🧠 Quick Study Guide
- 📊 Law of Demand: As price ($P$) increases, quantity demanded ($Q_d$) decreases, ceteris paribus (all else equal). The demand curve slopes downward.
- 📈 Determinants of Demand (Shifters): Tastes/Preferences, Income (Normal vs. Inferior Goods), Price of Related Goods (Substitutes vs. Complements), Expectations, Number of Buyers. These cause the entire demand curve to shift.
- 💰 Law of Supply: As price ($P$) increases, quantity supplied ($Q_s$) increases, ceteris paribus. The supply curve slopes upward.
- 🛠️ Determinants of Supply (Shifters): Input Prices, Technology, Taxes & Subsidies, Expectations, Number of Sellers. These cause the entire supply curve to shift.
- ⚖️ Market Equilibrium: Occurs where quantity demanded ($Q_d$) equals quantity supplied ($Q_s$). At equilibrium, there is no tendency for price to change.
- 📉 Surplus: When $Q_s > Q_d$, price tends to fall.
- ⬆️ Shortage: When $Q_d < Q_s$, price tends to rise.
- 🔄 Movement vs. Shift: A change in the good's own price causes a movement along the curve. A change in a determinant (shifter) causes the entire curve to shift.
📝 Practice Quiz
1. Which of the following best describes the Law of Demand?
- A) As income rises, demand for all goods increases.
- B) As the price of a good rises, the quantity demanded falls.
- C) As technology improves, the supply of a good increases.
- D) As the price of a substitute falls, the demand for the original good increases.
2. A decrease in the price of a complementary good will most likely lead to:
- A) A decrease in the quantity demanded of the original good.
- B) A rightward shift in the demand curve for the original good.
- C) A leftward shift in the demand curve for the original good.
- D) A movement up along the demand curve for the original good.
3. If the cost of raw materials used to produce smartphones increases, what will happen to the supply curve for smartphones?
- A) It will shift to the right.
- B) It will shift to the left.
- C) There will be a movement down along the supply curve.
- D) There will be a movement up along the supply curve.
4. What happens to the market equilibrium price and quantity when both demand and supply increase simultaneously, but the increase in demand is greater than the increase in supply?
- A) Equilibrium price decreases, equilibrium quantity increases.
- B) Equilibrium price increases, equilibrium quantity decreases.
- C) Equilibrium price increases, equilibrium quantity increases.
- D) Equilibrium price decreases, equilibrium quantity decreases.
5. Which of the following would cause a movement along the supply curve, rather than a shift?
- A) A change in the price of inputs.
- B) A change in technology.
- C) A change in the market price of the good itself.
- D) A change in the number of sellers.
6. If consumers expect the price of a new video game console to significantly drop next month, what will happen to the demand for the console *today*?
- A) Demand will increase.
- B) Demand will decrease.
- C) Quantity demanded will increase.
- D) Quantity demanded will decrease.
7. A situation where the quantity supplied exceeds the quantity demanded at a given price is known as a:
- A) Shortage.
- B) Equilibrium.
- C) Surplus.
- D) Price ceiling.
Click to see Answers
1. B (The Law of Demand states an inverse relationship between price and quantity demanded.)
2. B (A complement is consumed with the original good. If its price falls, more of it is consumed, leading to more demand for the original good.)
3. B (Increased input costs make production less profitable, so suppliers offer less at every price.)
4. C (When both increase, quantity definitely increases. If demand increases more, it pulls the price up.)
5. C (Only a change in the good's own price causes a movement along the curve. Other factors cause shifts.)
6. B (Expectations of lower future prices lead to consumers postponing purchases, thus decreasing current demand.)
7. C (A surplus occurs when supply outstrips demand, leading to downward pressure on prices.)