Here are the answers to your questions about market demand and supply:
1. Why does a market demand curve normally slope down?
The market demand curve slopes downwards due to the law of demand, which states that, all else being equal, as the price of a good decreases, the quantity demanded increases, and vice versa. This occurs because lower prices make a good more affordable for consumers, leading to an increase in quantity demanded.
2. Name some factors that could shift the demand curve out to the right.
Factors that can shift the demand curve to the right (increase in demand) include:
• An increase in consumer income (for normal goods).
• A decrease in the price of complementary goods.
• An increase in the price of substitute goods.
• Changes in consumer preferences favoring the good.
• An increase in population or number of consumers.
• Expectations of future price increases.
3. Why does a firm’s supply curve normally slope up?
A firm's supply curve typically slopes upwards due to the law of supply, which states that, all else being equal, as the price of a good increases, the quantity supplied also increases. This is because higher prices provide an incentive for producers to supply more of a good to maximize profits.
4. Name some factors that could shift the supply curve in to the left.
Factors that can shift the supply curve to the left (decrease in supply) include:
• An increase in production costs (e.g., wages, raw materials).
• A decrease in the number of suppliers in the market.
• Government regulations or taxes that increase production costs.
• Natural disasters or other events that disrupt production.
• Expectations of future price increases leading suppliers to withhold current supply.
5. What is the significance of the point where supply and demand curves intersect?
The point where the supply and demand curves intersect is known as the equilibrium point. At this point, the quantity of goods supplied equals the quantity demanded, resulting in a stable market price. It represents an efficient allocation of resources where there is no excess supply or demand.
6. Explain why the market price may not be the same as the equilibrium price.
The market price may not equal the equilibrium price due to various factors such as changes in consumer preferences, external shocks (like natural disasters), government interventions (like price controls), or shifts in supply and demand that create surpluses or shortages.
7. Explain why, if the price of a good is above the equilibrium price, the forces of supply and demand will tend to push the price toward equilibrium.
If the price is above equilibrium, a surplus occurs because suppliers are willing to sell more than consumers are willing to buy at that price. To eliminate this surplus, suppliers will lower their prices to attract more buyers, which will decrease supply and increase demand until equilibrium is reached.
8. Explain why, if the price of the good is below the equilibrium price, the market will tend to adjust toward equilibrium.
If the price is below equilibrium, a shortage occurs because consumers want to buy more than what suppliers are willing to sell at that lower price. In response to the shortage, suppliers will raise prices since they can sell their goods at higher prices, which will decrease demand and increase supply until equilibrium is restored.
9. What is meant by the elasticity of demand?
Elasticity of demand measures how responsive the quantity demanded of a good is to a change in its price. It indicates whether consumers will buy significantly more or less of a product when its price changes and can be classified as elastic (greater than 1), inelastic (less than 1), or unitary elastic (equal to 1).
10. If the elasticity of demand is 1, what happens to total revenue as the price increases? What if the demand for a product is very inelastic? What if it is very elastic?
• If elasticity of demand is 1 (unitary elastic), total revenue remains constant when the price changes.
• If demand is very inelastic (less than 1), total revenue increases as price increases because consumers do not significantly reduce their quantity demanded.
• If demand is very elastic (greater than 1), total revenue decreases as price increases because consumers significantly reduce their quantity demanded in response to a price increase.
1-B
2-C
3-B
4-D
Aya Yasser Abdallah