Demand Supply Quantity Price
Decrease Decrease Indeterminate Decrease
Decrease Increase Decrease Indeterminate
Increase Decrease Increase Indeterminate
Increase Increase Indeterminate Increase
Mini-Review
- Where is the price floor located?
A. Above the equilibrium
B. Below the equilibrium
C. Below the market price
D. At the equilibrium price
E. None of the above - When the supply curve shifts right and the demand curve stays constant, what happens?
A. Prices rise and quantity falls.
B. Prices fall and quantity rises.
C. Prices are indeterminate.
D. Quantity is indeterminate.
E. Both price and quantity are indeterminate. - The area above the equilibrium price is also known as:
A. A surplus
B. A shortage
C. Scarcity
D. Price ceilings
E. Market price
Mini-Review Answers
- A.The price floor is located above the equilibrium market price. Its purpose is to prevent prices from dropping to
the undesirable equilibrium, or “market price.” - B.A supply increase initially leads to a surplus; therefore, producers lower prices and quantity is increased.
- A.Surpluses are located above the equilibrium price. When prices are above the market price, surpluses are
created because there isn’t enough demand.
Is It Elastic?
Elasticityis a measure of how a price responds to a change in either supply or demand. Economists use elasticity to
gauge the effectiveness of a price change for a good or service. If the price of a good or service does not change as a
result of supply or demand, it is said to be inelastic. (Elasticity is further discussed in Chapters 7 and 10.)
The law of demand tells us that consumers will buy more of a product at a lower price and less of a product at a higher
price. Elasticity tells us just how much or more the consumer will buy at each price level. This amount varies from
Part I: The Fundamentals