Law of Supply & Demand
What does the Law of Demand state?
As price decreases, quantity demanded increases.
Name one determinant of demand.
Buyers, Income, Related Goods, Preferences, Expectations
What is market equilibrium?
Where quantity demanded equals quantity supplied.
What is elasticity of demand?
The responsiveness of quantity demanded to price changes.
What is a price ceiling?
A legal max price, like rent control.
If the price rises, what happens to the quantity demanded?
It decreases.
Give an example of the demand curve shifting to the right
NA
What causes a surplus?
Price above equilibrium.
If PED > 1, what is the product?
Elastic.
What is a price floor?
A legal minimum price, like minimum wage.
Why does the supply curve slope upward?
Producers are willing to supply more at higher prices.
What are factors for supply?
Change in goods, change in resources, technology, # of Sellers, Expectations
How does the market respond to a shortage?
Prices rise.
Name one inelastic good.
Gasoline, insulin, salt.
What happens with a price floor above equilibrium?
Surplus.
What causes movement along the demand curve?
A change in the product’s own price.
Give a real-world example of a demand shifter.
NA
What happens to equilibrium when demand increases?
Both price and quantity increase.
How is revenue affected if price rises and demand is inelastic?
Revenue increases.
Why do price ceilings cause shortages?
Demand exceeds supply due to low prices.
Give an example of the Law of Demand in your daily life.
NA
What is the difference between a change in demand and quantity demanded?
Demand shift = new curve; quantity demanded = movement on same curve.
What happens when both supply and demand decrease?
Quantity falls; price effect depends on the magnitude of shifts.
What formula is used to calculate elasticity?
% change in quantity ÷ % change in price (or midpoint formula).
Give a real example of a government setting a price floor.
Minimum wage law.