Here are detailed responses to each of the economics questions:
1. Demand refers to the quantity of a good or service that consumers are willing and able to purchase at various prices during a certain time period. The law of demand states that, all else being equal, as the price of a good or service increases, consumer demand for that good or service will decrease, and vice versa.
In words: As price increases, quantity demanded decreases. As price decreases, quantity demanded increases.
In symbols:
P ↑ → QD ↓
P ↓ → QD ↑
In a graph:
[Insert demand curve graph with price on the vertical axis and quantity on the horizontal axis, sloping downwards]
2. Supply refers to the quantity of a good or service that producers are willing and able to sell at various prices during a certain time period. The law of supply states that, all else being equal, as the price of a good or service increases, producer supply for that good or service will increase, and vice versa.
In words: As price increases, quantity supplied increases. As price decreases, quantity supplied decreases.
In symbols:
P ↑ → QS ↑
P ↓ → QS ↓
In a graph:
[Insert supply curve graph with price on the vertical axis and quantity on the horizontal axis, sloping upwards]
3. Five factors that shift the demand curve:
- Changes in income - higher income shifts demand outward for normal goods, lower income shifts demand inward. Example: demand for new cars.
- Changes in prices of related goods - lower price of substitutes shifts demand inward, higher price shifts outward. Example: demand for coffee if tea prices rise.
- Changes in tastes and preferences - greater preference shifts demand outward. Example: demand for plant-based meat alternatives.
- Changes in expectations - expectation of future price rises shifts demand outward currently. Example: demand for gasoline.
- Changes in number of consumers - more consumers shifts demand outward. Example: demand for baby products.
4. Five factors that shift the supply curve:
- Changes in input prices - higher input prices shift supply inward, lower input prices shift supply outward. Example: supply of bread when wheat prices rise.
- Changes in technology - improved technology shifts supply outward. Example: supply of computers.
- Changes in taxes/subsidies - higher taxes shift supply inward, subsidies shift supply outward. Example: cigarette supply with increased taxes.
- Changes in number of sellers - more sellers shifts supply outward. Example: supply of rideshare services.
- Natural events - supply disruptions shift supply inward. Example: oil supply after a hurricane.
Movement along the supply curve is caused by price changes, rather than shifts of the curve.
5. A leftward shift of the supply curve means that at every price level, the quantity supplied is lower, so suppliers are willing and able to produce less at every given price. This could occur due to an increase in input prices, new regulations, or other supply-decreasing factors.
A rightward shift means suppliers will produce more at every given price point. This could occur if input prices fall, new technologies emerge, or other supply-increasing factors happen.
A shift is different from a movement along the curve caused by a price change. Shifts are caused by external supply factors.
6. Elasticity of demand refers to the responsiveness of the quantity demanded to changes in price. It is calculated as:
% Change in Quantity Demanded / % Change in Price
If elasticity is greater than 1, demand is elastic. A small price change causes a large change in quantity demanded. Examples are leisure activities.
If elasticity is less than 1, demand is inelastic. A large price change causes a small change in quantity demanded. Examples are necessities like food and medicine.
7. Equilibrium is the price and quantity combination where supply and demand are balanced.
In words: Equilibrium occurs where quantity supplied equals quantity demanded, at the intersection of the supply and demand curves. At this equilibrium price, there are no shortages or surpluses.
In symbols:
QS = QD
P* Q*
In a graph:
[Insert graph with supply and demand curves intersecting at equilibrium price P* and quantity Q*]
8. Price serves as a signaling mechanism in markets, providing information to both buyers and sellers. As prices rise, it signals to buyers that supply is scarce relative to demand, encouraging conservation. Rising prices also signal to sellers that demand is robust relative to supply, incentivizing greater production. Similarly, falling prices signal oversupply to sellers and abundance to buyers. Prices help markets allocate resources efficiently.
Please let me know if you need any clarification or have additional questions! I'm happy to expand on any part of these explanations.