Market Forces of Supply & Demand (Block One)

Question 1

Movement along the curve

Answer 1

Refers to changes in quantity demanded or supplied due to changes in price, while other factors remain constant.

Question 2

Movement of the curve
- Demand curve shifters
- Supply curve shifters

Answer 2

• Factors causing a change in demand (e.g., income, price of related goods, tastes and preferences, expectations, number of buyers).
• Factors causing a change in supply (e.g., technology, input prices, expectations, number of sellers, government policies).

Question 3

Normal vs inferior goods

Answer 3

Normal goods are those for which demand increases as consumer income rises, while inferior goods are those for which demand decreases as consumer income rises.

Question 4

Effect on demand/supply framework

Answer 4

Normal goods experience an increase in demand when income rises, whereas inferior goods experience a decrease in demand.

Question 5

Complements vs substitutes

Answer 5

Complements are goods consumed together, where the increase in the price of one leads to a decrease in demand for the other. Substitutes are goods that can replace each other, so an increase in the price of one leads to an increase in demand for the other.

Question 6

Effect on demand/supply framework

Answer 6

Complements exhibit negative cross-price elasticity (when the price of one rises, demand for the other falls), while substitutes exhibit positive cross-price elasticity (when the price of one rises, demand for the other rises)

Question 7

Technological advancement, price of inputs, natural disaster

Answer 7

These are factors that can shift the supply curve.

Question 8

Effect on demand/supply framework

Answer 8

Technological advancements and decreases in input prices increase supply, while natural disasters decrease supply.