The Supply and Demand Model Flashcards
Why does the demand curve slope downward?
The Q(D) is inversely related to the price of the good i.e. when the price increases the Q(D) decreases.
Why does the supply curve slope upward?
A supply curve slopes upward primarily because of the profit motive. When the market price of a particular good rises following an increase in demand, it becomes more profitable for firms to respond by increasing their output. This increase is illustrated by an upward supply curve.
What is the difference between a shift in the demand curve and a movement along the demand curve?
Demand changes due to changes in price = movement
Demand changes due to factors other than price = shift
What are the (4) things that cause a demand curve to shift?
1- Income of the consumer
2- Tastes & preferences
3- Number of consumers in the market
4- Consumer expectation of future prices
What are the (4) things that cause a supply curve to shift?
1- Price of the inputs
2- Technology
3- Government Regulations
4- Expectations of future prices
How can one find the equilibrium price and equilibrium quantity?
When Q(D) = Q(S)
Graphically, the price at where the demand curve intersects the supply curve.
What happens to the equilibrium price if the supply curve shifts to the right?
Market price decreases and more quantity is available in the market
What happens to the equilibrium price if the demand curve shifts to the right?
Market price increases and more quantity are available in the market
If both the supply curve and the demand curve shift to the right, what happens to the equilibrium quantity? What about the equilibrium price?
The equilibrium quantity increases. The equilibrium price may increase or decrease depending on the size of the shifts in the supply curve and demand curve.
