Question

The "Law of Demand" says that, all else equal,

A- None of these.

B- When prices rise, people buy less.

C- There are some products that people will always buy, no matter the price.

D- When incomes go up, people buy more.

A rightward shift of the whole demand curve means

A- people want to buy less at every price.

B- people want to buy more because the price went down.

C- people want to buy more because the price went up.

D- people want to buy more at every price.

A rightward shift of the whole supply curve means

A- there is less being supplied because the price has go up.

B- there is more being supplied because the price has gone up.

C- there is more supplied at every price.

D- there is less supplied at every price.

The equilibrium price causes

A- None of these.

B- all potential sellers to be able to make a profit selling the product.

C- the amount people want to buy to equal the amount people want to sell.

D- all potential buyers to be able to afford the product.

If the current market price is above the equilibrium price, there will be a __________ and this will put ___________ pressure on prices.

A- shortage; upward

B- shortage; downward

C- surplus; downward

D- surplus; upward

Answer 1

The law of demand states that when the price of the good falls, the quantity demanded of the good rises and vice versa, ceteris paribus. This means theat, other factors affecting demand must not change and if only the price of the good changes it has an inverse affect on the quantity demanded. thus, the law of demand says that, all else equal, when price rise, people buy less.

When the factors affecting demand other than the price of the good changes, we see a shift in the demand curve. When there is a favorable change in the factor affecting deamand of a good (OTHER THAN THE PRICE OF THE GOOD), there is an increase in the demand of the good this will shift the demand curve to the right. So a rightward shift in the demand curve would mean that the people want to buy more at every price.

The supply curve is upward sloping as there is a direct relationship between the price of the good and the quantity supplied. When there is a favorable change in the factors affecting supply (FACTORS OTHER THAN THE PRICE OF THE GOOD), there will be an increase in supply and the supply curve will shift to the right. Thus, a rightward shift in the supply curve means there is more supplied at every price.

A market equilibrium is achieved at the intersection of the demand and supply curves. At this point, the price level is known as the equilibrium price. It is achieved when the quantity demanded by the consumers equals the quantity supplied by the producers. Thus, the equilibrium price causes the amount people want to buy equal the amount people want to sell.

If the current market price is above the equilibrium, the people would ant to buy less due to an increased price and the producers would want to sell more to earn more profits due to the same reason. thus, the quantity demanded will be less than the quantity supplied and there will be a situation of surplus.

Now since there is surplus in the economy, the prices will be forced too fall until the quantity demanded equals the quantity supplied and the equilibrium price is reached. Thus, this will put a downward pressure on prices.