Supply And Demand

Question 1

What is the Law of Demand? And what does it assume?

Answer 1

As price increases quantify demanded decreases and it assumes that all other variables are constant.

Question 2

What is the difference between Demand and Quantity Demanded?

Answer 2

Demand is the amount that people people are willing and able to purchase at a whole bunch of prices whereas quantity demanded is at a particular price.

Question 3

What are the things that Change the Demand Curve?

Answer 3

Related products (Substitutes or Complements) 
Number of Consumers 
Expected Future Prices 
Income (Normal vs. Inferior Good) 
Preferences

Question 4

How do preferences affect Demand?

Answer 4

When preference for the product increases
Demand shifts right

When preferences for the product decrease
Demand shifts left

Question 5

How does Income affect Demand for an inferior good?

Answer 5

When income increases, demand for an inferior good shifts left

When Income decreases, demand for an inferior good shifts right

Question 6

How does Income affect Demand for a normal good?

Answer 6

When Income decreases, demand for a normal good shifts left

When Income increases, demand for a normal good shifts right

Question 7

How does the number of consumers affect Demand?

Answer 7

When number of consumers goes up, demand shifts right

When it flies down, demand shifts left

Question 8

How do expected future prices affect Demand?

Answer 8

When expected future prices go up, demand right now goes right

When expected future prices go down, demand right now goes left

Question 9

What is the Law of Supply and what does it assume?

Answer 9

The Law of supply states that as price increases, quantity supplied increases as well and it assumes that all other variables are constant.

Question 10

What is the difference between supply and quantity supplied?

Answer 10

Supply is the amount of good/services produced at different prices in a market whereas quantity supplied is the amount produced at a particular price.

Question 11

What are the variables that affect supply?

Answer 11

Price of Inputs 
Number of Suppliers 
Technology 
Expected Future prices 
Environment (Weather / Conditions) 
Related products or services

Question 12

How does the price of inputs affect supply?

Answer 12

As the price of inputs increases the supply decreases and as price of inputs decreases the supply increases

Question 13

How does the environment affect supply?

Answer 13

In conditions that are favourable for the product supply will increase (move to the right)
In conditions that are bad for the product supply will shift to the left.

Question 14

How does technology affect supply?

Answer 14

Improved technology shifts the supply curve right

Question 15

How does the number of suppliers affect supply?

Answer 15

When there’s an increase in suppliers the supply curve shifts right and if there’s s decrease the supply curve shifts left.

Question 16

How do expected future prices affect supply?

Answer 16

If EFP are expected to fall, supply right now will increase and shift to the right

and if EFP are expected to rise, supply right now will decrease and shift to the right

Question 17

How do the prices of related products or services affect supply?

Answer 17

For substitutes, the increase In the price of one, decreases the supply of the other and shifts the curve left.
For complements, the increase in the price of one, increases the supply of the other and shifts the curve right.

Question 18

How do changes in supply affect equilibrium price (EP) Equilibirum quantity (EQ)?

Answer 18

Increase in supply = right shifting supply curve = increase in quantity and decrease in price.

Decrease in supply = left shifting supply curve = decrease in quantity & increase in price.

Question 19

How does Demand affect EQ & EP?

Answer 19

An increase in demand = right shifting demand curve = increase in EP & EQ

A decrease in demand = left shifting demand curve = decrease in EP & EQ

Question 20

What are the steps to predicting changes in EP & EQ?

Answer 20

1. Draw the beginning supply/demand model of before the event took place
2. Determine if it’s a change in supply, demand or both
3. Decide if the effect is a shift to the left or the right and sketch the new curves
4. Identify the new equilibirum and compare to the old equilibrium

Question 21

What is important to remember when both supply and demand change?

Answer 21

Either EP or EQ will come up as an undecided change and will them depend on numbers.

Question 22

What is a shortage and where is it located in relation to the equilibrium?

Answer 22

A shortage is when Quantity demanded is greater than quantity supplied and it is below equilibrium price.

Question 23

What is a surplus and how does it affect equilibrium price?

Answer 23

A surplus is when quantity supplied exceeds quantity demanded so things are too expensive and people don’t wanna buy them. It falls above the equilibrium price.