Understanding Demand and Supply

Identify the law of demand.

• The law of demand is only relevant in a barter economy, not in a monetary economy.

• The law of demand states that there is a direct relationship between price and quantity demanded.

• The law of demand states that when price of a commodity rises, there will be a fall in quantity demanded.

• The law of demand states that as the price of a good or service increases, the quantity demanded for that good or service increases as well.

What is the law of supply?

• The law of supply states that as the price of a good or service increases, the quantity supplied by producers also increases, and vice versa.

• The law of supply states that an inverse relationship exists between price and quantity supplied.

• The law of supply states that the price of a good or service has no impact on the quantity supplied by producers

• The law of supply states that as price of a commodity rises, quantity demanded falls.

Define market equilibrium.

• Market equilibrium is when the price is determined by the government.

• Market equilibrium is when the quantity supplied is greater than the quantity demanded.

• Market equilibrium is the point where the quantity supplied equals the quantity demanded.

• Market equilibrium is when the quantity demanded is greater than the quantity supplied.

Explain what causes a shift in the demand curve.

• Variations in the weather

• Fluctuations in the stock market

• Changes in tastes and preferences

• Changes in government regulations

Surplus is also defined as excess supply.

• True

• False

How does a change in consumer income affect the demand curve?

• An increase in consumer income leads to a decrease in demand for all goods.

• Consumer income has no effect on the demand curve.

• An increase in consumer income generally leads to an increase in demand for normal goods and a decrease in demand for inferior goods.

• An increase in consumer income leads to a decrease in demand for normal goods and an increase in demand for inferior goods.

Technological advancement is likely to cause a shift in the supply curve.

• True

• False

Discuss the concept of substitute goods and its effect on demand.

• Substitute goods are only used in niche markets.

• When the price of one substitute good increases, the demand for the other substitute good will increase.

• Substitute goods have no effect on demand.

• When the price of one substitute good increases, the demand for the other substitute good will decrease.

How does government regulation influence the supply curve?

• Government regulation decreases the supply curve by increasing the quantity supplied at a given price

• Government regulation can decrease the supply curve by increasing production costs and reducing the quantity supplied at a given price.

• Government regulation has no impact on the supply curve

• Government regulation increases the supply curve by reducing production costs

Surpluses and shortages exist at the market equilibrium.

• True

• False