A demand schedule is a table that shows the relationship between the price f a good and the quality demanded and the demand curve is a graph of the relationship between the price of a good and the quantity demanded (Manama, p. 67). Consumers always demand more of a good at lower cost which results in greater quantity demanded. Curve slopes downward because a lower price increase the quantity demanded (Manama, p. 68). 3. Does a change in consumers’ taste lead to a movement along the demand curve or a shift in the demand curve? Does a change in price lead to a movement along the demand curve?
Explain your answer. A change in nonusers taste leads to a shift in the demand curve. Yes a change in price leads to movement along the demand curve. Any change that increase quantity demanded leads to shift in the demand curie which is an increase in demand (Manama, p. 69). 5. What are the supply schedule and the supply curve and how are they related? Why does the supply curve slope upward? The supply schedule is a table that shows the relationship between the price of a good and the quantity supplied. The supply curve is a graph of the relationship between the price of a good and quantity supplied Manama, p. ). 7. Define the equilibrium of a market. Describe the forces that move a market toward its equilibrium. Market equilibrium is the point at which the supply and demand curves interests. Market equilibrium can also be described as a situation in which various forces balance (p. 77). The actions of buyers and sellers naturally move markets towards the equilibrium of supply and demand (p. 77). 9. Describe the role of prices in the market. Prices bring markets into equilibrium. Price acts as a signal for shortages and surpluses which help firms respond to changing market conditions.
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When price is different from its equilibrium level, quantity supplied and quantity demanded are not equal. The results leads suppliers to adjust the price until equilibrium is restored. Prices are guidelines for economic decisions (Manama, p. 83). CHAPTER 5 1 . Define the price of elasticity of demand and the income elasticity of demand. Price elasticity is a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded by the percentage change in price.
Income elasticity of demand is used to describe how the quantity demanded responds to a change income (Manama, p. 90). 2. List and explain the four determinants of the price elasticity of demand discussed in the chapter. The availability of substitutes: if there are good substitutes they tend to have more elastic demand (Man kiwi, p. 90). Necessities verses luxuries: Necessities tend to have inelastic demands, whereas luxuries have elastic demands (Manama, p. 90). Definition of the Market: The elastic of demand in any market depends on how we draw the boundaries of the market.
Narrowly defined markets tends to have more elastic demand than broadly defined markets because it is easier to find close substitutes for narrowly defined goods. (Manama, p. 91). Time: if the price of gasoline goes up, you might buy a lot of gasoline or buy a smaller vehicle. Goods tend to have more elastic demand over longer time (Manama, p. 91 3. If the elasticity is greater than 1, is demand elastic or inelastic? If the elasticity equals zero, is demand perfectly elastic or perfectly inelastic? 6. What do we call a good with an income elasticity less than zero?
Zero elasticity is perfectly inelastic (Manama, p. 92). 7. How is the price elasticity of supply calculated? Explain what it measures. Economist compute the price elasticity of supply as the percentage change in the quantity supplied divided by the percentage change in price (Manama, p. 99). CHAPTER 6 1. Give an example of a price ceiling and an example of a price floor. Rent control is an example of price ceiling. Minimum wage is an example of price floor. 2. What mechanisms allocate resources when the price of a good is not allowed to bring supply and demand into equilibrium?