Market Equilibrium - Shifts in Demand and Supply

What is the difference between a movement along and a shift in the supply curve?

• Movement is due to price change; shift is due to other factors.

• Movement is due to technology change; shift is due to price change.

• Movement is due to demand change; shift is due to supply change.

• Movement is due to supply change; shift is due to demand change.

Answer explanation

A movement along the supply curve occurs when the price of a good changes, affecting the quantity supplied. In contrast, a shift in the supply curve happens due to factors other than price, such as changes in production costs or technology.

At market equilibrium, what is the state of demand and supply?

• Excess demand

• Excess supply

• No excess demand or supply

• Fluctuating demand

Answer explanation

At market equilibrium, the quantity demanded equals the quantity supplied, resulting in no excess demand or supply. This balance ensures that the market clears, meaning all goods produced are sold.

What is the definition of market equilibrium?

• When prices are unstable

• When demand exceeds supply

• When supply exceeds demand

• When demand equals supply

Answer explanation

Market equilibrium occurs when demand equals supply, meaning the quantity of goods consumers want to buy matches the quantity producers want to sell, resulting in stable prices.

What happens to the equilibrium price and quantity when there is an increase in demand?

• EQ Price: Decreases, EQ Qd: Increases

• EQ Price: Increases, EQ Qd: Increases

• EQ Price: Increases, EQ Qd: Decreases

• EQ Price: Decreases, EQ Qd: Decreases

Answer explanation

An increase in demand leads to higher equilibrium prices as consumers are willing to pay more. Consequently, the quantity demanded also increases as suppliers respond to the higher prices, resulting in both EQ Price and EQ Qd increasing.

Which factor is a non-price factor affecting demand?

• Number of suppliers

• Climatic Conditions

• Disposable Income

• Technology

Answer explanation

Disposable income is a non-price factor affecting demand, as it influences consumers' purchasing power. Higher disposable income typically leads to increased demand for goods and services.

Which of the following is a non-price factor affecting demand?

• Government Restrictions

• Productivity

• Preferences/Tastes

• Technology

Answer explanation

Preferences/Tastes are non-price factors that influence consumer choices and demand for products, making them a key determinant in market behavior, unlike government restrictions, productivity, or technology.

What is the effect on equilibrium price and quantity when there is a decrease in supply?

• EQ Price: Increases, EQ Qd: Decreases

• EQ Price: Decreases, EQ Qd: Increases

• EQ Price: Increases, EQ Qd: Increases

• EQ Price: Decreases, EQ Qd: Decreases

Answer explanation

A decrease in supply leads to a higher equilibrium price due to scarcity, while the equilibrium quantity demanded decreases as consumers are less willing to buy at higher prices.

Which of the following is a non-price factor affecting supply?

• Consumer Preferences

• Production Costs

• Number of Buyers

• Disposable Income

Answer explanation

Production costs are a non-price factor affecting supply, as they influence how much of a product producers are willing to supply at various price levels. Consumer preferences, number of buyers, and disposable income primarily affect demand.

What happens to the demand curve when consumer income increases?

• It remains unchanged

• It becomes vertical

• It shifts to the right

• It shifts to the left

Answer explanation

When consumer income increases, the demand for normal goods typically rises, causing the demand curve to shift to the right. This indicates an increase in quantity demanded at each price level.

Assume the image is showing the market for apples. Which of the headlines could indicate the pictured shift is occurring in the market?

• Pesticides on apples linked to mouth cancer.

• Storms destroy apple orchards.

• An apple a day really does keep the doctor away.

• New genetic strain leads to apple trees that produce twice as many apples.

Answer explanation

The headline 'Storms destroy apple orchards' indicates a negative supply shock, likely causing a leftward shift in the supply curve for apples. This aligns with the depicted market shift.