answer 12

At prices above the equilibrium there is a surplus, supply exceeds demand. Suppliers will sell excess stocks at lower prices. Consumers will lower their offer prices.

Question 13

when the price is lower then equillbrium what occurs?

Answer 13

At prices below the equilibrium there is a shortage, demand exceeds supply. Consumers will offer higher prices. Suppliers will make more in search of higher returns from the shortage.

Question 14

what are movements alonga demand curve caused by?

Answer 14

they are caused by changes in supply

Question 15

what are changes in demand caused by?

Answer 15

it is caused by a movement of the demand curve. the factors that shift the demand curve are:
price of other related goods
tastes and preferences
consumer wealth
expected future prices
population and demographics

Question 16

what are shifts in supply caused by?

Answer 16

a shift in the entire supply curve is caused by a change in a non price factor that affects supply, these are:
price of substitutes in production
price of inputs
technology
number of sellers
expected future prices