Module 3 Study Guide Flashcards
What is the “Law of Demand”?
The higher the price, the less we want to buy. The lower the price, the more we want to buy. The higher the price, the lower the quantity demanded. The lower the price, the higher the quantity demanded.
“When the price goes up demand does not go down. But when the price goes up, we choose to buy less. We are able to purchase fewer products, but that doesn’t mean demand goes down and I know it’s a subtle difference.”
What one factor causes a change in quantity demanded? Illustrate this using a graph.
Price increase or decrease causes the quantity demanded to decrease or increase, respectively.
What are the factors that change demand? Illustrate this using a graph.
Anything that’s going to change consumer behavior for that product other than the price of the product (that changes quantity demanded-not demand as a whole).
-income, taste/preferences, population changes/number of buyers, expectations about the future, prices of other goods (complements or substitutes). Changes in price NEVER shift a demand curve-just the amount people are ABLE or WILLING to buy or QUANTITY DEMANDED.
The price of books increases. What happens to the demand for books? What happens to the quantity demanded?
Demand for books stays the same. Quantity demanded decreases.
What is the “Law of Supply”?
The higher the price, the more they want to sell (quantity supply increases). The lower the price, the less they want to sell (quantity supply decreases). The higher the price, the higher the quantity supplied. The lower the price, the lower the quantity supplied.
Their ability to cover costs (labor, supplies, etc.) is higher if the price is higher. If it’s too low, they can’t afford to make it.
Remember, for a firm, price is never cost. Price is the amount of money that they (Different than consumers)
What one factor causes a change in quantity supplied? Illustrate this using a graph.
Price
What are the factors that change supply? Illustrate this using a graph.
prices of inputs, technology, number of sellers, expectations of the future, prices of other goods I can make with my resources
What happens to the supply of ice cream when the price of milk (a resource used to make ice cream) increases? What happens to the quantity supplied? Illustrate using a graph.
I believe the supply or quantity would decrease.
Use a graph to show what happens to the equilibrium price and quantity of cars when there is a decrease in demand.
lower price
During Valentine’s Day, the demand for candy increases and the cost of producing candy also increases because of special packaging for the holiday. What is the net effect on the equilibrium price and quantity of candy due to these changes? Show this in a graph and explain briefly.
Equilibrium rises - both price and quantity rise
