You are on page 1of 2


) distinguish between a movement along the demand/supply curve and a shift of the
demand/supply curve

The movement in demand curve depicts the change in both the factors i.e. the price and quantity
demanded, from one point to another. The can be in any of the two directions, an upward
movement indicates a fall in demand due to increase in price while a downward movement shows
expansion in demand, meaning the demand for the product or service goes up because of the fall
in prices. A shift in the demand curve on the other hand changes in demand at each possible price,
owing to change in one or more non-price determinants such as the price of related goods, income,
taste & preferences and expectations of the consumer. Whenever there is a shift in the demand
curve, there is a shift in the equilibrium point also. The demand curve shifts in any of the two sides,
it can either be a rightward shift where it represents an increase in demand, due to the favorable
change in non-price variables, at the same price. It can also be a leftward shift which indicates a
decrease in demand when the price remains constant but owing to unfavorable changes in
determinants other than price.
A movement along the supply curve means that the supply relationship remains consistent.
Therefore, it will occur when the price of the good changes and the quantity supplied changes in
accordance to the original supply relationship. In other words, a movement occurs when a change
in quantity supplied is caused only by a change in price, and vice versa. a shift in the supply curve
implies that the original supply curve has changed, meaning that the quantity supplied is effected
by a factor other than price. A shift in the supply curve would occur if, for instance, a natural
disaster caused a mass shortage of hops; beer manufacturers would be forced to supply less beer
for the same price.

5.) Define the ff:

a. Ceiling price - Price ceiling is a situation when the price charged is more than or less than
the equilibrium price determined by market forces of demand and supply.
b. Floor price - Price floor is a situation when the price charged is more than or less than the
equilibrium price determined by market forces of demand and supply.
c. Market power - Market power refers to the ability of a firm (or group of firms) to raise and
maintain price above the level that would prevail under competition is referred to as market
or monopoly power. The exercise of market power leads to reduced output and loss of
economic welfare.
d. Market failure - a situation where, in any given market, the quantity of a product demanded
by consumers does not equate to the quantity supplied by suppliers.
e. Externalities (positive and negative)
- Positive = Economic activities that have positive effects on unrelated third parties are
considered positive externalities. As we learned above, they may be present in the form
of production or consumption externalities
- Negative = Negative externalities are defined as economic activities that have negative
effects on unrelated third parties. They can be divided further into negative production
and negative consumption externalities.