Supply and Demand

Question 1

What is the notation for the equilibrium?

Answer 1

p* for price and q* for quantity

Question 2

What notation is used to signify an ambiguous change?

Answer 2

~ is the notation used to signify an ambiguous change. It follows the quantity/price notation of the equilibrium

Question 3

If you have 1 supply shock and 1 demand shock, do you have an ambiguous or unambiguous change?

Answer 3

You have one of each, which is determined by the shocks

Question 4

If you have ambiguous change, how do you know what direction price or quantity is moving?

Answer 4

You don’t. Unless you have more information saying which shock has more influence, you don’t know which direction to go

Question 5

When you have multiple shifts, what is an ambiguous change?

Answer 5

An ambiguous change is when the shifts move in opposite direction

Question 6

When you have multiple shifts, what is an unambiguous change?

Answer 6

An unambiguous change is when the shifts move in the same direction

Question 7

How is quantity and price influenced with each shock?

Answer 7

Positive demand shock: Price increases, Quantity increases

Negative demand shock: Price decreases, Quantity decreases

Positive supply shock: Price decreases, Quantity increases

Negative supply shock: Price increases, Quantity decreases

Question 8

How many possible shocks are there and what are they?

Answer 8

There are four possible shocks. These are the positive demand shock, negative demand shock, positive supply shock, negative supply shock

Question 9

Do shifts effect equilibrium?

Answer 9

All shifts do with equilibrium is move its location. If there is equilibrium, if will fall back into equilibrium eventually after the shift occurs.

Question 10

What is a shock and what are the two types of shocks?

Answer 10

A shock is a shift in either the supply or demand curve. The two shocks and positive shock (increase) or negative shock (decrease)

Question 11

What is disequilibrium?

Answer 11

Disequilibrium is where something is constantly changing (the opposite of equilibrium)

Question 12

On the supply and demand graphical model, where is equilibrium typically located?

Answer 12

Equilibrium is typically located where the supply curve and demand curve cross.

Question 13

In economics, what is the equilibrium?

Answer 13

The equilibrium is the point where that remains unchanged unless an outside force acts upon it.

Question 14

What is a shortage?

Answer 14

A shortage is when quantity DEMANDED > quantity SUPPLIED

Question 15

What is a surplus?

Answer 15

A surplus is when quantity SUPPLIED > quantity DEMANDED

Question 16

How does the supply curve shift with a change in number of producers?

Answer 16

If there is an increase in producers, supply shifts right; if there is a decrease, supply shifts left

Question 16

How does the supply curve shift with a change in future expectations?

Answer 16

If the price is expected to drop in the future, supply will shift right. If the price is expected in increase in the future, supply will shift left (firms want to make as much money as possible)

Question 17

How does the supply curve shift with a change in related goods or services?

Answer 17

Assuming the firm produces multiple items, if Item A has an increase in price, the supply will increase to help the firm make as much money as possible. When this happens, more resources are being put into Item A, so Item B’s supply will decrease

Question 18

How does the supply curve shift with a change in technology?

Answer 18

If there is an increase in technology (assuming it is cheaper), supply will shift right; if there is a decrease, supply will shift left

Question 19

How does the supply curve shift with a change in input price (cost of production)?

Answer 19

If the cost of production increases then supply will shift left; if it decreases, supply will shift right

Question 20

What are the supply shifts?

Answer 20

Change in input price (cost of production), technology, related goods or services, expectations of the future, and number of producers

Question 21

How many shifts in supply are there?

Answer 21

There are 5 (main) supply shifts

Question 22

How does the supply curve move if it were to decrease or increase?

Answer 22

The supply curve shifts to the left if supply decreases and shifts the right is supply increases

Question 23

What is the Law of Supply?

Answer 23

If price increases, supply increases

Question 24

How does the demand curve move with a change in substitutes?

Answer 24

If the demand of one substitute decreases, the demand for the other will increase

Question 25

What are substitute goods?

Answer 25

Substitutes are items that can replace one another, like tea and coffee

Question 26

How does the demand curve shift in changes with complements?

Answer 26

If the demand of one complement good decreases (usually because of increase in price), the demand of the other will decrease

Question 27

What is are complement goods?

Answer 27

Complement goods are items that are traditionally bought together, like PB+J

Question 28

What are the two types of related goods?

Answer 28

Complements and substitutes

Question 29

How does the demand curve shift for a change in number of consumers?

Answer 29

The curves shifts to left if there are less consumers and shifts to the right if there are more consumers

Question 30

How does the demand curve move with a change in expectations of the future?

Answer 30

The curve shifts to the left if price is expected to drop in the future and shifts to the right if price is expected to increase in the future

Question 31

What direction does the demand curve move for a change in preference?

Answer 31

Shifts to left if consumer(s) prefer another item, shifts to the right if consumer(s) prefer that item

Question 32

What direction does the demand curve move for changes in income?

Answer 32

Left for decreased income, right for increased income

Question 33

What are the demand shifts

Answer 33

Change in income, preference, expectations about the future, number of consumers, and price of related good or service

Question 34

How many demand shifts are there?

Answer 34

There are 5 demand shifts

Question 35

What direction do you shift the demand curve if the demand were to increase or decrease?

Answer 35

You shift the demand curve to the left if demand decreases and you shift the curve to the right if demand increases

Question 36

What is a Vablan Good?

Answer 36

A Vablan Good is an item you purchase to show off (conspicuous good), like a diamond ring

Question 37

What is an Experienced Good?

Answer 37

An experienced good is an item that you don’t know the quality of until after you purchase it.

Question 38

Are there any exceptions to the Law of Demand? If so, what are they?

Answer 38

Yes, there are exceptions, they are just extremely rare. Two examples are Experienced Goods and Vablan Goods

Question 39

What is the income effect?

Answer 39

The phenomenon that a person is only likely to buy items if they are financially disadvantaged. (I.e. ramen noodles)

Question 40

What is the substitution effect?

Answer 40

The phenomenon that if a price of one item (Item A) increases, the demand for an item that can replace Item A (Item B) will increase

Question 41

On the supply and demand model, what variables are found on the axes

Answer 41

Price is found on the y-axis and quantity is found on the x-axis

Question 42

What is the Law of Demand?

Answer 42

As price decreases, demand increases

Question 43

What are the parts needed to use the Supply and Demand model?

Answer 43

Demand curve, supply curve, shifts, equilibrium, dynamics

Question 44

How is a market considered a “competitive market?”

Answer 44

Competitive markets are categorized by a LARGE number of buyers and sellers (supply and demand doesn’t work very well with a small group), and none of the economic agents have total market power that allow them to manipulate price however they want.

Question 45

What is supply and demand?

Answer 45

A model that displays a competitive market