CIA4U – Grade 12 Economics – Chapter 2 test

Economics

Ch2

  • Demand is a relationship between a product’s price and quantity demanded.
    • Demand is shown using a schedule or curve.
    • The law of demand states that price and quantity demanded are inversely related.
    • Market demand is the sum of quantities demanded by all consumers in a market.
  • Changes in demand:
    • are shown by shifts in the demand curve
    • are caused by changes in demand factors
  • Demand factors include the following:
    • The number of buyers (an increase causes a rightward demand shift)
    • Income
      • For normal products, an increase causes a rightward demand shift.
      • For inferior products, an increase causes a leftward demand shift.
  • Prices of other products
    • For substitute products, a rise in the other product’s price causes a rightward demand shift.
    • For complementary products, a rise in the other product’s price causes a leftward demand shift.
  • Consumer preferences
  • Consumer expectations
  • Changes in quantity demanded:
    • are shown by movements along demand curve
    • are caused by price changes
  • Supply:
    • is a relationship between a product’s price and quantity supplied
    • is shown using a schedule or curve
  • The law of supply states there is a direct relationship between price and quantity supplied.
  • Changes in supply:
    • are shown by shifts in the supply curve
    • are caused by changes in supply factors
  • Supply factors include the following factors:
    • Number of producers (an increase causes a rightward supply shift)
    • Resource prices (an increase causes a leftward supply shift)
    • State of technology (an improvement causes a rightward supply shift)
    • Prices of related products (an increase causes a leftward supply shift)
    • Changes in nature (an improvement causes a rightward shift for some products)
    • Producer expectations (an expectation of lower prices in the future causes an immediate rightward supply shift)
  • Changes in quantity supplied:
    • are shown by movements along the supply curve
    • are caused by price changes
  • When a product is in surplus:
    • there is excess supply
    • price is pushed down
  • When a product is in shortage:
    • there is excess demand
    • price is pushed up

Changes in Equilibrium

  • A rightward demand shift pushes up both equilibrium price and quantity.
  • A leftward demand shift pushes down both equilibrium price and quantity.
  • A rightward supply shift pushes equilibrium price down and equilibrium quantity up.
  • A leftward supply shift pushes equilibrium price up and equilibrium quantity down.
  • A simultaneous rightward shift in demand and supply raises equilibrium quantity, but the effect on equilibrium price depends on the relative sizes of the two shifts.
  • if demand shifts rightward more than supply, then price rises
  • if supply shifts rightward more than demand, then price falls
  • A simultaneous rightward shift in demand and leftward shift in supply raises equilibrium price, but the effect on equilibrium quantity depends on the relative sizes of the two shifts.
    • if supply shifts leftward more than demand shifts rightward, then quantity falls
    • if demand shifts rightward more than supply shifts leftward, then quantity rises
  • Jevons devised the utility-maximizing rule
    • this rule states a consumer should reach the same marginal utility per dollar for all products consumed