1.2.3 Price determination

• Lower costs of raw materials shift the supply curve to the right.
• Match each factor with its impact on supply:

  Cost of Production ↔️ Lower costs increase supply

  Technology ↔️ Advances improve efficiency

  Number of Suppliers ↔️ More suppliers increase supply

  Government Policies ↔️ Subsidies increase supply
• What is the condition for market equilibrium in terms of quantity demanded and supplied?

  $Q_{d} =$$Q_{s}$
• Market equilibrium occurs where the supply and demand curves intersect.
• At a price of $5, the quantity demanded equals the quantity supplied
• Arrange the following steps in the process of market equilibrium:

  1️⃣ The demand curve and supply curve intersect

  2️⃣ The quantity demanded equals the quantity supplied

  3️⃣ The equilibrium price and quantity are determined
• What happens to the equilibrium price and quantity when demand increases?

  Both increase
• What is the primary mechanism by which market prices are established in price determination?

  Interaction of supply and demand
• Price determination involves finding the equilibrium price and quantity
• Graphically, market equilibrium occurs where the supply and demand curves intersect.
• Match the factors that shift supply and demand curves with their respective categories:

  Consumer Income ↔️ Demand

  Cost of Production ↔️ Supply
• What happens to the equilibrium price and quantity if consumer income increases?

  Both increase
• In a competitive market, supply and demand establish a price that eliminates shortages or surpluses.
• The demand curve slopes downward, illustrating the inverse relationship between price and quantity
• What is the economic principle that states that as the price of a good decreases, the quantity demanded increases?

  Law of demand
• The law of demand explains why the demand curve slopes downward.
• What is the law of supply?

  Price increases, quantity supplied increases
• The supply curve slopes upward, illustrating the positive relationship between price and quantity
• A decrease in the cost of raw materials shifts the supply curve to the right.
• What happens to supply when the cost of production decreases?

  Increases
• Advances in technology improve efficiency and increase supply
• How do taxes affect the supply curve?

  Reduce supply
• A decrease in the cost of raw materials shifts the supply curve to the right.
• What is the purpose of price determination?

  Establish market price
• The equilibrium price and quantity are found at the intersection of the supply and demand curves
• Consumer preferences are a factor that shifts the supply curve.

  False
• What happens to the equilibrium price and quantity when consumer income increases?

  Both increase
• In a competitive market, supply and demand work together to clear the market
• What does the downward slope of the demand curve illustrate?

  Law of demand
• The law of supply states that as price increases, quantity supplied decreases.

  False
• What is the effect of lower raw material costs on the supply curve?

  Shifts to the right
• Market equilibrium occurs when quantity demanded equals quantity supplied
• An increase in consumer income shifts the demand curve to the left.

  False
• What happens to the equilibrium price when consumer income rises?

  Increases
• When consumer income rises, the demand curve shifts to the right
• Which factor shifts the supply curve to the right?

  Cost of production
• What does the demand curve illustrate about consumer behavior?

  Law of demand
• The demand curve slopes downward because as price decreases, quantity demanded increases
• The demand curve slopes downward because it illustrates the law of demand
• The demand curve shows the quantity consumers are willing and able to purchase at different price levels.