Question

crash course economics #4 - supply and demand

1. what is a market?
2. what is the key to markets? what does this mean?
3. competitive markets are pretty great about ____ or distributing our __ resources toward their most ____ use.
4. what are price signals?
5. what is the law of demand? where is this shown on the graph?
6. what is the law of supply? where is this shown on the graph?
7. create a supply and demand curve below.
8. what is the difference between a surplus and a shortage, in economic terms?
9. draw a supply and demand curve below and identify where a surplus and a shortage would be.
10. what is the equilibrium price? what about equilibrium quantity?
11. show where the equilibrium price and quantity is on your graph in #9.
12. what are the four things that can happen in a market?

Explanation:

1. A market is an institution or arrangement that brings together buyers and sellers to interact and exchange goods, services, or resources.
2. The key to markets is competition. It means that multiple buyers and sellers interact, which drives efficiency and innovation as they strive to gain an advantage.
3. Competitive markets are great about allocating or distributing our scarce resources toward their most valuable use.
4. Price signals are information conveyed by prices about the relative scarcity or abundance of goods and services. High prices signal scarcity and encourage producers to supply more, while low - prices signal abundance and may lead to reduced production.
5. The law of demand states that, all other things being equal, as the price of a good or service increases, the quantity demanded decreases, and vice - versa. On a graph, it is shown as a downward - sloping curve with price on the vertical axis and quantity on the horizontal axis.
6. The law of supply states that, all other things being equal, as the price of a good or service increases, the quantity supplied increases, and vice - versa. On a graph, it is shown as an upward - sloping curve with price on the vertical axis and quantity on the horizontal axis.
7. To create a supply and demand curve: Draw a vertical axis labeled "Price" and a horizontal axis labeled "Quantity". Draw a downward - sloping demand curve (D) and an upward - sloping supply curve (S).
8. A surplus occurs when the quantity supplied is greater than the quantity demanded at a given price. A shortage occurs when the quantity demanded is greater than the quantity supplied at a given price.
9. Draw a supply and demand curve as in #7. A surplus is the area above the equilibrium point and between the supply and demand curves (where supply exceeds demand). A shortage is the area below the equilibrium point and between the supply and demand curves (where demand exceeds supply).
10. The equilibrium price is the price at which the quantity demanded equals the quantity supplied. The equilibrium quantity is the quantity that is bought and sold at the equilibrium price.
11. On the graph in #9, the equilibrium price and quantity are at the intersection point of the supply and demand curves. The vertical coordinate of the intersection is the equilibrium price, and the horizontal coordinate is the equilibrium quantity.
12. Four things that can happen in a market are: an increase in demand (shifts the demand curve to the right), a decrease in demand (shifts the demand curve to the left), an increase in supply (shifts the supply curve to the right), a decrease in supply (shifts the supply curve to the left).

Answer:

1. An institution or arrangement for buyers - sellers exchange.
2. Competition; it drives efficiency and innovation.
3. Allocating; scarce; valuable
4. Information about resource scarcity/abundance via prices.
5. Price up, quantity demanded down and vice - versa; downward - sloping curve on graph.
6. Price up, quantity supplied up and vice - versa; upward - sloping curve on graph.
7. Draw vertical "Price" and horizontal "Quantity" axes, then downward - sloping D and upward - sloping S curves.
8. Surplus: quantity supplied > quantity demanded; Shortage: quantity demanded > quantity supplied.
9. Draw S and D curves; surplus above equilibrium between S and D, shortage below equilibrium between S and D.
10. Price at quantity demanded = quantity supplied; quantity bought/sold at equilibrium price.
11. At intersection of S and D curves; vertical for price, horizontal for quantity.
12. Increase in demand, decrease in demand, increase in supply, decrease in supply.