Understanding Supply and Demand Basics

Front

Economic problem:

Back

Scarcity of resources vs. unlimited wants

Answer explanation

The economic problem arises from the scarcity of resources relative to unlimited wants, meaning that resources are limited while human desires are not, leading to the need for choices and trade-offs.

Front

Law of Demand: Price decrease leads to increased quantity demanded.

Back

As price decreases, quantity demanded increases.

Answer explanation

The law of demand states that as the price of a good decreases, the quantity demanded increases. This reflects consumer behavior where lower prices typically encourage more purchases.

Front

Equilibrium point on a supply and demand graph

Back

Supply equals demand

Answer explanation

The equilibrium point on a supply and demand graph represents the price and quantity where supply equals demand. At this point, the market is balanced, and there is no surplus or shortage.

Front

Factor causing rightward supply curve shift:

Back

Improvement in technology

Answer explanation

An improvement in technology typically increases efficiency and lowers production costs, allowing suppliers to produce more at the same cost. This leads to a rightward shift in the supply curve, indicating an increase in supply.

Front

Effect of rising consumer income on demand for a normal good?

Back

Demand curve shifts right.

Answer explanation

When consumer income increases, the demand for normal goods rises, leading to a rightward shift of the demand curve. This indicates that consumers are willing to buy more at each price level.

Front

Effect of decreased supply on market equilibrium:

Back

Equilibrium price increases.

Answer explanation

A decrease in supply leads to a higher equilibrium price because there are fewer goods available. As demand remains constant, the scarcity drives prices up, resulting in an increase in the equilibrium price.

Front

Effect of consumer preference change on demand curve:

Back

Shifts to the right

Answer explanation

When consumer preferences shift in favor of a product, demand increases, causing the demand curve to shift to the right. This indicates that at every price level, consumers are willing to purchase more of the product.

Front

Leftward shift in supply curve:

Back

Natural disaster affecting production.

Answer explanation

A natural disaster affecting production would disrupt supply, leading to a leftward shift in the supply curve. In contrast, a decrease in raw material costs, increased subsidies, or improved technology would shift the curve rightward.

Front

Production Possibility Curve (PPC) illustrates:

Back

Max output combinations of two goods

Answer explanation

A Production Possibility Curve (PPC) illustrates the maximum possible output combinations of two goods, showing the trade-offs and opportunity costs involved in production.

Front

Effect of substitute price increase on original good demand?

Back

Demand for original good increases.

Answer explanation

When the price of a substitute good increases, consumers are likely to switch to the original good, leading to an increase in its demand. Therefore, the correct answer is that the demand for the original good increases.