Supply and Demand Basics
What is the law of demand?
As price decreases, quantity demanded increases, and vice versa.
What happens to demand for lemonade during a heatwave?
Demand increases, and the demand curve shifts to the right
What happens to the supply of lemonade if the price of lemons decreases?
Supply increases, and the supply curve shifts to the right
What is the point where supply and demand curves intersect called?
Equilibrium
What is the x-axis on a supply and demand graph?
Quantity
What is the law of supply?
As price increases, quantity supplied increases, and vice versa
If the price of soda decreases, how might this affect the demand for lemonade?
Demand for lemonade may decrease because soda is a substitute.
If you hire more workers for your lemonade stand, what happens to supply?
Supply increases, as more workers can produce more lemonade.
At equilibrium, what happens to the quantity supplied and demanded?
They are equal
What is the y-axis on a supply and demand graph?
Price
In a market, what determines the price and quantity of goods?
The interaction of supply and demand
How does consumer income affect demand for lemonade?
An increase in income generally increases demand if lemonade is a normal good.
What effect does a new lemonade stand competitor have on your supply curve?
No direct effect; this affects demand, not supply
If demand increases but supply remains constant, what happens to equilibrium price and quantity?
Equilibrium price and quantity both increase
If a demand curve shifts to the right, what has likely happened?
Demand has increased due to a determinant such as higher income or favorable weather
What does it mean if a good is "elastic"?
Quantity demanded or supplied changes significantly with price changes
If people expect lemonade prices to rise next week, what happens to demand today?
Demand increases today as customers want to buy before the price rises
If a storm destroys your supply of lemons, what happens to the supply curve?
It shifts to the left.
If supply decreases but demand remains constant, what happens to equilibrium price and quantity?
Equilibrium price increases, and equilibrium quantity decreases.
If both supply and demand increase, what happens to the equilibrium quantity?
Equilibrium quantity increases, but the price change depends on the magnitude of the shifts.
Name two determinants of demand other than price.
Income, tastes/preferences, prices of related goods, expectations, or number of buyers.
Plot the demand curve for lemonade if the following data applies: Price = $1.00, $2.00, $3.00; Quantity Demanded = 40, 30, 20
Graph with a downward-sloping line.
Plot the supply curve for lemonade if the following data applies: Price = $1.00, $2.00, $3.00; Quantity Supplied = 10, 30, 50.
Graph with an upward-sloping line.
Given a supply schedule and a demand schedule, how do you determine the equilibrium price and quantity?
By identifying the price where quantity supplied equals quantity demanded.
Plot the supply and demand curves given the following schedules. Determine equilibrium price and quantity:
Demand Schedule: Price = $1.00, $2.00, $3.00; Quantity Demanded = 50, 30, 10.
Supply Schedule: Price = $1.00, $2.00, $3.00; Quantity Supplied = 10, 30, 50.
Equilibrium is at $2.00 and 30 cups.