SUPPLY AND DEMAND

As price rises, what happens to quantity demanded?

• It goes up

• It goes down

• No change

Answer explanation

As price rises, consumers typically buy less of a good, leading to a decrease in quantity demanded. This is known as the law of demand, which states that price and quantity demanded move in opposite directions.

1. What happens to the demand for a product when its price drops?

• Demand increases

• Demand decreases

• Demand stays the same.

Answer explanation

When the price of a product drops, consumers are generally more willing to buy it, leading to an increase in demand. This relationship is a fundamental principle of economics known as the law of demand.

What is Supply?

• The amount of a good or service that consumers want to buy

• The amount of a good or service that producers are willing to sell.

• The price at which a good or service is sold.

Answer explanation

Supply refers to the amount of a good or service that producers are willing to sell. This is distinct from demand, which is about what consumers want to buy.

What is demand?

• The amount of a good or service that consumers are willing to buy at different prices

• 1. The price at which a good or service is sold

• The amount of a good or service that producers are willing to sell

Answer explanation

Demand refers to the amount of a good or service that consumers are willing to buy at various prices. This definition highlights the relationship between price and consumer purchasing behavior.

What does the equilibrium point in a market represent?

• The total number of consumers in the market

• The maximum quantity of a product that can be produced

• The price at which supply equals demand

Answer explanation

The equilibrium point in a market represents the price at which the quantity supplied equals the quantity demanded, ensuring that there is no surplus or shortage of goods.

What factors can cause a shift in demand?

• Changes in consumer income

• Changes in the price of related goods

• Both A and B

Answer explanation

Demand can shift due to changes in consumer income, which affects purchasing power, and changes in the price of related goods, such as substitutes or complements. Therefore, both factors A and B are correct.

How does consumer preference affect demand?

• It has no effect on demand

• It can increase or decrease demand depending on the preference

• It only increases demand

Answer explanation

Consumer preference directly influences demand; if preferences shift towards a product, demand can increase, while a shift away can decrease demand. Thus, the correct choice is that it can increase or decrease demand depending on the preference.

What is the effect of a decrease in consumer income on demand?

• Demand increases

• Demand decreases

• Demand remains unchanged

Answer explanation

A decrease in consumer income typically leads to a reduction in purchasing power, causing demand for normal goods to decrease. Therefore, the correct answer is that demand decreases.

How does advertising influence consumer demand?

• It has no impact on demand

• It can increase demand by influencing consumer preferences

• It only decreases demand

Answer explanation

Advertising can significantly influence consumer demand by shaping preferences and perceptions. By highlighting product benefits and creating emotional connections, it can lead to increased interest and demand for the advertised products.

How does consumer expectation about future prices affect current demand?

• It has no effect on current demand

• It can increase current demand if prices are expected to rise

• It can decrease current demand if prices are expected to fall

Answer explanation

Consumer expectations about future prices can significantly influence current demand. If consumers expect prices to rise, they are likely to buy more now to avoid paying higher prices later, thus increasing current demand.