Understanding Demand and Supply Equilibrium

What is market equilibrium?

• Market equilibrium is the point where demand exceeds supply.

• Market equilibrium occurs when prices are set by government regulation.

• Market equilibrium is the point where supply equals demand.

• Market equilibrium is when supply exceeds demand.

How does an increase in consumer income affect the demand curve?

• The demand curve shifts to the right.

• The demand curve shifts to the left.

• The demand curve remains unchanged.

• The demand curve becomes vertical.

What happens to the demand curve when the price of a substitute good decreases?

• The demand curve for the original good shifts to the left.

• The demand curve for the original good shifts to the right.

• The demand curve for the original good becomes vertical.

• The demand curve for the original good remains unchanged.

What is the effect of a technological advancement on the supply curve?

• A technological advancement makes the supply curve vertical.

• A technological advancement shifts the supply curve to the left.

• A technological advancement has no effect on the supply curve.

• A technological advancement shifts the supply curve to the right.

How does a decrease in the number of suppliers affect the supply curve?

• The supply curve becomes vertical.

• The supply curve shifts to the right.

• The supply curve shifts to the left.

• The supply curve remains unchanged.

Define price elasticity of demand.

• Price elasticity of demand is the ratio of price to quantity sold.

• Price elasticity of demand is a measure of the responsiveness of quantity demanded to a change in price.

• Price elasticity of demand indicates the fixed cost of production.

• Price elasticity of demand measures the total revenue generated by a product.

What does it mean if the price elasticity of demand is greater than 1?

• Demand is unitary elastic.

• Demand is elastic.

• Demand is perfectly inelastic.

• Demand is inelastic.

How does consumer surplus relate to market equilibrium?

• Consumer surplus decreases as market equilibrium is approached.

• Consumer surplus is always negative at market equilibrium.

• Consumer surplus is maximized at market equilibrium.

• Consumer surplus is irrelevant to market equilibrium.

What is producer surplus and how is it calculated?

• Producer surplus is calculated as the difference between fixed and variable costs.

• Producer surplus is calculated as the area above the supply curve and below the market price, up to the quantity sold.

• Producer surplus is the total revenue minus total costs.

• Producer surplus is the area below the demand curve and above the market price.

How does a price ceiling affect consumer and producer surplus?

• A price ceiling increases consumer surplus and decreases producer surplus.

• A price ceiling increases both consumer and producer surplus.

• A price ceiling decreases consumer surplus and increases producer surplus.

• A price ceiling has no effect on consumer or producer surplus.