the price mechanism (slide three)

Question 1

How is the price of a good or service determined?

Answer 1

Supply and demand

Question 2

What is supply?

Answer 2

The quantity of a product that businesses are willing to produce at a given price and point in time.

Question 3

Supply increases when…

Answer 3

…prices increase. (law of supply)

Question 4

Supply decreases when…

Answer 4

…prices decrease. (law of supply)

Question 5

What is demand?

Answer 5

The quality of a product that consumers are willing to purchase at a particular price for a given point in time

Question 6

Demand increases when…

Answer 6

…prices decrease. (law of demand)

Question 7

Demand decreases when…

Answer 7

…prices increase. (law of demand)

Question 8

What is the price mechanism?

Answer 8

• the forces of demand and supply determining the price and quantity of a good/service.
• ALSO: A graph on which the supply and demand for a good or service can be plotted.

Question 9

Where is the market equilibrium?

Answer 9

The point at which the supply and demand curves intersect.

Question 10

What is the market equilibrium?

Answer 10

Where buyers and sellers agree on a price and exchange the good/service for money.

Question 11

What is a change in demand?

Answer 11

a change in any factor other than price that will cause a shift in the ENTIRE demand curve + change the equilibrium price and quantity.

Question 12

What will an increase in demand cause?

Answer 12

• shifting the demand curve to the right
• increasing the price + quantity

Question 13

What will a decrease in demand cause?

Answer 13

• shifting the demand curve to the left
• decreasing the price + quantity

Question 14

What factors cause a change in demand?