What is demand in economics?
The quantity of resources consumers are willing to buy at a given price.
What happens to quantity demanded when price decreases?
Quantity demanded increases.
What happens to quantity demanded when price increases?
Quantity demanded decreases.
What is supply in economics?
The quantity of resources sellers are willing to sell at a given price.
What happens to quantity supplied when price increases?
Quantity supplied increases.
What happens to quantity supplied when price decreases?
Quantity supplied decreases.
What is the equilibrium price in a market?
The price where supply equals demand.
Why do flexible prices balance supply and demand in perfect competition?
Because buyers and sellers are price takers.
What is consumer surplus in economic terms?
The difference between the maximum price a consumer was willing to pay and the equilibrium price.
How is producer surplus defined?
The difference between the equilibrium price and the minimum price a producer was willing to sell.
What is an exogenous shock in economics?
An external, often unpredictable event or policy changing supply or demand quantities.
How does a positive supply or demand shock affect the quantity?
It increases the affected quantity and shifts its curve to the right.
How does a negative supply or demand shock affect the quantity?
It decreases the affected quantity and shifts its curve to the left.
What market condition occurs when supply is lower than demand?
A shortage or underproduction occurs.
What market condition occurs when supply is higher than demand?
A surplus or overproduction occurs.
What happens to prices when there is a surplus in the market?
Prices decrease.
How does a surplus affect demand and supply?
Demand increases and supply decreases.
What condition is reached after prices adjust due to a surplus?
Supply equals demand.
What happens to prices when there is a shortage in the market?
Prices increase.
How does a shortage affect demand and supply?
Demand decreases and supply increases.
What condition is reached after prices adjust due to a shortage?
Supply equals demand.
What is information asymmetry in a market context?
A situation where buyers or sellers lack full information about goods or exchange conditions.
When does adverse selection occur in a contract process?
Before a contract is made.
What causes adverse selection in markets?
Poorly informed buyers choosing low-quality goods because they cannot observe quality.
What is moral hazard in economic contracts?
An agent taking risks or changing behavior after a contract because they don't bear full costs.
For which goods is demand relatively insensitive to price?
Essential and difficult-to-replace goods such as eggs or fuel.
For which services is demand more sensitive to price?
Non-essential and easily substitutable services such as restaurant meals.
Besides price, what does supply depend on at a given price?
Production costs, stock of productive resources, natural hazards, and expected demand.
What is the equilibrium price in the cocoa market example?
3 thousand dollars per tonne.
What is the equilibrium quantity in the cocoa market example?
6 tonnes.
What formula calculates the area of a triangle for collective surplus?
(base × height) divided by 2.
What is the total surplus when consumer and producer surpluses are each 140 €?
280 €.
What effects does a tax on sodas have on price, producer revenue, and quantity?
It raises consumer prices, lowers producer revenue if not fully passed on, and reduces quantity exchanged.
How can public authorities address information asymmetries?
Through controls, sanctions, information, and prevention.
What can labour inspection do to undeclared work?
Sanction it with fines.
How does labour inspection protect workers?
By safeguarding their rights and limiting unfair competition.
Why can insurance increase moral hazard?
Because being well insured may encourage less cautious behavior.
Answer 16 questions on Competitive Market Equilibrium and Failures.
1. Supply refers to which economic quantity?
2. Concerning the law of supply, select the accurate statement(s):
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