Supply and demand lesson 1

Based on Scenario 1, which factor caused the change in quantity demanded of milk?

A change in the price of milk A change in the price of milk caused a change in quantity demanded, not a change in demand.

What happens to price and quantity demanded when there is upward movement along the demand curve?

Price increases and quantity demanded decreases.

When you shift the demand curve to the left, what happens to the quantity demanded at any given price?

Quantity demanded decreases.

When you shift the demand curve to the right, what happens to the quantity demanded at any given price?

Quantity demanded increases.

Scenario 1: The price of milk increases from $3.50 to $4.50 per gallon. 1. Based on Scenario 1, the demand curve for milk

does not shift. An increase in the price of milk would cause movement along the demand curve, not a shift of the demand curve to the right or left.

Scenario 2: The price of breakfast cereal increases. 1. Based on Scenario 2, the demand curve for milk

shifts to the left. Cereal and milk are complementary goods. An increase in the price of breakfast cereal would cause the demand for milk to decrease, shifting the demand curve to the left.

Scenario 3: A new health study shows reduced cancer risks for milk drinkers. Based on Scenario 3, the demand curve for milk

shifts to the right. If studies show that milk reduces cancer risks, the demand for milk will increase, shifting the demand curve to the right.

Scenario 4: The economy sinks into a recession, causing incomes of many Americans to decrease (assume milk is a normal good). 2. Based on Scenario 4, which factor caused the change in demand for milk?

A change in consumer income A decrease in incomes would cause the demand for milk to decrease.

Scenario 3: A new health study shows reduced cancer risks for milk drinkers. 2. Based on Scenario 3, which factor caused the change in demand for milk?

A change in consumer tastes or preferences Such a health study would change the preferences of consumers.

Scenario 5: A lower birth rate reduces the number of children, a key milk-drinking market. 2. Based on Scenario 5, which factor caused the change in demand for milk?

A change in the number of consumers in the market A lower birth rate, would change the number of consumers in the market because children are key milk-drinkers.

inferior goods

A good for which demand increases as income decreases and demand decreases as income increases.

Normal good

A good for which demand increases as income increases and demand decreases as income decreases.

Quantity demanded

A graphic representation of the law of demand.

Law of demand

As the price of a good or service rises, the quantity demanded of that good or service falls. Likewise, as the price of a good or service falls, the quantity demanded of that good or service rises.

What happens to price and quantity demanded when there is downward movement along the demand curve?

Price decreases and quantity demanded increases.

demand schedule

Table that shows how much of a good or service consumers are both willing and able to buy at different prices. Simply stated, the law of demand says that as the price of a good or service rises, the quantity demanded of that good or service falls.

Price

The amount of money that buyers pay when they buy a good or service; the amount of money sellers receive when they sell a good or service.

3. Based on Scenario 1, there is

a change in the quantity demanded of milk. An increase in the price of the milk would cause a change in quantity demanded.

Scenario 4: The economy sinks into a recession, causing incomes of many Americans to decrease (assume milk is a normal good). 1. Based on Scenario 4, the demand curve for milk

shifts to the left. A decrease in incomes would cause the demand for milk to decrease, shifting the demand curve to the left.

Scenario 5: A lower birth rate reduces the number of children, a key milk-drinking market. 1. Based on Scenario 5, the demand curve for milk

shifts to the left. A lower birth rate would cause the demand curve for milk to shift to the left.

2. Based on Scenario 1, movement occurs

up the demand curve for milk. An increase in the price of milk would cause movement up the demand curve for milk.

The demand curve is dynamic

which means it changes over time.

Demand

The quantity of a good or service that buyers are willing and able to buy at all possible prices during a certain time period. Economists define demand as the quantity of a good or service that buyers are willing and able to buy at all possible prices during a certain time period. So, there are two components of demand: a buyer's willingness to buy and ability to pay.

Based on Scenario 2, which factor caused the change in demand for milk?

A change in the price of a complementary good Milk and breakfast cereal are complementary goods. An increase in the price of breakfast cereal would reduce the quantity demanded of breakfast cereal, decreasing the demand for milk.