HSC Economics — Topic 1
Supply & Demand — Flashcards & Quiz
Supply and demand is the foundational model of HSC Economics, explaining how prices are determined in competitive markets. You need to understand the laws of supply and demand, factors that shift each curve (income, preferences, input costs, technology), and how equilibrium price and quantity are determined. Elasticity — price, income, and cross-price — measures the responsiveness of quantity to changes. Exam questions frequently present scenarios requiring you to draw diagrams, identify shifts, and predict new equilibrium outcomes.
Sample Flashcards
Q1: What is the law of demand?
As the price of a good increases, the quantity demanded decreases, ceteris paribus. This creates a downward-sloping demand curve.
Q2: What is the law of supply?
As the price of a good increases, the quantity supplied increases, ceteris paribus. This creates an upward-sloping supply curve.
Q3: What is market equilibrium?
Market equilibrium occurs where the supply and demand curves intersect. At this point, the quantity demanded equals the quantity supplied, and there is no surplus or shortage.
Q4: Name three factors that shift the demand curve.
Changes in consumer income, consumer preferences or tastes, and the price of substitute or complementary goods all shift the demand curve.
Q5: What is price elasticity of demand (PED)?
PED measures the responsiveness of quantity demanded to a change in price. PED = % change in Qd / % change in P. If |PED| > 1, demand is elastic; if |PED| < 1, demand is inelastic.
Sample Quiz Questions
Q1: A decrease in the cost of raw materials will cause the supply curve to:
Answer: Shift to the right (increase in supply)
Lower input costs make production cheaper, so producers are willing to supply more at every price level, shifting the supply curve rightward.
Q2: What happens to equilibrium price and quantity when demand increases while supply remains constant?
Answer: Equilibrium price rises and equilibrium quantity rises
An increase in demand shifts the demand curve rightward, creating a new equilibrium at a higher price and higher quantity.
Q3: If the price of a substitute good falls, what happens to demand for the original good?
Answer: Demand for the original good decreases (shifts left)
When a substitute becomes cheaper, consumers switch to it, reducing demand for the original good and shifting its demand curve leftward.
Last updated: March 2026 · 5 flashcards · 3 quiz questions