Economics first test

• Law of demand:

  • Quantity demanded of a product decreases as the price rises, Ceteris paribus
  • Negative relationship between quantity demanded and price
• Relationship between individual and market demand schedules and curve:

  • Change to the demand curve can be due to price only, resulting in a movement along the demand curve
  • Shift in the demand curve can be caused by non-price factors, leading to a shift to the entire demand curve (left or right)
• • Expected future prices: Anticipation of price changes affects current demand
• Factors affecting demand:

  • Price factor:
  • Price changes result in a movement along the demand curve, with a rise in price leading to a contraction in demand
  • Non-price factors:
  • Income: Increase in income leads to more purchases, especially of high-quality items
  • Population: Changes in age, gender, and size of the population affect demand
  • Tastes and preferences: Availability and price influence consumer choices
  • Prices of substitutes and complements: Substitution and complementary goods impact demand
• Effect of changes in price on quantity demanded:

  • Expansion: Price decrease leads to an increase in quantity demanded, moving down the curve (right)
  • Contraction: Price increase results in a decrease in quantity demanded, moving up the curve (left)
• Effect of changes in non-price factors on quantity demanded:

  • Increase in demand shifts the entire demand curve to the right
  • Decrease in demand shifts the entire demand curve to the left
• Law of supply:

  • Quantity supplied of a product increases as the price rises
  • Positive relationship between quantity supplied and price
• Relationship between individual and market supply schedules and curves:

  • Price factor:
  • Expansion moves upwards along the curve (right)
  • Contraction moves downwards the curve (left)
  • Non-price factor:
  • Decrease shifts the curve left
  • Increase shifts the curve right
• Factors affecting supply:

  • Price:
  • Price changes result in movements along the supply curve
  • Costs of production:
  • Changes in production costs impact supply
  • Expected future prices:
  • Future price expectations influence current supply decisions
  • Number of suppliers:
  • Entry of new sellers affects supply
  • Technology:
  • Technological advancements increase supply
  • Price of other goods:
  • Profitability influences supply decisions
• Effect of changes in price on quantity supplied:

  • Expansion: Price increase leads to an increase in quantity supplied, moving along the curve to the right (upwards)
  • Contraction: Price decrease results in a decrease in quantity supplied, moving along the curve to the left (downwards)
• Effect of changes in non-price factors on quantity supplied:

  • Increase in supply shifts the entire supply curve to the right
  • Decrease in supply shifts the entire supply curve to the left
• Concept of market equilibrium:

  • Price where consumers are willing to buy and suppliers are willing to produce
  • Balances buying and selling intentions of producers and consumers
• Effect of changes in demand and supply on market equilibrium:

  • Disequilibrium occurs when demand does not equal supply
  • Pressure to work towards equilibrium, leading to price changes and potential surplus or shortages
• Concepts of market clearing, shortages, and surpluses:

  • Market clearing: Price adjustments achieve market equilibrium
  • Shortage: Quantity demanded exceeds supply, leading to price increases
  • Surplus: Quantity supplied exceeds demand, resulting in price reductions
• How the price mechanism clears market surpluses and shortages:

  • Surplus: Price above equilibrium encourages sellers to lower prices
  • Shortage: Price below equilibrium leads to price increases to clear the market