Unit 2 Supply and Demand

What does the law of demand state?

• Everyone has limited income and they will spend it all

• The lower the price, the more people want the good or service

• Services are bought and sold just like goods

• The higher the price, the more people want the good or service

If suppliers expect prices to rise next year for their product, you would expect

• The demand curve will shift to the left this year

• The quantity demanded will decrease this year

• The supply curve will shift to the left this year

• The supply curve will shift to the right this year

Which of the following is NOT a determinant of demand?

• The price of related goods

• Changes in income

• Consumer expectations

• All are determinants of demand

• None are determinants of demand

Which of the following best defines market equilibrium?

• The point at which supply exceeds demand and prices are stable

• The point at which supply and demand equal each other and prices are stable

• The point at which demand exceeds supply and prices are changing regularly

• The point at which supply and demand equal each other and prices are changing regularly

Differentiate a change in quantity demanded from a change in demand.

• A change in quantity demanded creates a new demand curve, while a change in demand is movement along the existing demand curve

• A change in quantity demanded is never driven by price, while a change in demand is always driven by price

• A change in quantity demanded is when consumer expectations delay a purchase, while a change in demand is a change in demographics

• A change in quantity demanded is movement along the existing demand curve, while a change in demand creates a new demand curve

Which of the following describes the relative elasticity in demand for toothpaste?

• Demand is inelastic because it is a luxury item

• Demand is elastic because there are no substitutes

• Demand is inelastic because it makes up a large share of most people’s budget

• Demand is inelastic because it is a low-cost necessity

When the quantity demanded for a product is less than the quantity supplied, the market

• has prices that are too low

• is in equilibrium

• has a surplus

• is controlled by a monopoly

Supply depends on the willingness and ability of…

• Donors to contribute

• Consumers to purchase

• Advertisers to promote

• Producers to produce

What can cause a change in supply?

• Changes in technology

• Changes in the number of producers

• Changes in government policy

• All of the above

Why is a demand curve downward sloping?

• Because quantity demanded increases as price decreases

• Because of the natural elasticity of the market

• Because it shows how increasing incentives changes demand

• Because it reflects the desire, ability, and willingness of consumers