Demand and Supply Analysis
FAQ
Q1.What factors can cause a shift in the demand curve?
Ans: Several factors can cause the demand curve to shift, including changes in consumer income, preferences, prices of related goods (substitutes and complements), expectations of future prices, and the number of buyers in the market. For example, an increase in consumer income generally shifts the demand curve for normal goods to the right.
Q2.How does a change in the price of a good affect its quantity demanded?
A: A change in the price of a good affects its quantity demanded according to the law of demand, which states that there is an inverse relationship between price and quantity demanded. As the price of a good decreases, the quantity demanded typically increases, and vice versa, assuming all other factors remain constant.
Q3. What is the difference between a movement along the supply curve and a shift of the supply curve?
Ans: A movement along the supply curve occurs when there is a change in the quantity supplied due to a change in the good’s price. In contrast, a shift in the supply curve happens when there are changes in other factors such as production costs, technology, taxes, subsidies, or expectations, leading to a change in supply at every price level.
Q4. How do equilibrium price and quantity change when there is an increase in both demand and supply?
Ans: When both demand and supply increase, the equilibrium quantity will definitely increase. However, the effect on the equilibrium price depends on the relative magnitude of the shifts. If the increase in demand is greater than the increase in supply, the price will rise. If the increase in supply is greater, the price will fall. If they increase equally, the price may remain unchanged.
Q5.What are the potential effects of a price ceiling on a market?
Ans: A price ceiling set below the equilibrium price can lead to a shortage, as the quantity demanded exceeds the quantity supplied at the ceiling price. This can result in rationing, black markets, and a decrease in the quality of goods and services as suppliers may not cover production costs. A common example is rent control in housing markets.
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