supply demand questions

How does a quota affect supply?

Answer:
Because a quota limits the number of foreign-produced goods that can enter the market, it decreases supply.

Farmer Bill owns an apple orchard in Illinois. James owns a company that makes apple sauce with Bill's apples. This summer, Bill's orchard got hit by a tornado. What happens to the supply of apple sauce?

Answer
It decreases.

Meghan makes scarves. She knows that next month, Angie will also be making scarves. What happens to the supply of Meghan's scarves this month?
Answer
It increases.

What is a price floor?

Answer
a legal minimum price for a good or service

What is a price ceiling?
Answer
a legal maximum price for a good or service





For a price ceiling to be effective, where must it be placed?

Answer
below the equilibrium price


For a price floor to be effective, where must it be placed?
Answer
above the equilibrium price

If a price floor is effective, is there a surplus or a shortage of the good?
Answer
a surplus

If demand increases and supply remains constant, what happens to the price and quantity demanded of the good?
Answer
both increase

If demand decreases and supply remains constant, what happens to the price and quantity demanded of the good?
Answer
price increases and quantity demanded decreases


In the market illustrated above, will a shortage or surplus exist?

Answer
a shortage



In the market illustrated above, how large will the shortage be?
20 units






Why does an effective price ceiling create a shortage?
Answer
Buyers are willing to buy more at the lower price, but producers won't produce as much. Thus more is demanded than is supplied.



In the market illustrated above, will a shortage or surplus exist?
a surplus

In the market illustrated above, how large will the surplus be?
20 units

Why does an effective price floor create a surplus?
Answer:
Buyers are willing to buy less at the higher price, but producers are willing to produce more. Thus more is supplied than is demanded.

True or False: prices set by price floors or ceilings are more economically efficient than equilibrium prices.
Answer
False

The price of Spuds potato chips increases. What happens to the demand for Ridges potato chips?

answer:
Demand shifts right (increases).

The price of yellow canaries increases. What happens to the demand for yellow canaries?

Answer
nothing

The new jBoxes just spiked in popularity; everyone wants to buy one, how will this change the demand

Answer
price will increase, but quantity is indeterminate

A new alloy is found that makes the production of titanium sporks faster and cheaper. What happens to the supply of titanium sporks?
Answer
it increases (shifts to the right)

The local automobile assembly line updates its equipment. What happens to the supply of automobiles?
Answer
it increases (shifts to the right)

Red polka-dotted scarves were all the rage last month, but a new investigation has shown that the scarves are made with fabric that causes irritation and rash. What happens to the demand for the scarves?
Answer
decreases (shifts to the left)

The goverment decides that companies are charging too much for toothpaste and puts in an effective price ceiling. What happens to the supply of toothpaste?
Answer
nothing, but the quantity supplied decreases

What is the classic example of a price floor?
Answer
minimum wage

What is demand?
Answer
the amount of a good or service consumers are willing to buy at all possible prices on a given market
What does the Law of Demand state?
Answer
"ceteris paribus"; the quantity demanded increases as price decreases and vice versa


What is the definition of quantity demanded?
Answer
the quantity of a good or service that consumers are willing to purchase at a specific price

True or False: a change in price will result in a change in demand.
Answer
False; it will result in a change in quantity demanded.

What does the demand curve of the market represent?

Answer
the sum of the demand curves of the consumers

On a supply and demand graph, what does the vertical axis always represent?
Answer
price

On a supply and demand graph, what does the horizontal axis always represent?
Answer
quantity

Which way does a demand curve slope?
Answer
downward and to the right

The demand curve slopes downward as a result of what?
Answer
substitution effect, income effect, diminishing marginal utility

What is stated by the income effect?
Answer
As price decreases, consumers can purchase more. Thus, quantity demanded is higher at lower prices.

What is purchasing power?
Answer
the amount of goods a consumer can buy with his or her current income

What is stated by the substitution effect?
Answer
If a group of goods are all very similar and Good A has a decrease in price, people will be more likely to buy Good A than the other goods.

What is stated by diminishing marginal utility?
Answer
When a consumer acquires an additional unit of the same good, his or her added satisfaction as a result of that unit decreases. Thus, in order to persuade a consumer to buy many units of a good, the price must be fairly cheap.

What are the five main determinant factors of the demand curve?
Answer
1. consumer tastes and preferences 2. consumer income 3. number of buyers 4. demand curves of substitute or complement goods 5. consumer expectations

What factors can affect a consumer
Answer
advertising fads information about a product (i.e. study proving Good A is beneficial/harmful to health)

If people expect the price of Good Y to increase in the future, what will happen to the demand for Good Y?
Answer
increase

What does the Law of Supply state?
Answer
As the price of a good increases, producers will be willing to produce more of that good.
What is the difference between supply and quantity supplied?
Answer
Supply is the amount of a good producers are willing to produce for all possible prices. Quantity supplied is the amount of a good producers are willing to produce at a specific price.

Which way does a supply curve slope?
Answer
upward and to the right

What factors will affect the supply curve?
Answer
input prices technology producer expectations price of other goods government policies (i.e. taxes) number of producers

How do input prices affect supply?
Answer
If the resources used to produce a good increase, the supplier will charge more for every unit of that good in order to compensate for his or her own greater cost. (eg., if more lemons are needed to produce lemonade, then the person running the lemonade stand will increase the price per glass of lemonade)

True or False: technology refers solely to accessibility to high-tech processes.
Answer
False; technology refers to the way in which something is produced. Thus an improvement in technology simply means someone has found a more efficient way of doing something.

How do the prices of other goods affect the supply curve?
Answer
If a producer feels it would be more profitable to produce another good, he or she will decrease production on the current good and shift resources elsewhere.

How does a tax affect supply?
Answer
It increases cost of production and decreases supply.

How does a subsidy affect supply?
Answer
It decreases cost of production and increases supply.

How does a quota affect supply?
Answer
Because a quota limits the number of foreign-produced goods that can enter the market, it decreases supply.