Theory Of Demand And Supply Flashcards
What is the law of demand?
The law of demand states that, all else being equal, as the price of a good decreases, the quantity demanded increases, and vice versa.
True or False: Demand curves typically slope upwards.
False: Demand curves typically slope downwards.
What factors can shift the demand curve?
Factors that can shift the demand curve include consumer income, preferences, prices of related goods, expectations, and number of buyers.
Fill in the blank: A decrease in consumer income will generally lead to a _____ in demand for normal goods.
decrease
What does the term ‘substitutes’ refer to in economics?
Substitutes are goods that can replace each other; an increase in the price of one leads to an increase in demand for the other.
What is the law of supply?
The law of supply states that, all else being equal, as the price of a good increases, the quantity supplied increases, and vice versa.
True or False: Supply curves typically slope downwards.
False: Supply curves typically slope upwards.
What factors can shift the supply curve?
Factors that can shift the supply curve include production costs, technology, number of sellers, expectations, and prices of related goods.
Fill in the blank: An increase in the price of inputs will lead to a _____ in supply.
decrease
What is market equilibrium?
Market equilibrium is the point where the quantity demanded equals the quantity supplied at a particular price.
What happens to equilibrium price when demand increases?
When demand increases, the equilibrium price typically rises.
What is a surplus in the context of supply and demand?
A surplus occurs when the quantity supplied exceeds the quantity demanded at a given price.
What is a shortage in the context of supply and demand?
A shortage occurs when the quantity demanded exceeds the quantity supplied at a given price.
True or False: Price ceilings can lead to shortages.
True: Price ceilings can lead to shortages.
What is a price floor?
A price floor is a minimum price set by the government, below which a good or service cannot be sold.
What is the impact of a price floor on the market?
A price floor can lead to a surplus in the market.
What does elasticity of demand measure?
Elasticity of demand measures how responsive the quantity demanded is to a change in price.
What is the formula for calculating price elasticity of demand?
Price elasticity of demand = (% Change in Quantity Demanded) / (% Change in Price).
What does it mean if demand is elastic?
If demand is elastic, a small change in price leads to a large change in quantity demanded.
What does it mean if demand is inelastic?
If demand is inelastic, changes in price have little effect on the quantity demanded.
What is cross-price elasticity of demand?
Cross-price elasticity of demand measures the responsiveness of the quantity demanded of one good to a change in the price of another good.
What is income elasticity of demand?
Income elasticity of demand measures how the quantity demanded of a good responds to a change in consumer income.
What is the difference between a shift in demand and a movement along the demand curve?
A shift in demand is caused by factors other than price, while a movement along the demand curve is caused by a change in the price of the good.
What is the relationship between supply and demand in determining market prices?
Supply and demand interact to determine the market price and quantity of goods sold.
Fill in the blank: When demand decreases and supply remains constant, equilibrium price will _____ .
decrease
What is the concept of consumer surplus?
Consumer surplus is the difference between what consumers are willing to pay for a good and what they actually pay.
What is producer surplus?
Producer surplus is the difference between what producers are willing to accept for a good and the actual price they receive.
True or False: A perfectly competitive market has many buyers and sellers.
True.
What is the role of prices in a market economy?
Prices act as signals to both consumers and producers, guiding their decisions regarding resource allocation.
What are complementary goods?
Complementary goods are products that are consumed together; an increase in the price of one leads to a decrease in demand for the other.
What is the demand curve?
The demand curve is a graph that shows the relationship between the price of a good and the quantity demanded.
What is the supply curve?
The supply curve is a graph that shows the relationship between the price of a good and the quantity supplied.
What does it mean when the demand curve is vertical?
A vertical demand curve indicates perfectly inelastic demand, meaning quantity demanded does not change with price changes.
What does it mean when the supply curve is horizontal?
A horizontal supply curve indicates perfectly elastic supply, meaning quantity supplied can change without a change in price.
Fill in the blank: The intersection of the demand and supply curves determines the _____ price.
equilibrium
What is the effect of a tax on supply?
A tax increases production costs, which typically decreases supply.
What is a shift in the supply curve?
A shift in the supply curve occurs when a non-price factor affects the quantity supplied at every price level.
What is the impact of technological advancements on supply?
Technological advancements typically increase supply by reducing production costs and improving efficiency.
What is a demand shock?
A demand shock is an unexpected event that causes a sudden change in demand for goods or services.
What is a supply shock?
A supply shock is an unexpected event that causes a sudden change in supply for goods or services.
True or False: An increase in the number of sellers usually increases supply.
True.
What are the characteristics of a perfectly competitive market?
Characteristics include many buyers and sellers, identical products, and free entry and exit.
What is the role of expectations in supply and demand?
Expectations about future prices can affect current supply and demand decisions.
What is a market?
A market is any arrangement that allows buyers and sellers to exchange goods and services.
Fill in the blank: The demand curve shifts to the right when there is an _____ in demand.
increase
What is the impact of advertising on demand?
Advertising can increase demand by influencing consumer preferences.
What is a Giffen good?
A Giffen good is a product that experiences an increase in quantity demanded as its price rises, contrary to the law of demand.
What is a Veblen good?
A Veblen good is a product for which demand increases as the price increases, due to its status symbol appeal.
What is the concept of marginal utility?
Marginal utility is the additional satisfaction or benefit received from consuming one more unit of a good.
What is the principle of diminishing marginal utility?
The principle of diminishing marginal utility states that as a consumer consumes more of a good, the additional satisfaction from each additional unit decreases.
What is the difference between short-run and long-run supply?
Short-run supply is limited by existing resources, while long-run supply can adjust as new resources and technologies are developed.
What is a perfectly inelastic supply?
Perfectly inelastic supply means the quantity supplied does not change regardless of price changes.
What is the impact of government regulations on supply?
Government regulations can increase costs and decrease supply, or they can provide incentives that increase supply.
Fill in the blank: The demand curve shifts to the left when there is a _____ in demand.
decrease
What does it mean for a market to be in equilibrium?
A market is in equilibrium when the quantity demanded equals the quantity supplied at a certain price.
What happens to the equilibrium price when supply decreases?
When supply decreases, the equilibrium price typically rises.
What is the significance of the equilibrium quantity?
The equilibrium quantity is the amount of goods that are bought and sold at the equilibrium price.
What is a demand curve shift caused by consumer preferences?
A change in consumer preferences can shift the demand curve to the right or left, depending on whether preferences increase or decrease for a good.
What is the relationship between price and total revenue for elastic demand?
For elastic demand, an increase in price leads to a decrease in total revenue.
What is the relationship between price and total revenue for inelastic demand?
For inelastic demand, an increase in price leads to an increase in total revenue.
What is the concept of price discrimination?
Price discrimination is the practice of charging different prices to different consumers for the same good.
What are the conditions necessary for price discrimination to occur?
Conditions include market power, the ability to segment the market, and preventing resale.
What is the difference between a shift in demand and a change in quantity demanded?
A shift in demand is caused by non-price factors, while a change in quantity demanded is caused by a change in the good’s price.
What is the concept of allocative efficiency?
Allocative efficiency occurs when resources are distributed in a way that maximizes total benefit to society.
What is productive efficiency?
Productive efficiency occurs when goods are produced at the lowest possible cost.
What is the significance of consumer and producer surplus in welfare economics?
Consumer and producer surplus are used to measure the overall welfare and efficiency of a market.
What is the impact of international trade on supply and demand?
International trade can increase supply and demand by allowing access to a larger market and more resources.
What is the concept of opportunity cost?
Opportunity cost is the value of the next best alternative that is foregone when a decision is made.
What is the impact of subsidies on supply?
Subsidies decrease production costs, leading to an increase in supply.
What are externalities, and how do they affect supply and demand?
Externalities are costs or benefits not reflected in market prices, which can lead to market failure and affect supply and demand.
