Law of Supply & Supply Curve
What happens to quantity supplied when price rises, holding other factors constant?
Quantity supplied increases.
What happens to quantity demanded when price falls?
Quantity demanded increases.
Name one factor that shifts demand.
Income, tastes, prices of related goods, expectations, population.
What happens to supply when the number of sellers increases?
Supply increases (shifts right).
What happens to quantity supplied when grocery stores cut the price of apple juice?
Movement down along the supply curve (quantity supplied decreases).
How would you distinguish between a movement along the supply curve and a shift of the supply curve?
Movement along = change in price; shift = change in other factors (technology, input prices, etc.).
What happens when price rises along the demand curve?
Quantity demanded decreases.
How does an increase in income affect demand for a normal good?
Demand increases (rightward shift).
What is the effect of improved technology on supply?
Supply increases because production becomes cheaper/more efficient.
What happens to demand for orange juice when income falls (normal good)?
Demand decreases (shift left).
What is represented on the axes of a supply curve?
Price on the vertical axis; quantity supplied on the horizontal axis.
Why do consumers buy more when prices decrease?
Goods become relatively cheaper and purchasing power rises.
How does a rise in the price of a substitute affect demand?
Demand increases for the good.
Why does a decrease in wages shift the supply curve?
Lower wages reduce costs, making production more profitable at every price.
How does a rise in the price of apple juice affect demand for orange juice?
Demand for orange juice increases.
What happens to quantity supplied when price falls? Why does a higher price incentivize firms to produce more?
Quantity supplied decreases.
Higher prices increase potential profit, motivating firms to produce more.
What is the difference between demand and quantity demanded?
Demand = entire relationship; quantity demanded = specific amount at a given price.
How does a decrease in income affect demand for an inferior good?
Demand increases (leftward shift for normal goods, but increases for inferior goods).
Explain how rising raw material costs affect the supply curve.
Higher costs reduce profitability, decreasing supply (leftward shift).
Distinguish between the effect of a price change vs. income change on demand.
Price change → movement along curve; income change → shift of demand curve.
Why is the supply curve typically upward sloping?
Because higher prices make production more profitable.
How would you explain a movement along the demand curve?
A change in quantity demanded caused by a change in the good’s own price.
How do expectations about future prices influence current demand?
Expected higher future prices increase current demand.
How might expectations about future regulations affect current supply decisions?
Firms may reduce current supply if they expect stricter future rules (or increase if they expect looser ones).
If both demand and supply increase simultaneously, what determines the final price?
The relative size of the shifts determines the final price.