Question 1

Give two explanations for the law of demand.

Accepted Answer

First,there is diminishing marginal utility:a decrease in satisfaction that results with an increase in the amounts of a good or service.The second unit of a good yields less satisfaction (or utility)than the first.Second,there are income and substitution effects.With an income effect,a lower price increases the purchasing power of money income,enabling you to buy more at lower price.With a substitution effect,a lower price for good X gives an incentive to substitute away from the now relatively high-priced good Y and replace it with the low-priced good X.

Question 2

What is the difference between a change in supply and a change in quantity supplied?

Accepted Answer

A change in supply is a shift in the entire supply curve either to the left (a decrease in supply)or to the right (an increase in supply).A change in supply,therefore,is a change in the entire supply schedule or curve.In contrast,a change in quantity supplied is a movement along an existing supply curve or schedule from one price-quantity combination to another.A change in product price causes the change in quantity supplied.

Question 3

List five basic determinants of market demand that could cause demand to decrease.

Accepted Answer

(a)Consumers' tastes become less favourable toward the item.
(b)The number of buyers decreases.
(c)Incomes fall and the item is a normal good or incomes rise and the item is an inferior good.
(d)A decrease in the price of a substitute product or an increase in the price of a complementary product.
(e)Consumers expect lower prices in the future.

Question 4

Suppose a producer sells 1,000 units of a product at $5 per unit one year,2,000 units at $8 the next year,and 3,000 units at $10 the third year.Is this evidence that the law of demand is violated? Explain.

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Question 5

Explain how the prices of related goods also affect demand.

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Question 6

What are some of the characteristics of a market that can be described by a demand and supply model?

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Question 7

List six basic determinants of market supply that could cause supply to increase.

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Question 8

Newspaper item: "Due to lower grain prices,consumers can expect retail prices of choice beef to begin dropping slightly this spring with pork becoming cheaper after midsummer," the Agriculture Department predicted."This reflects increasing supply," the department said.Is the term "supply" used correctly? What effects might this announcement have on consumer demand? Explain.

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Question 9

Describe and give a reason for the law of supply.

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Question 10

What is the difference between a change in demand and a change in quantity demanded?

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Question 11

Differentiate between a normal (superior)and an inferior good.

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Question 12

Suppose that a decrease in the price of feed grain leads to a dramatic decrease in the price of beef.Use the income effect and the substitution effect to explain why there was an increase in the quantity of beef purchased.

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Question 13

The demand schedules of three individuals (Tom,Dick,and Harry)are shown.If they are the only three buyers of CDs,complete the market demand schedule for CDs.Graphically,is the market demand for a product the horizontal or vertical sum of the individual demand schedules?

Accepted Answer

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Question 14

Define "demand."

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Question 15

What effect will each of the following have upon the supply of television sets? Explain your reasoning in each case.
(a)an increase in the price of electronic equipment used in producing television sets
(b)a decline in the number of firms producing television sets
(c)a large new tariff on imported Japanese TV sets
(d)new inexpensive satellite dishes which make televisions more popular among consumers

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Question 16

Give examples of two substitute goods and two complementary goods.In each case explain why the goods are substitutes or complements.

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Question 17

Define "supply."

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Question 18

State the law of demand and explain why the other-things-equal assumption is critical to it.

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Question 19

What effect should each of the following have upon the demand for MP3 players? Explain your reasoning in each case.
(a)the development of reasonably-priced smart phones that compete with MP3 players
(b)an increase in population and incomes
(c)a substantial increase in the number and quality free downloadable MP3s
(d)consumer expectations of substantial price increases in MP3 players
(e)a decrease in the price of MP3 players

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Question 20

The Federal government is considering passing an excise tax that would increase the price of a pack of cigarettes by $1.00.What would be the likely effect of this change on the demand and supply of cigarettes? What is likely to happen to cigarette prices and the quantity consumed if the tax bill is enacted?

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Quiz 3: Demand, Supply, and Market Equilibrium