Chapter 2: Competitive Markets: Demand and Supply
1: Explain how the price mechanism reallocates resources when there is an increase in demand for a good or service.
2: With reference to the concept of excess demand, explain how a decrease in supply of a good would lead to a new market equilibrium.
3: Explain how an increase in the costs of factors of production would affect the market price and output of a good.
4: Using a production possibilities curve (PPC) diagram, explain why choices have to be made in all economics.
5: Explain how changes in price work to reallocate resources in a market.
6: Using diagram (s), explain the signaling and incentive functions of price.
7: Using diagrams, explain how a change in one of the determinants of demand might increase the price of rice and how a change in one of the determinants of supply might decrease the price of rice.