Econ: Supply and Demand Study Guide ~ Part 2 :) – Flashcards
Unlock all answers in this set
Unlock answersquestion
six demand curve shifters
answer
- consumer income
- number of consumers
- consumer taste and preferences
- consumer expectations
- the price of substitute goods
- the price of complementary goods
question
six supply curve shifters
answer
- changes in the cost of inputs
- changes in the number of producers
- changes in conditions due to natural disasters or international events
- changes in technology
- changes in producer expectations
- changes in government policy
question
Explain the difference between a movement on a curve (change in quantity demanded) and a shift of a supply or demand curve (change in total demand).
answer
A change in price leads to movement along the supply curve. A change in cost (of inputs), number of producers, conditions due to disasters or crises, technology, producer expectations, government policy leads to a shift in the supply curve.
question
What does it mean for a curve to "shift to the right" or "shift to the left"?
answer
A shift in the demand curve to the left or right represents a change in consumer preferences. A shift to the right indicates that an item has become more commercially desirable and that a larger number will be sold at a given price. A shift to the left is just the opposite, indicating that a marketplace good is less desirable and that fewer items will be sold at a given price.
question
Be able to give examples of goods that have a high or low elasticity of demand and explain reasons why this is true. (note: elasticity of demand = a measure of consumers' sensitivity to change in price)
answer
examples of low elasticity: toothpaste, salt, newspapers, pens ~ these items are consume a small portion of the consumer's budget and there is relatively no substitutes for them. The demand for these goods are low elasticity because the increase in price will not have a major impact on the consumer's budget. So, the consumer continues to buy the same quantity of these items even when price increases.
examples of high elasticity: sports drink, fruit juices and bottled water are all good substitutes for each other. So, if the price of one goes up, consumers can easily switch to another. Since the availability of so many substitutes, the demand for any one of these drinks is high elasticity.
question
What are the effects of the following events or policies on a supply and/or demand curve? What does each look like on a graph? Shortage, surplus, price changes, shifts, price ceilings and price floors.
answer
shortage: the supply produced is below that of the quantity being demanded by the consumers. So, the current market equilibrium is not working for the current supply and demand relationship because the price is set too low (*draw a graph)
surplus: indicate that the quantity of a good or service exceeds the demand for that particular good at the price in which the producers would wish to sell (equilibrium level). (*draw a graph)
price changes: a change in price will result in movement along the demand curve
shifts: an outward shift on a demand curve occurs when income increases but will shift inward for inferior products
price ceilings: the price ceiling is set below the equilibrium so there is movement going down the supply curve while demand is increasing and there is a shortage (*draw graph)
price floor: the price is set above the equilibrium resulting in less demand and increasing supply (think: workers and minimum wage) where there is a supply surplus. (*draw a graph)
