S+D

Question 1

Demand for a good depends on?

Answer 1

Price
Prices of related goods
Income
Other factors (info, tastes, gov regulations)

Question 2

What is endogenous?

Answer 2

Things that affect demand within the model.

Question 3

Supply depends on?

Answer 3

Price
Prices of inputs
Conditions of production
Other factors (gov reg)

Question 4

Where is excess demand?

Answer 4

Below equilibrium price

Question 5

How does excess demand go back to equilibrium?

Answer 5

People willing to pay MORE so prices rise

Question 6

Where is excess supply?

Answer 6

Above Price equilibrium

Question 7

How does excess supply go back to equilibrium

Answer 7

Price should fall as buyers less interested to buy at that market price

Question 8

What is comparative static analysis?

Answer 8

How changes in exogenous variables impact the equilibrium or outcomes of a model by comparing different equilibrium states before and after the change.

Question 9

What shifts the demand/supply curves?

Answer 9

Exogenous variables

Population

• Interest Rates - if interest rates decrease, the quantity demanded increases as consumers can afford to borrow to buy more.
• Real Disposable Income - if income after tax and inflation increases then consumers tend to spend more.
• Advertising
• Tastes and Fashions
• Expectations - if consumers expect prices to fall they might reduce current consumption.
• Substitute and Complimentary Goods

Question 10

If the price of butter goes up then what does comparative static analysis tell us?

Answer 10

Demand for bread falls