SOLUTIONS TO SELF-CHECK QUESTIONS

2.1 Demand

1. A downward sloping demand curve means that buyers will demand less of a good the higher the price becomes.
2. The shape of a demand curve will be different depending on the market and the nature of the good being demanded. An upward sloping supply curve means that sellers are willing to supply more goods at higher prices.

2.2 Supply

1. The shape of supply curves will differ based on how easy it is to vary the level of supply in response to a price change. For example, a natural resource, of which there is a finite amount, may have a very steep supply curve, because of the difficulty in increasing production.
2. At equilibrium, quantity demanded and quantity supplied are equal to one another. In a shortage, quantity demanded exceeds quantity supplied. In a surplus, quantity supplied exceeds quantity demanded.

2.3 Equilibrium

1. Since $1.60 per gallon is above the equilibrium price, the quantity demanded would fall and the quantity supplied would rise. (These results are due to the laws of demand and supply, respectively.) The outcome of lower Qd and higher Qs would be a surplus in the gasoline market.
2. Prices are determined by a combination of the level of demand for a good and how much of that good is being supplied.
3. At equilibrium, quantity demanded and quantity supplied are equal to one another. In a shortage, quantity demanded exceeds quantity supplied. In a surplus, quantity supplied exceeds quantity demanded.
4. The equilibrium is the point where the demand curve and the supply curve cross.