Lesson 2

Question 1

Demand

Answer 1

Demand is the amount of a good or service that consumers are willing and able to buy at different prices.

Price up = quantity down

Question 2

Supply

Answer 2

Supply is the amount of a good or service that producers are willing and able to offer for sale at different prices.

Price up =

Question 3

Equilibrium

Answer 3

When supply and demand are balanced, the market is said to be in equilibrium, and the price is stable.

When supply and demand are not balanced, the market is said to be in disequilibrium, and the price will change until a new equilibrium is reached.

Where the supply curve and the demand curve intersects

When the quantity of the supply is equal to the demand of that supply

Question 4

Surplus and shortage

Answer 4

When the price of a supply is above equilibrium, it is only temporary. Not many are willing to buy. Businesses are forced to lower the price back to equilibrium.

When the price of a supply is below equilibrium, it causes a shortage, consumers will buy it, and prices will eventually go up.

1. At $4, quantity demand equals 14 units, and quantity supply equals 6 units. Therefore, quantity demand is less than quantity supply, thus, surplus.
2. At $2, quantity demand equals 14 units, and quantity supply equals 6 units. Therefore, quantity demand is greater than quantity supply by 8 units, thus, shortage.

Question 5

Law of Demand

Answer 5

At a higher price, consumers will demand a lower quantity of a good, and vice versa, all else being equal.

The law of demand is based on the idea of diminishing marginal utility, meaning that the more units of a good a consumer buys, the less they value each additional unit.

The law of demand is represented by a downward-sloping demand curve, which shows the inverse relationship between price and quantity demanded

Question 6

Law of Supply

Answer 6

When the price of a good or service increases, the quantity supplied also increases, and vice versa, all other factors being constant.

In simpler terms, producers are willing to offer more of their products for sale when they can get a higher price for them.

The law of supply is represeneted by an upward-sloping supply curve, which shows the positive relationship between price and quantity supplied.