ECON Chapter 3 PDF

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Econ chapter 3...

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Isaiah Johnson ECON1001 MON/WED 1:40 April 8, 2017 HW: Chapter 3

Discussion Questions 1.) Explain the law of demand. Why does a demand curve slope downward? How is market demand curve derived from individual demand curves? A: When prices begin to change because of the change of supply in a product, consumers will change the quantity they truly want for that product. If the price decreases, customers would want more of the item. If the price increases, a lesser quantity would be demanded. The demand curve sloping downward reflects the law of demand how people buy more of resource, product, or service when prices drop. Quantity demanded and price has a negative relationship. The market demand curve is derived from individual demand curves by basically horizontally adding the individual demand curves together. 2.) What are the determinants of demand? What happens to the demand curve when any of these determinants change? Distinguish between a change in demand and a movement along a fixed demand curve noting the cause(s) of each. A: The price of a commodity under consideration which basically the change in price causing movement along the product’s demand curve. When determinants change consumers’ tastes, number of buyers in the market, consumers’ incomes, the prices of related goods, and consumer expectations. A change in a demand curve is a shift of it to the right or left which is an increase or decrease. While quantity demanded is movement from one point to another point. Demand is a schedule or a curve and change in demand means a change of the schedule and shift of the curve. 3.) Explain the law of supply. Why does the supply slope curve upward? How is the market slope curve derived from the supply curves of individual producers? A: The law of supply has a relationship between quantity supplied and the price which is positive. As the price increases, the quantity of supplies rises as well. However, as price falls, the quantity supplied falls. Producers offer more of commodities due to the demand of products because they find it more profitable. Therefore, the supply curve will curve upward from the left to right. The market slope curve would be derived by horizontally adding the supply curves.

4.) What are the determinants of supply? What happens to the supply curve when any of these determinants change? Distinguish a change in supply and a change in the quantity supplied, noting the causes of each. A: The basic determinants of supply are resource prices, technology, taxes and subsidies, prices of other goods, producer expectations, and the number of the sellers in the market. A change in any one or more of these determinants of supply will move the supply curve for a product either right or left. A change in supply means a change in the schedule and a shift of the curve. A rise in supply shifts the curve to the right, as a decrease in supply shifts it to the left. The cause of a change in supply is a change in one or more of the determinants of supply. On the other hand, a change in quantity supplied is a movement from one point to another on a fixed supply curve. The change in the specified product that was considered is the cause of the movement. Review Questions 1.) What effect will each of the following have on the demand for small automobiles such as the Mini-Cooper and Fiat 500? A: (a) Demand Increases (b) Demand Increases (c) Demand Increases (d) Demand Decreases (e) Indeterminate 2.) True or False: A “change in quantity demanded” is a shift in the entire demand curve to the right or to the left. A: True 3.) What effect will each of the following have on the supply of auto tires? A: (a) Supply Increases (b) Supply Decreases (c) Supply Decreases (d) Supply Increases (e) Supply Increases (f) Supply Decreases (g) Supply Increases Problem #4 A: (a) Price Increases; Quantity Decreases (b) Price Decreases; Quantity Decreases (c ) Price Decreases; Quantity Increases (d) Price Indeterminate; Quantity Increases (e) Price Increases; Quantity Increases (f) Price Decreases; Quantity Indeterminate (g) Price Increases; Quantity Indeterminate (h) Price Indeterminate; Quantity Decreases...