Interpret what an increase in demand and an increase in supply mean. Discuss the causes of an increase in demand and an increase in supply. How are increases in demand and supply expressed graphically?
An increase in demand means buyers will buy more at any price; or are willing and able to pay more to get any given quantity. Increases in demand can be caused by increases in tastes for the product, an increase in incomes (if the product is normal), an increase in the price of a substitute, a lower priced complement, and expectations of a higher future price. There are many other factors that could cause an increase in demand. An increase in demand is reflected graphically as a rightward shift of the demand curve.
An increase in supply means sellers will put more up for sale at any price; or are willing and able to accept a lower price to make any given quantity available for sale. Increases in supply are generally caused by anything that reduces costs of production (e.g. increases in technology, lower resource costs) or increases in the number of sellers. An increase in supply is reflected graphically as a rightward shift of the demand curve.
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The interest rate thought to have the most important impact on aggregate demand is the
A) short-term interest rate. B) T-bill rate. C) rate on 90-day CDs. D) long-term interest rate.
High profits in some risky industries attract additional entrepreneurs to those industries.
Answer the following statement true (T) or false (F)
Assuming the firm in the graph is producing Q1 and charging P3, it is likely:
These are the cost and revenue curves associated with a firm.
A. in long-run equilibrium.
B. an efficient outcome.
C. not maximizing profits.
D. operating at a loss.
Suppose that Paola Flygare, producer of the Flygare fiberglass bass boat, produces 8,000 bass boats, but consumers want 13,000 bass boats. Assuming other producers have also underproduced for the market, the most plausible consequence is
a. an increase in overall production and an increase in the economy's is unemployment b. a cutback in overall production and an increase in the economy's unemployment c. an increase in real GDP and a decrease in the economy's unemployment d. an increase in real GDP and an increase in the economy's unemployment e. no change, because Flygare will not alter its production plans due to short-run market changes