Chapter 3 Econ

Distinguish between a change in supply and a change in the quantity supplied, noting the cause(s) of each. LO3

As price increases, the quantity supplied increases. An increase in price causes a movement up a given supply curve. A decrease in price causes a movement down a given supply curve, decreasing quantity supplied

Explain the law of demand.

As prices change, buyers will change the quantity they demand of that item. If the price drops, a larger quantity will be demanded. If the price rises, a lesser quantity will be demanded.

Explain the law of supply.

As prices rise because of increased demand for a commodity, producers find it more and more profitable to increase the quantity they offer for sale; that is, the supply curve will slope upward from left to right. Clearly, firms would rather sell at a higher price than at a lower price. Moreover, it is necessary for firms to demand a higher price as they increase production.

? How is a market demand curve derived from individual demand curves?

By adding the quantities demanded by all consumers at each of the various possible prices, we can get from individual demand to market demand.

Why does a demand curve slope downward?

Its downward slope reflects the law of demand—people buy more of a product, service, or resource as its price falls. The relationship between price and quantity demanded is inverse (or negative)

Distinguish between a change in demand and a movement along a fixed demand curve, noting the cause(s) of each

A change in price causes movement along the commodity's demand curve. This movement is called a change in quantity demanded. A decrease in price leads to movement down the demand curve, or an increase in quantity demanded. Increased price leads to movement up the demand curve, or a decrease in quantity demanded.

What do economists mean when they say "price floors and ceilings

Price floors and ceilings prevent price movements to correct these imbalances. When a price is set above equilibrium (i.e., a price floor), sellers will produce more than the market can support, diverting resources away from more highly valued uses. Price ceilings result in an underallocation of resources toward a particular good, where the excess demand (shortage) reveals that consumers value the good (and therefore the resources used to produce it) more than what the market currently offers

What happens to the demand curve when any of these determinants change?

The determinants of demand will cause a shift in the demand curve. If it is something that increases the demand, the curve will shift to the right. A decrease in demand will be shown by a shift to the left.

How is the market supply curve derived from the supply curves of individual producers?

The market supply curve is derived by horizontally adding the individual supply curves.

What are the determinants of supply?

The non-price determinants of supply are: resource (input) prices, technology, taxes and subsidies, prices of other related goods, expectations, and the number of sellers.

What are the determinants of demand?

There are determinants of demand, which are factors that may shift the demand curve, or cause a "change in demand." These are the number of buyers, the tastes (or desires) of the buyers, the income of the buyers, the changes in price of related commodities (substitutes and complements), and expectations of the buyers regarding the future price of the commodity under discussion.

What happens to the supply curve when any of these determinants changes?

These determinants will cause a shift in the supply curve. Anything causing an increase in supply will shift the supply curve to the right. A decrease in supply will be shown by a shift to the left