Lesson 3

Question 1

Demand

Answer 1

Willing and able to buy

Question 2

Law of demand

Answer 2

Other things being equal, there is an inverse relationship between price and quantity demanded

Question 3

Demand vs. Quantity Demanded

Answer 3

Demand - Changed by the five demand determinants. It is described as a shift in the graph
Quantity Demand - Changed by the price. It is a movement along the graph

Question 4

Income effect

Answer 4

A lower price allows people to buy more

Question 5

Substitution effect

Answer 5

A rise in price makes people substitute a lower priced product.

Question 6

Five Demand Determinants

Answer 6

Tastes/Preferences - What people like or want
Number of buyers - An increase of buyers leads to increased demand
Income - An increase in income creates increased demand
Prices of related goods (Substitute goods and Complementary goods)
Expectations - An increase in future price creates an increase in current demand

Question 7

Substitute and Complimentary goods
(Demand derterminants)

Answer 7

Substitute - Those that can be used in place of each other (beef and chicken)
Complimentary - Those that depend on each other (SUV’s and Fuel)

Question 8

What direction do graphs move in the event of an increase or decrease

Answer 8

Decrease - left
Increase - right

Question 9

Supply

Answer 9

Willing and able to produce

Question 10

Six determinants of Supply

Answer 10

Resource prices - Prices go up, supply goes down
Technology - Tech goes up, supply goes up
Taxes and Subsidies - Tax up, supply down; Subsidies up, supply up
Prices of Related Goods -
Price Expectations - Future selling price increase, an increase of supply
Number of Sellers - Sellers go up, supply goes up

Question 11

Market equilibrium

Answer 11

Where the quantity demanded and quantity supplied intersect