The demand function represents buyers' behavior.
Prices influence consumers' purchase decisions. The demand function can be depicted as a negatively sloped demand curve.
Therefore, there is an inverse relationship between the price of a good and the amount that consumers are willing to buy. The demand curve normally slopes downward. It tells the analyst the quantity that consumers are willing to buy for each possible price when all other influences on consumers' planned purchases remain the same.
Refer to the graph below. What is the quantity of cassettes demanded when their price is $4.00 per week?
Answer: Two cassettes per week. The demand curve tells how much is demanded at each price. To determine the quantity demanded, find $4.00 on the vertical axis and read across until you meet the demand curve. Then read the quantity from the horizontal axis.
When any factor that influences buying plans, other than the price of the good, changes, there is a change in demand for that good. When the quantity of the good that people plan to buy changes at each and every price, there is a new demand curve. These factors include changes in income, number of consumers in the market, changes in the price of a related good, etc.
Assume the graph below reflects demand in the automobile market. Which arrow best captures the impact of increased consumer income on the automobile market?
Answer: D. Income is a shift factor of demand. An increase in income increases the number of automobiles demanded at each price. Therefore demand has shifted to the right.
A Change in the Quantity Demanded Versus a Change in Demand
The demand curve isolates the impact of price on the amount of a product purchased.
Refer to the graph below. Consumers began purchasing more of a product due to a decrease in price. Which arrow best represents this statement?
Answer: C. A change in price causes a movement along the demand curve. When price falls, the movement is downward and to the right.
The Supply Function and the Supply Curve
Resources and technology determine what it is possible to produce. Supply reflects a decision about which technologically feasible items are best to produce. The supply function represents sellers' behavior.
Prices influence producers' supply decisions. The supply function can be depicted as a positively sloped supply curve.
Therefore, there is a direct relationship between the price of a good and the amount of that good that will be supplied. The supply curve slopes upward. It tells the analyst the quantity that producers are willing to supply for each price when all other influences on producers' planned sales remain the same.
The graph below displays the quantity associated with price in a supply table.
To find the quantity supplied at a price of $1, extend a horizontal line from $1 to the supply curve and drop a vertical line down to the quantity axis. These lines will intersect at 0. This is the quantity that will be associated with a price of $1 on a supply table.
The law of supply results from the general tendency for the marginal cost of producing a good or service to increase as the quantity produced increases.
A supply curve is also a minimum-supply-price curve. The greater the quantity produced, the higher the price a firm must be offered to be willing to produce that quantity.
A Change in Supply
Changes in other factors will influence the amount of products that producers are willing to supply. These factors include the prices of productive resources, expected future prices, number of suppliers, taxes, etc.
These factors affect the opportunity cost of supplying a good, and are held constant when drawing a supply curve. Changes in these factors will shift the entire supply curve for the good.
Refer to the graph below. A shift from S1 to S0 would most likely occur for what reason?
A. An increase in the number of suppliers in the market
Answer: D. An increase in the cost of producing the good causes supply to shift leftward. An increase in the number of firms and a decrease in taxes cause supply to shift rightward. A change in price causes a movement along supply, not a shift.
A Change in the Quantity Supplied Versus a Change in Supply
The quantity supplied of a good or service is the amount that producers plan to sell during a given time period at a particular price.
Price is just one of the factors that affect producers' supply decisions. The supply curve isolates the impact of price on the quantity of a product supplied and assumes that all other factors stay the same.
A tax will shift the supply curve up by the amount of the tax.
At every price level, less is supplied. For example, at price P0, originally Q0 is supplied. After the tax, Q1 is supplied at price P0.
A. quantity of pizza demanded
A. demand for electricity
A. consumers are now willing to purchase more of this product at each possible price.
A. quantity of cars demanded
A. quantity of lobsters demanded
A. The more of a good that will be supplied, the higher the price, other factors remaining constant.
The law of supply states that if other factors remain equal as the price of a good goes up, the quantity supplied goes up; as the price of a good goes down, the quantity supplied goes down. Price and quantity supplied are directly related.
I. supply curves slope upward.
The law of supply states that if other factors are equal as the price of a good goes up, the quantity supplied goes up; as the price of a good goes down, the quantity supplied goes down. This is shown graphically by a curve that slopes upward.
A. quantity of bicycles supplied
A. a decrease in the supply
Cheese is an input in the production of pizzas. An increase in the price of an input will decrease the supply (leftward shift of the supply curve) of pizzas.
A. decrease in the quantity of frog legs supplied
A. an inverse relation between price and demand
The law of demand states that the more of a good demanded, the lower its price (other factors remaining constant); the less of a good demanded, the higher its price (other factors remaining constant). That is, there is an inverse relationship between price and quantity demanded. The relationship is between quantities demanded, not demand.
A. a downward-sloping demand schedule
The law of demand suggests that as the price of a good increases, demand for that good will fall; similarly, as the price of the good declines, demand for it will rise. This is reflected in the market demand schedule which has a negative slope when price is on the Y-axis and quantity is on the X-axis.
I. Prices of complements and substitutes
A. I and III
An economist constructing a demand curve is concerned only with how consumers react to varying prices of a good. Thus, the price of complementary or substitute goods is held constant, consumer tastes and preferences are held constant, and expectations of future prices are also held constant. The only varying element used in the construction of the schedule is price: the demand curve plots the level of demand associated with different prices of the good.
A. the amount of the product that consumers are willing to purchase at various prices has increased.
An increase in the demand for a product implies that at a given price, consumers are willing to buy more units. Suppose that at a price of $10 consumers demand 2 restaurant meals. An increase in the demand for restaurant meals implies that individuals now demand 4 restaurant meals at the price of $10/each.
A. a shift in the demand curve
This is a movement along the demand curve: as price increases, individuals consume less at the higher price. There has been no shift in other factors and thus the demand schedule is constant.
A. Quantity demanded would increase.
Anything that affects demand other than price will result in a shift in demand. In this case, price has not changed. At each price, more of your restaurant services would be demanded; demand would increase.
A. shift outwards in demand
This is a movement along the demand curve and leads to a fall in the quantity demanded.
A. the maximum price suppliers are willing to accept for a unit of a good
The height of the supply is determined by the opportunity cost of production and determines the minimum price suppliers are willing to accept for a unit of a good.
I. A decrease in the price of insecticide
A. I, II and III
A decrease in the price of a resource used to produce a good, technological improvement, and favorable weather conditions are all possible causes of an increase in supply.
I. The supply curve summarizes information about production conditions.
A. I only
The supply curve indicates both the minimum price necessary to induce producers to supply a specific quantity and the opportunity cost of producing the marginal unit of the good.
A. It would shift the supply curve for oranges to the right and the demand curve to the left.
A decline in the price of an input used in the production of oranges will shift the supply curve for oranges to the right. This is because the opportunity cost of producing oranges has decreased.