REVIEW QUESTIONS
- Why do economists use the ceteris paribus assumption?
- In an analysis of the market for paint, an economist discovers the facts listed below: State whether each of these changes will affect supply or demand, and in what direction.
- There have recently been some important cost-saving inventions in the technology for making paint.
- Paint is lasting longer, so that property owners need not repaint as often.
- Because of severe hailstorms, many people need to repaint now.
- The hailstorms damaged several factories that make paint, forcing them to close down for several months.
- If the price is above the equilibrium level, would you predict a surplus or a shortage? If the price is below the equilibrium level, would you predict a surplus or a shortage? Why?
- When the price is above the equilibrium, explain how market forces move the market price to equilibrium. Do the same when the price is below the equilibrium.
- What is the difference between the demand and the quantity demanded of a product, say milk? Explain in words and show the difference on a graph with a demand curve for milk.
- What is the difference between the supply and the quantity supplied of a product, say milk? Explain in words and show the difference on a graph with the supply curve for milk.
- When analyzing a market, how do economists deal with the problem that many factors that affect the market are changing at the same time?
- Name some factors that can cause a shift in the demand curve in markets for goods and services.
- Name some factors that can cause a shift in the supply curve in markets for goods and services.
- How does one analyze a market where both demand and supply shift?
- What causes a movement along the demand curve? What causes a movement along the supply curve?