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Chapter Review Chapter 3: Demand, Supply and Price

  1. An individual's demand curve gives the quantity demanded of a good at each possible price. It normally slopes down, which means that the person demands a greater quantity of the good at lower prices and a lesser quantity at higher prices.
  2. The market demand curve gives the total quantity of a good demanded by all individuals in an economy at each price. As the price rises, demand falls, both because each person demands less of the good and because some people exit the market.
  3. A firm's supply curve gives the amount of a good the firm is willing to supply at each price. It is normally upward sloping, which means that firms supply a greater quantity of the good at higher prices and a lesser quantity at lower prices.
  4. The market supply curve gives the total quantity of a good that all firms in the economy are willing to produce at each price. As the price rises, supply rises, both be¬ cause each firm supplies more of the good and because some additional firms enter the market.
  5. The law of supply and demand says that in competitive markets, the equilibrium price is that price at which quantity demanded equals quantity supplied. It is represented on a graph by the intersection of the demand and supply curves.
  6. A demand curve shows only the relationship between quantity demanded and price. Changes in tastes, in demographic factors, in income, in the prices of other goods, in information, in the availability of credit, or in expectations are reflected in a shift of the entire demand curve.
  7. A supply curve shows only the relationship between quantity supplied and price.
    8. Changes in factors such as technology, the prices of inputs, the natural environment, expectations, or the availability of credit are reflected in a shift of the entire supply curve.
  8. It is important to distinguish movements along a demand curve from shifts in the demand curve, and movements along a supply curve from shifts in the supply curve.
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