Microeconomics: Supply and Demand Flashcards

A simultaneous decrease in both supply and demand for a good will definitely cause:

Answer: Equilibrium quantity to fall

When both supply and demand decrease, quantity falls unambiguously, but the price change is indeterminate without knowing the relative magnitudes.

If the price of steel rises significantly, what happens in the automobile market?

Answer: Supply of cars decreases

Steel is an input for automobiles, so a higher steel price raises production costs and shifts the supply curve for cars leftward (decreases supply).

A binding price floor set above the equilibrium price results in:

Answer: A surplus of the good

A price floor above equilibrium keeps the price artificially high, causing quantity supplied to exceed quantity demanded, creating a surplus.

Which scenario best illustrates a movement along the demand curve rather than a shift of the demand curve?

Answer: A good's own price rises, causing consumers to buy less

A change in a good's own price causes movement along the existing demand curve, while all other factors shift the curve itself.

In a competitive market, if quantity demanded exceeds quantity supplied at the current price, we would expect:

Answer: The price to rise until a new equilibrium is reached

A shortage (excess demand) creates upward pressure on price as buyers compete for scarce goods, driving price toward equilibrium.

An improvement in production technology for a good will most likely cause:

Answer: The supply curve to shift right

Better technology lowers production costs, making producers willing and able to supply more at every price, shifting the supply curve rightward.

If goods X and Y are complements and the price of X falls, what happens in the market for Y?

Answer: Demand for Y increases, raising Y's price

Complements are used together; a price decrease for X increases consumption of X, which increases demand for the complementary good Y, raising Y's equilibrium price.