FTC1 Chapter 4

A good that is consumed with another good?

Complement

The price at which the quantity demanded equals the quantity supplied

Equilibrium price

The quantity bought and sold at the equilibrium price

Equilibrium quantity

The demand curve has a positive slope

FALSE

When there is a surplus, the price falls; and when there is a shortage, the price rises?

the law of market forces

Other things remaining the same, if the price of a good rises, the quantity supplied of that good increases; and if the price of a good falls, the quantity supplied of that good decreases

the law of supply

Other things remaining the same,

the quantity demanded of a good decreases as the price of the good increases .

A good for which demand increases when income increases and demand decreases when income decreases?

Normal good

Change in the Quantity Demanded Versus Change in Demand

A change in the quantity demanded arises from a change in price that results in a movement along the demand curve A change in demand arises from a change in other factors that shifts the demand curve

Decrease in Both Demand and Supply

-A decrease in demand or a decrease in supply decreases the equilibrium quantity. -So when demand and supply decrease together, the quantity decreases. -But the price falls when demand decreases and rises when supply decreases. -So when demand and supply decrease together, we can't say what happens to the price unless we know the magnitudes of the changes. -If demand decreases by more than supply decreases, the price falls. -But if supply decreases by more than demand decreases, the price rises. Figure 4.13(i) shows the case when supply decreases by the same amount as demand decreases, so the price remains unchanged.

in simpler terms.

-Current price change of items quantity demanded to change movement along the original demand curve --Non-price factors demand to change shift of the curve

3. Does any event (or events) illustrate the law of demand? The following events occur one at a time in the market for cell phones: • The price of a cell phone falls. • Everyone believes that the price of a cell phone will fall next month. • The price of a call made from a cell phone falls. • The price of a call made from a land-line phone increases. • The introduction of camera phones makes cell phones more popular.

A fall in the price of a cell phone (other things remaining the same) illustrates the law of demand. Figure 1 illustrates the law of demand. The other events change demand and do not illustrate the law of demand.

A change in the quantity that people plan to buy when any influence on buying plans other than the price of the good changes

Change in demand

A graph of the relationship between the quantity demanded of a good and its price when all the other influences on buying plans remain the same? - A demand curve shows the same information in a graph. -An increase in demand shifts the demand curve rightward, and a decrease in demand shifts the demand curve leftward.

Demand curve

Decrease in Both Supply and Demand

If both the demand and the supply of a good decrease, both the supply and demand curves shift leftward. As a result, the quantity unambiguously will decrease but the effect on the price is ambiguous. If the decrease in demand is greater than the decrease in supply, the price will decrease. If the decrease in demand is the same size as the decrease in supply, the price will not change. If the decrease in demand is less than the decrease in supply, the price will increase.

The sum of the demands of all the buyers in the market

Market demand

When the quantity demanded equals the quantity supplied—buyers' and sellers' plans are in balance

Market equilibrium

The sum of the supplies of all the sellers in the market

Market supply

Which of the following will change current demand? A. Expected future cost B. Expected future price C. Price of a substitute in production D. Price of a complement in production

Price of a complement in production Answer D is correct because buyers make current purchases in anticipation of future. Other three options affect supply

What are the main influences on buying plans that change demand?

Prices of related goods, Expected future prices, Income, Expected future income and credit, Number of buyers, and Preferences

What are the main influences on selling plans that change supply?

Prices of related goods, Prices of resources and other inputs, Expected future prices, Number of sellers, and Productivity

The output per unit of input

Productivity

A good that can be produced in place of another good

Substitute in production

-The relationship between the quantity supplied and the price of a good when all other influences on selling plans remain the same -is a list of quantities at different prices. Supply can be illustrated by a supply schedule, a table, or a supply curve.

Supply

A list of the quantities supplied at each different price when all the other influences on selling plans remain the same

Supply schedule

A higher cost of production causes a decrease in supply

TRUE

The demand curve show the negative relationship between the quantity demanded of a good and its price

TRUE

The supply curve has a positive slope

TRUE

Predicting Price Changes: Three Questions

To explain and predict changes in prices and quantities, we need to consider only changes in the equilibrium price and the equilibrium quantity. We can work out the effects of an event on a market by answering three questions: 1. Does the event influence demand or supply? 2. Does the event increase or decrease demand or supply—shift the demand curve or the supply curve rightward or leftward? 3. What are the new equilibrium price and equilibrium quantity and how have they changed?

Which of the following events illustrates the law of demand: Other things remaining the same, a rise in the price of a good will ________ . A. decrease the quantity demanded of that good B. increase the demand for a substitute of that good C. decrease the demand for the good D. increase the demand for a complement of that good

decrease the quantity demanded of that good The law of demand is the inverse relationship between the price of a good and the quantity demanded.

The quantity supplied is one quantity at

one price

- is a graph of the relationship between the quantity supplied of a good and its price when all the other influences on selling plans remain the same. -The upward slope of the supply curve illustrates the law of supply. -Along the supply curve, when the price of the good rises, the quantity supplied increases.

supply curve

A graph of the relationship between the quantity supplied of a good and its price when all the other influences on selling plans remain the same?

supply curve

An increase in demand causes a shift of the demand curve to the right

true

A change in the quantity that suppliers plan to sell when any influence on selling plans other than the price of the good changes?

Change in supply

A good that is produced along with another good?

Complement in production

Decrease in Demand and Increase in Supply

-A decrease in demand or an increase in supply lowers the equilibrium price, so combined, these changes lower the price. -But a decrease in demand decreases the quantity, and an increase in supply increases the quantity. - So when these changes occur together, we can't say what happens to the quantity unless we know the magnitudes of the changes. -If demand decreases by more than supply increases, the quantity decreases. - But if supply increases by more than demand decreases, the quantity increases. Figure 4.13(f) shows the case when demand decreases by the same amount as supply increases, so the quantity remains unchanged.

Expected Future Prices

-Expectations about future prices influence supply. -For example, a severe frost that wipes out Florida's citrus crop doesn't change the production of orange juice today, but it does decrease production later in the year when the current crop would normally have been harvested. -Sellers of orange juice will expect the price to rise in the future. -To get the higher future price, some sellers will increase their inventory of frozen juice, and this action decreases the supply of juice today.

Does this influence change the quantity supplied or does it change supply? The test is: Did the price change or did some other influence change?

-If the price of the good changed, then quantity supplied changed. - If some other influence changed and the price of the good remained constant, then supply changed.

A good for which demand decreases when income increases and demand increases when income decreases?

Inferior good

An increase in the price of bottled water results in an increase in the supply of bottled water

FALSE

In the market for cell phones, which of the following events increases the supply of cell phones? A. New technology lowers the cost of making a cell phone B. Rise in the price of an e-book reader (a substitute in production) C. An increase in people's incomes D. A rise in the wage rate paid to electronics workers

New technology lowers the cost of making a cell phone Answers B and D decrease the supply of cell phones; answer C affects the demand for cell phones

The following events occur one at a time in the market for cell phones: • The price of a cell phone falls. • Everyone believes that the price of a cell phone will fall next month. • The price of a call made from a cell phone falls. • The price of a call made from a land-line phone increases. • The introduction of camera phones makes cell phones more popular. 1. Explain the effect of each event on the demand for cell phones.

-A fall in the price of a cell phone increases the quantity of cell phones demanded but has no effect on the demand for cell phones. -An expected fall in the price of a cell phone next month decreases the demand for cell phones today as people wait for the lower price. - A fall in the price of a call from a cell phone increases the demand for cell phones because a cell phone call and a cell phone are complements. -A rise in the price of a call from a land-line phone increases the demand for cell phones because a land-line phone and a cell phone are substitutes. - With cell phones more popular, the demand for cell phones increases.

Lumber companies make timber beams from logs. In the process of making beams, the mill produces sawdust, which is made into pressed wood. In the market for timber beams, the following events occur one at a time: • The wage rate of sawmill workers rises. • The price of sawdust rises. • The price of a timber beam rises. • The price of a timber beam is expected to rise next year. • A new law reduces the amount of forest that can be cut for timber. • A new technology lowers the cost of producing timber beams. Explain the effect of each event on the supply of timber beams.

-A rise in workers' wage rates increases the cost of producing a timber beam and decreases the supply of timber beams. - A rise in the price of sawdust increases the supply of timber beams because sawdust and timber beams are complements in production. -A rise in the price of a timber beam increases the quantity of timber beams supplied but has no effect on the supply of timber beams. An expected rise in the price of a timber beam decreases the supply of timber beams today as producers hold back and wait for the higher price. The new law decreases the supply of timber beams. The new technology increases the supply of timber beams.

Increase in Demand and Decrease in Supply

-An increase in demand or a decrease in supply raises the equilibrium price, so combined, these changes raise the price. - But an increase in demand increases the quantity, and a decrease in supply decreases the quantity. - So when these changes occur together, we can't say what happens to the quantity unless we know the magnitudes of the changes. - If demand increases by more than supply decreases, the quantity increases. -But if supply decreases by more than demand increases, the quantity decreases. Figure 4.13(h) shows the case when demand increases by the same amount as supply decreases, so the quantity remains unchanged.

Increase in Both Demand and Supply

-An increase in demand or an increase in supply increases the equilibrium quantity. -So when demand and supply increase together, the quantity increases. -But the price rises when demand increases and falls when supply increases. -So when demand and supply increase together, we can't say what happens to the price unless we know the magnitudes of the changes. I -f demand increases by more than supply increases, the price rises. -But if supply increases by more than demand increases, the price falls. Figure 4.13(e) shows the case when supply increases by the same amount as demand increases, so the price remains unchanged.

Change in Quantity Supplied Versus Change in Supply

-If the price of bottled water falls when other things remain the same, the quantity supplied of bottled water decreases and there is a movement down along the supply curve S0. If the price rises when other things remain the same, the quantity supplied increases and there is a movement up along the supply curve S0. - If any influence on water bottlers' plans other than the price of bottled water changes, there is a change in the supply of bottled water. When the supply of bottled water decreases, the supply curve shifts leftward to S1. When the supply of bottled water increases, the supply curve shifts rightward to S2.

Productivity

-Productivity is output per unit of input. - An increase in productivity lowers the cost of producing the good and increases its supply. - A decrease in productivity has the opposite effect and decreases supply. -Technological change and the increased use of capital increase productivity. -For example, advances in electronic technology have lowered the cost of producing a computer and increased the supply of computers. -Technological change brings new goods such as the iPod, the supply of which was previously zero. -Natural events such as severe weather and earthquakes decrease productivity and decrease supply. -For example, the tsunami of 2004 decreased the supply of agricultural products and seafood in many places surrounding the Indian Ocean.

Prices of Resources and Other Inputs

-Supply changes when the price of a resource or other input used to produce the good changes. - The reason is that resource and input prices influence the cost of production. -The more it costs to produce a good, the smaller is the quantity supplied of that good at each price (other things remaining the same). - For example, if the wage rate of bottling-plant workers rises, it costs more to produce a bottle of water, so the supply of bottled water decreases.

Number of Sellers

-The greater the number of sellers in a market, the larger is the supply. - For example, many new sellers have developed springs and water-bottling plants in the United States, and the supply of bottled water has increased.

A Change in the Price of a Substitute in Production

-The supply of a good decreases if the price of one of its substitutes in production rises - and the supply of a good increases if the price of one of its substitutes in production falls. -That is, the supply of a good and the price of one of its substitutes in production move in opposite directions. -For example, a clothing factory can produce cargo pants or button-fly jeans, so these goods are substitutes in production. -When the price of button-fly jeans rises, the clothing factory switches production from cargo pants to button-fly jeans, so the supply of cargo pants decreases.

A Change in the Price of a Complement in Production

-The supply of a good increases if the price of one of its complements in production rises; -and the supply of a good decreases if the price of one of its complements in production falls. -That is, the supply of a good and the price of one of its complements in production move in the same direction. -For example, when a dairy produces skim milk, it also produces cream, so these goods are complements in production. -When the price of skim milk rises, the dairy produces more skim milk, so the supply of cream increases.

Expected Future Prices

A rise in the expected future price of a good increases the current demand for that good and a fall in the expected future price decreases current demand ex If you expect the price of noodles to rise next week, you buy a big enough stockpile to get you through the next few weeks. Your demand for noodles today has increased. If you expect the price of noodles to fall next week, you buy none now and plan to buy next week. Your demand for noodles today has decreased.

Lumber companies make timber beams from logs. In the process of making beams, the mill produces sawdust, which is made into pressed wood. In the market for timber beams, the following events occur one at a time: • The wage rate of sawmill workers rises. • The price of sawdust rises. • The price of a timber beam rises. • The price of a timber beam is expected to rise next year. • A new law reduces the amount of forest that can be cut for timber. • A new technology lowers the cost of producing timber beams. Does any event (or events) illustrate the law of supply?

A rise in the price of a beam, other things remaining the same, is the only event that illustrates the law of supply—see Figure 2.

Many Americans are selling their used cars and buying new fuel-efficient hybrids. Other things remaining the same, in the market for used cars, ________ and in the market for hybrids ________. A. supply increases and the price falls; demand increases and the price rises B. demand decreases and the price rises; supply increases and the price falls C. both demand and supply decrease and the price might rise, fall, or not change; demand increases and the price rises D. demand decreases, supply increases, and the price falls; supply in-creases and the price fall

Answer: A. supply increases and the price falls; demand increases and the price rises Selling their used cars increases the supply of used cars. Buy-ing new hybrids increases the demand for hybrids.

A decrease in the demand for chocolate with no change in the supply of chocolate will create a ________ of chocolate at today's price, but gradually the price will ________. A. surplus; fall B. shortage; fall C. surplus; rise D. shortage; rise

Answer: A. surplus; fall Figure 4.11(b) on page 101 illustrates this case of a decrease in demand.

Because of an unexpected freeze, there are fewer strawberries on the market. This will result in: A. A surplus at the original market equilibrium point B. A shortage at the original market equilibrium point C. An increase in supply of strawberries D. A decrease in demand for strawberries

Answer: B. A shortage at the original market equilibrium point When we consider the new supply curve, quantity demanded exceeds quantity supplied at the original equilibrium point

In winter, the quantity supplied of snow shovels increased. This could be because of: A. A decrease in demand for snow shovels B. An increase in demand for snow shovels C. An increase in the price of a substitute in production D. A decrease in the price of a complement in production

Answer: B. An increase in demand for snow shovels An increase in demand will shift the demand curve to the right, thus increasing pirce and quantity supplied

When floods wiped out the banana crop in Central America, the equilib-rium price of bananas ________ and the equilibrium quantity of bananas ________. A. rose; increased B. rose; decreased C. fell; increased D. fell; decreased

Answer: B. rose; decreased Figure 4.12(b) on page 102 illustrates this case of a decrease in supply.

Because of an unexpected freeze, there are fewer strawberries on the market. This will result in: A. An increase in supply and a decrease in quantity demanded B. An increase in supply and an increase in quantity demanded C. A decrease in supply and a decrease in quantity demanded D. A decrease in supply and an increase in quantity demanded

Answer: C. A decrease in supply and a decrease in quantity demanded Supply curve shifts to the left, creating a shortage at the original price, raising price and decreasing quantity demanded

Harry owns a clothing store. In summer, he is able to charge a higher price for the white cotton summer dress. This will: A. Increase Harry's supply of white cotton dresses in summer B. Increase quantity demanded of white cotton dresses in summer C. Increase Harry's quantity supplied of white cotton dresses in summer D. Increase demand for white cotton dresses in summer

Answer: C. Increase Harry's quantity supplied of white cotton dresses in summer Increase in price will increase quantity supplied (and not supply)

Harry owns a clothing store. He sells two dresses that are similar expect that one of the dresses is pink and the other one is blue. He notices that he is able to sell the pink dress at a higher price as compared to the blue dress. Using this information, Harry will: A. Increase supply for the pink dress and decrease supply for the blue dress B. Increase supply for the pink dress and decrease quantity supplied for the blue dress C. Increase the quantity supplied for the pink dress and decrease quantity supplied for the blue dress D. Increase quantity supplied for the pink dress and decrease supply for the blue dress

Answer: D. Increase quantity supplied for the pink dress and decrease supply for the blue dress Price affects quantity supplied of the pink dress; the blue and pink dresses are substitutes in production

If an increase in the daily price of "Animal world" zoo tickets causes an increase in demand for the neighboring "Animal Safari" daily tour tickets, then we can conclude that: A. Buyers consider "Animal World" zoo and "Animal Safari" tours as inferior goods B. Buyers consider "Animal World" zoo and "Animal Safari" tours as complementary goods C. Buyers consider "Animal World" zoo and "Animal Safari" tours as substitute goods D. Buyers consider "Animal World" zoo and "Animal Safari" tours as unrelated goods

Buyers consider "Animal World" zoo and "Animal Safari" tours as substitute goods Substitute goods are competing goods in the market

A change in the quantity of a good that people plan to buy that results from a change in the price of the good with all other influences on buying plans remaining the same?

Change in quantity demanded

A change in the quantity of a good that suppliers plan to sell that results from a change in the price of the good

Change in quantity supplied

-The relationship between the quantity demanded and the price of a good when all other influences on buying plans remain the same -demand is a list of quantities at different prices. -demand can be illustrated by a demand schedule or a demand curve. -Demand can be affected by price but also by a number of other factors. Among these are the price of substitute goods, the expectation that prices will increase at some point in the future, changes in personal income, and a change in consumers' personal preferences.

Demand

A list of the quantities demanded at each different price when all the other influences on buying plans remain the same? -A demand schedule shows information in a table.

Demand schedule

Demand is the relationship between the quantity demanded of a good and a buyer's income

FALSE

Supply is the relationship between the quantity supplied of a good and a supplier's cost

FALSE

The supply curve shows the negative relationship between the quantity supplied of a good and its price

FALSE

2. Use a graph to illustrate the effect of each event. The following events occur one at a time in the market for cell phones: • The price of a cell phone falls. • Everyone believes that the price of a cell phone will fall next month. • The price of a call made from a cell phone falls. • The price of a call made from a land-line phone increases. • The introduction of camera phones makes cell phones more popular.

Figure 1 illustrates the effect of a fall in the price of a cell phone as a movement along the demand curve D. Figure 2 illustrates the effect of an increase in the demand for cell phones as the shift of the demand curve from D0 to D1 and a decrease in the demand for cell phones as the shift of the demand curve from D0 to D2. FIGURE 2

Effects of change in demand

If the demand for a good increases, the demand curve shifts rightward. As a result, both equilibrium price and equilibrium quantity increase. If the demand for a good decreases, the demand curve shifts leftward. As a result, both the equilibrium price and equilibrium quantity decrease. The figure illustrates an increase in demand. In this figure, the original equilibrium point is where demand curve D0 intersects the supply curve S. The equilibrium price is $3 and the equilibrium quantity is 15 units per day. Now, an increase in demand causes the demand curve to shift rightward from D0 to D1. If the price stays at $3, a shortage will occur. As a result, the equilibrium price rises from $3 toward the new equilibrium where the supply curve S intersects the new demand curve D1. At this new equilibrium, the equilibrium price is $4 and the equilibrium quantity is 20. The figure below shows that an increase in demand raises both the equilibrium price and equilibrium quantity. A supply-demand graph showing how an increase in demand raise both the equilibrium price and equilibrium quantity.

Increase in Demand and Decrease in Supply

If the demand increases while the supply decreases, the demand curve shifts rightward and the supply curve shifts leftward. The price unambiguously rises but the effect on the quantity is ambiguous. If the increase in demand is greater than the decrease in supply, then the quantity will increase. If the increase in demand is the same size as the decrease in supply, the quantity will not change. If the increase in demand is less than the decrease in supply, the quantity will decrease.

Effects of changes in supply

If the supply of a good or service increases, the supply curve shifts rightward. As a result, the equilibrium price falls and the equilibrium quantity increases. If the supply of a good or service decreases, the supply curve shifts leftward. As a result, the equilibrium price rises and the equilibrium quantity decreases. The figure illustrates an increase in supply. In this figure, the original equilibrium point is where demand curve D intersects the supply curve S0. The equilibrium price is $3 and the equilibrium quantity is 30 units per month. Now, an increase in supply causes the supply curve to shift rightward from S0 to S1. If the price stays at $3, a surplus will occur. As a result, the equilibrium price falls from $3 toward the new equilibrium where the demand curve D intersects the new supply curve S1. At this new equilibrium, the equilibrium price is $2 and the equilibrium quantity is 40. The demand curve does not shift; there is a movement along the demand curve. The figure shows that an increase in supply lowers the equilibrium price but raises the equilibrium quantity.

Lumber companies make timber beams from logs. In the process of making beams, the mill produces sawdust, which is made into pressed wood. In the market for timber beams, the following events occur one at a time: • The wage rate of sawmill workers rises. • The price of sawdust rises. • The price of a timber beam rises. • The price of a timber beam is expected to rise next year. • A new law reduces the amount of forest that can be cut for timber. • A new technology lowers the cost of producing timber beams. Use a graph to illustrate the effect of each event.

In Figure 1, an increase in the supply shifts the supply curve from S0 to S1, and a decrease in the supply shifts the supply curve from S0 to S2. In Figure 2, the rise in the price of a beam creates a movement along the supply curve.

Linda enjoys watching movies in movie theaters. During her annual review at work, she was told that her income will go up by 10% because of her above-average performance. This will result in: * A. Increase in Linda's demand for movie tickets B. Increase in Linda's quantity demanded for movie tickets C. Decrease in Linda's demand for movie tickets D. Decrease in Linda's quantity demanded for movie tickets

Increase in Linda's demand for movie tickets Increase in income (factor other than price) will increase demand (and not quantity demanded)

-The amount of any good, service, or resource that people are willing and able to buy during a specified period at a specified price? -Quantity demanded represents the cost of one specific quantity at one specific price. - Quantity demanded is affected by price, but demand itself can be influenced by a variety of factors.

Quantity demanded

-The amount of any good, service, or resource that people are willing and able to sell during a specified period at a specified price - For example, when the price of spring water is $1.50 a bottle, a spring owner decides to sell 2,000 bottles a day. The 2,000 bottles a day is the quantity supplied of spring water by this individual producer. -represents a specific good at a specific price. -Quantity supplied is affected by price, but supply itself can be affected by several factors. Among those factors are the cost of related goods, the prices of resources (such as what it costs to manufacture the item), the number of sellers, and worker productivity. -one quantity at one price.

Quantity supplied

A good that can be consumed in place of another good?

Substitute

The demand for a good and the price of one of its complements move in opposite directions.

The demand for a good decreases if the price of one of its complements rises and increases if the price of one of its complements falls. For example, the demand for wrist guards decreases when the price of in-line skates rises.

The demand for a good and the price of one of its substitutes move in the same direction.

The demand for a good increases if the price of one of its substitutes rises and decreases if the price of one of its substitutes falls. For example, the demand for cheesecake increases when the price of chocolate cake rises.

Increase in Both Supply and Demand

The figure illustrates an increase in both demand and supply: the demand curve shifts from D0 to D1 and the supply curve shifts from S0 to S1. In this figure, the original equilibrium point is where demand curve D0 intersects the supply curve S0. The equilibrium price is $3 and the equilibrium quantity is 15 units per day. Now, an increase in demand causes the demand curve to shift rightward from D0 to D1 at the same time an increase in supply causes the supply curve to shift rightward from S0 to S1. Because the shifts are the same size, the equilibrium price does not change and the equilibrium quantity increases from 15 units to 25 units per day.

If the price of movie tickets decreases, what might we expect on the demand side for movie tickets and popcorn at the movie theater complex? A. The demand for movie tickets and demand for popcorn increases B. The demand for movie tickets increases and quantity demanded for popcorn increases C. The quantity demanded of movie tickets and quantity demanded of pocorn both increase D. The quantity demanded for movie tickets increases and demand for popcorn increases

The quantity demanded for movie tickets increases and demand for popcorn increases The change in price will cause a movement along the demand curve for movie tickets; this will increase demand for popcorn, which is a complementary good (watching movies and eating popcorn go together)

The movie theater complex where Linda usually watches movies is selling its tickets at a 20% discount to students and senior citizens. This will result in: * A. Demand curve for movie tickets at that complex shifts to the right B. There is a movement down the demand curve for movie tickets at that complex C. Demand curve for movie tickets at that complex shifts to the left D. There is a movement up the demand curve for movie tickets at that complex

There is a movement down the demand curve for movie tickets at that complex The discount will increase quantity demanded of movie tickets resulting in a movement down the demand curve

Supposing chocolate cake and cheesecake are substitutes, an increase in the price of chocolate cake increases the demand for cheesecake

an increase in the price of chocolate cake increases the demand for cheesecake

Related goods are either substitutes in production or

complements in production

Other things remaining the same, a fall in the price of peanuts will ________. A. increase the supply of peanuts B. decrease the supply of peanut butter C. decrease the quantity supplied of peanuts D. decrease the supply of peanuts

decrease the quantity supplied of peanuts A fall in the price of the good creates a movement along the supply curve and decreases the quantity supplied.

An increase in the price of bottled water results in a decrease in the demand for bottled water

false

-Demand is the relationship between the price of a good and how much of that good consumers want to purchase (all elements being equal). -Supply is the relationship (with all elements being equal) between the price of a good and how much of that good is produced or available. - Quantity demanded and quantity supplied represent specific amounts at a specific price.

in simpler terms.

In the market for jeans, which of the following events increases the demand for a pair of jeans? A rise in the wage rate paid to garment workers B. rise in the price of a denim skirt (a substitute for jeans) C. fall in the price of denim cloth D. new technology, which reduces the time it takes to make a pair of jeans

rise in the price of a denim skirt (a substitute for jeans) The other factors listed change the supply; only answer B increases the demand.

A situation in which the quantity demanded exceeds the quantity supplied?

shortage

A situation in which the quantity supplied exceeds the quantity demanded?

surplus

-Other things remaining the same, if the price of a good rises, the quantity demanded of that good decreases; and if the price of a good falls, the quantity demanded of that good increases. - if the price of an iPhone falls, people will buy more iPhones; or if the price of a baseball ticket rises, people will buy fewer baseball tickets.

the law of demand

The quantity demanded is measured as an amount per?

unit of time, For example, your quantity demanded of water is 2 bottles per day

Distinguish between quantity demanded and demand, and explain what determines demand.

• Other things remaining the same, the quantity demanded increases as the price falls and decreases as the price rises—the law of demand. • The demand for a good is influenced by the prices of related goods, expected future prices, income, expected future income and credit, the number of buyers, and preferences. A change in any of these influences changes the demand for the good.

2. Distinguish between quantity supplied and supply, and explain what determines supply.

• Other things remaining the same, the quantity supplied increases as the price rises and decreases as the price falls—the law of supply. • The supply of a good is influenced by the prices of related goods, prices of resources and other inputs, expected future prices, the number of sellers, and productivity. A change in any of these influences changes the supply of the good.

3. Explain how demand and supply determine price and quantity in a market, and explain the effects of changes in demand and supply.

• The law of market forces brings market equilibrium—the equilibrium price and equilibrium quantity at which buyers and sellers trade. • The price adjusts to maintain market equilibrium—to keep the quantity demanded equal to the quantity supplied. A surplus brings a fall in the price to restore market equilibrium; a shortage brings a rise in the price to restore market equilibrium. • Market equilibrium responds to changes in demand and supply. An increase in demand increases both the price and the quantity; a decrease in demand decreases both the price and the quantity. An increase in supply increases the quantity but decreases the price; and a decrease in supply decreases the quantity but increases the price.