Student Name: Moin Uddin Ahmed Student ID: 11925

A1 - Supply and Demand

Questions

Q 1. Define demand. Define supply. In your answers, explain the difference between demand
and quantity demanded and between supply and quantity supplied.

Demand:
Consumer's desire to purchase goods and services and willingness to pay a price for a specific
good or service

Supply:
Supply is the willingness and ability of producers to create goods and services to take them to
market.

Demand Quantity Demand

Total amount of a good or service that
The quantity of a good that consumers are consumers demand over a given interval of time. It
willing and able to purchase at various prices depends on the price of a good or service in a
during a given period of time.  marketplace

Economic term that refers to the amount of Quantity demanded in economics is the amount of a
products or services that consumers wish to particular good or service consumers demand and are
purchase at any given price level. driven to purchase based on the product's

Supply Quantity supplied.

Quantity supplied refers to the amount of the good
Supply describes the economic relationship businesses provide at a specific price. So, quantity
between the good’s price and how much supplied is an actual number. Economists use the
businesses are willing to provide.  term supply to refer to the entire curve. 
Supply is a schedule that shows the The supply curve is an equation or line on a graph
relationship between the good’s price and showing the different quantities provided at every
quantity supplied, holding everything else possible price.
constant.

Q 2. List the key nonprice factors that influence demand.

 Income
 Price of related goods
 Tastes and preference
 Expectation of future price
 Population

Instructor: Asif Z. Warsi Page 1

Student Name: Moin Uddin Ahmed Student ID: 11925

Q 3. List the key nonprice factors that influence supply.

 Technology
 Natural Condition
 Government Policies
 Transportation Issues
 Cost of production

Q 4. Define comparative statics analysis. How does it compare with sensitivity analysis or what-
if analysis used in finance, accounting, and statistics?

Comparative statics is a method used to analyses the result of changes in a model's exogenous

parameters by comparing the resulting equilibrium to the original one

Comparative analysis compares two or more datasets in order to support a hypothesis or

theory. In this lesson, we discuss the definition of this term and how it is applied by using an
example of changes in the Earth's temperature.

Sensitivity analysis:

The technique used to determine how independent variable values will impact a particular
dependent variable under a given set of assumptions is defined as sensitive analysis. Its usage
will depend on one or more input variables within the specific boundaries, such as the effect
that changes in interest rates will have on a bond’s price.

Q 5. Define the rationing function of price. Why is it necessary for price to serve this function in
the market economy?

The price in a competitive market serves two very important functions, rationing and allocating.

The rationing function relates to the buyers of the good. Price is used to ration the limited
quantity of a good among the various buyers who would like to purchase it.

Necessary for price to serve this function in the market economy:-

The price of goods plays a crucial role in determining an efficient distribution of

resources in a market system.

 Price acts as a signal for shortages and surpluses which help firms and
consumers respond to changing market conditions.
 If a good is in shortage price will tend to rise. Rising prices discourage demand,
and encourage firms to try and increase supply.

Instructor: Asif Z. Warsi Page 2

Student Name: Moin Uddin Ahmed Student ID: 11925

 If a good is in surplus price will tend to fall. Falling price encourage people to
buy, and cause firms to try and cut back on supply.
 Prices help to redistribute resources from goods with little demand to goods
and services which people value more.

Q 6. Define the guiding or allocating function of price

The interaction of buyers and sellers in free markets enables goods, services, and resources to
be allocated prices. Relative prices, and changes in price, reflect the forces of demand and
supply.

The effect of such a price rise is to discourage demand, conserve resources, and spread out

Instructor: Asif Z. Warsi Page 3