Lecture 4: Supply and Demand

Question 1

What are the three basic economic questions?

Answer 1

What goods and services are produced and in what quantities?
How are they produced?
Who gets the goods and services that are produced?

Question 2

Communist Economy

Answer 2

government ownership of resources

government allocation of resources and the goods and services produced

Question 3

Capitalist Economy

Answer 3

private ownership of resources

use of markets to allocate resources and the goods and services produced

Question 4

What are the three functions of price?

Answer 4

provides incentives
means of rationing scarce supplies
signaling mechanism

Question 5

Demand is ______________.

Answer 5

Demand is the amount people are willing to purchase at each possible price.

Question 6

The amount of the product people are willing to purchase at a specific price is called ___________

Answer 6

quantity demanded.

Question 7

Demand Schedule is a _________________.

Answer 7

A demand schedule is a list of the quantity demanded at different prices.
When constructing a demand schedule, everything else that might affect demand is held constant. Consider the following demand schedule for pizza:

                       Price    Quantity Demanded
                     ($/slice) (number of slices)

                         $5             2
                          4             5
                          3             8
                          2            12
                          1            17

Question 8

The Demand Curve is ___________.

Answer 8

The demand curve is a graph of the demand schedule.

Question 9

Supply

Answer 9

Supply is the amount producers are willing to offer for sale at each possible price.

Question 10

Quantity supplied

Answer 10

The amount sellers are willing to offer at a particular price is called quantity supplied.
Price Quantity Supplied
($/slice) (number of slices)

                        $5             18
                         4             15
                         3              8
                         2              2
                         1              1

Question 11

Supply Curve

Answer 11

The supply curve is a graph of the supply schedule.