Module 3

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What is the slope of the supply curve? What does it tell us about the relationship between price and quantity supplied?

In most cases, the supply curve is drawn as a slope rising upward from left to right, since product price and quantity supplied are directly related (i.e., as the price of a commodity increases in the market, the amount supplied increases)

Explain the difference between shift of a curve (change in demand) vs. movement along a curve (change in quantity demanded).

Movements along the curve are changes in quantity demanded, caused solely by a change in the price of the good. Changes (or shifts) of the curve are changes in demand caused by changes in any of the ceteris paribus conditions.

How does a market eliminate shortages?

Shortage occurs when there is excess demand- that is quantity demanded is greater than quantity supplied, producers will raise both the price of their product and the quantity they are willing to supply. The increase in price will be too much for some consumers and they will no longer demand the product. Meanwhile the increased quantity of available product will satisfy other consumers. Eventually equilibrium will be reached.

Assume that a market is in equilibrium at E1 and the demand curve shifts to the left. Draw a graph to show the new equilibrium point E2. Explain the process of price adjustment (use the surplus/shortage explanation) as the market equilibrium changes from E1 to E2.

Shows there is a decrease in demand. If the quantity supplied is greater than the quantity demanded at a price, then a surplus exists. Because of this surplus, consumers will bid down the market price. As the market price decreases, the quantity demanded will increase and the quantity supplied will decrease until the quantity demanded equals the quantity supplied, at which point the surplus is eliminated and a market equilibrium is established.

What is the law of demand?

The law of demand is a microeconomic law that states, all other factors being equal, as the price of a good or service increases, consumer demand for the good or service will decrease, and vice versa. The law of demand says that the higher the price, the lower the quantity demanded, because consumers' opportunity cost to acquire that good or service increases, and they must make more tradeoffs to acquire the more expensive product.

If price of a book increases, what happens to its quantity demanded? Demand?

fewer books are demanded, a change in demand that causes the demand curve to shift.

What does the slope of the demand curve signify?

how responsive demand is to price

Identify three factors that shift the demand curve.

increase in demand causes the demand curve to shift to the right, decrease in demand, represented by a shift to the left the tastes of the group demanding the good or service, the size of the group demanding the good or service, the income and wealth of the group demanding the good or service, the prices of other goods and services, and expectations about future prices or income.

Identify three factors that affect supply. Identify the factor that affects quantity supplied.

the state of technology, the prices of the productive resources, the number of suppliers, expectations about the future, and the prices of related goods. the only factor that will change the quantity supplied of a good is a change in price


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