The following are common errors students make when discussing supply and demand. What is the mistake in each?
a. At equilibrium, demand equals supply.
b. The quantity of demand is greater than the quantity of supply.
c. They move along the line from both ends to an equilibrium in the middle.
d. The increase in demand causes an increase in supply.
What will be an ideal response?
a. Demand never equals supply because the entire demand curve never equals the entire supply curve. At the equilibrium price, quantity demanded equals quantity supplied.b. Quantity of demand is a meaningless term in economics. The proper term is “quantity demanded.”c. This phrase is apparently an attempt to describe what happens with a supply and demand graph. However, the statement is unclear and is difficult to understand and does not describe the process whereby a market reaches an equilibrium.d. An increase in demand would lead to an increase in quantity supplied, but not an increase in supply. There would be a movement along the supply curve to a new quantity supplied at a higher price. Generally, only one curve, either supply or demand, will shift at one time, causing equilibrium to move along the other curve. One could correctly say that an increase in demand causes an increase in quantity supplied.
You might also like to view...
In a prisoner's dilemma game, the dominant strategy is to defect
Indicate whether the statement is true or false
In the above figure, at the equilibrium price and quantity, producer surplus is ________
A) $90 B) $60 C) $45 D) $30
If demand is unit elastic, revenue
A. and price rise and fall together. B. rises as price falls. C. falls as price rises. D. remains constant as price rises or falls.
If the equilibrium price of natural gas is $4 per thousand cubic feet and a price ceiling is imposed at $3 per thousand cubic feet, the result will be:
A. a surplus of natural gas. B. a shortage of natural gas. C. an accumulation of inventories of unsold gas. D. more natural gas available than what buyers want to buy.