Chapter 4

Question 1

What is the law of demand ?

Answer 1

With other things remaining the same, the higher the price of the good, the lower the quantity will be and the lower the price, the higher the quantity

Question 2

What are the determinants of demand ?

Answer 2

• Price
• Prices of related goods (complements and substitutes)
• income of households
• consumers taste/preference
• number of consumers

Question 3

What is the law of supply?

Answer 3

With other things remaining the same, the higher the price of the good, the greater the quantity supplied and vise versa

Question 4

What are the determinants of supply ?

Answer 4

• Prices of productive resources
• Prices of related goods
• Expected future Prices
• Number of suppliers
• Technology
• The state of nature

Question 5

What is consumer surplus ?

Answer 5

When consumers pay less and receive more value for their money’s worth

Question 6

What is producer surplus ?

Answer 6

When producers are willing to supply units of the product at less than the market price