external influences - demand and supply

Question 1

define demand

Answer 1

the amount of a good/service that customers are willing and able to buy at any given price

Question 2

define supply

Answer 2

the amount of a good/service that sellers are willing and able to sell at any given price

Question 3

what is the relationship between demand and price?

Answer 3

inverse relationship
as price goes up, demand goes down

Question 4

what is the relationship between supply and price?

Answer 4

direct relationship
as supply goes up, price also goes up

Question 5

define equilibrium price

Answer 5

the situation in a market where demand is equal to supply i.e. both parties are happy. in theory, customers can buy what they want and shops have no unsold stock

Question 6

as demand increases what happens to price and quantity?

Answer 6

price: increases
quantity: increases

Question 7

as supply increases what happens to price and quantity?

Answer 7

price: decreases
demand: increases

Question 8

what does the equilibrium graph look like?

Answer 8

price on y axis
quantity on x axis
demand line goes down
supply line goes up
equilibrium is where they cross

Question 9

as demand increases what happens to price?

Answer 9

increases

Question 10

as demand increases what happens to quantity?

Answer 10

increases because demand is higher so suppliers will supply more to sellers

Question 11

as supply increases what happens to price?

Answer 11

decreases (to sell off old stock)

Question 12

as supply increases what happens to quantity?

Answer 12

increases because there’s more supply

Question 13

what are the factors of demand?

Answer 13

• price
• income
• Wealth
• Advertising, promotional offers and public relations
• Tastes and fashions
• Demographic changes (i.e. Population)
• Government action
• The price of other products:
  Substitutes
  Complements

Question 14

How is supply affected when price goes up?

Answer 14

supply increases

Question 15

what happens to the supply curve when price goes up and therefore supply too

Answer 15

there is movement up the curve

Question 16

how is supply affected if price goes down?

Answer 16

supply decreases

Question 17

what happens to the supply curve when price decreases and therefore supply too?

Answer 17

there is movement down the curve

Question 18

when cost decreases what happens to supply?

Answer 18

increases
there is an inverse relationship between supply and cost

Question 19

define cost?

Answer 19

the amount spent by a business making/supplying/buying the product

Question 20

define price?

Answer 20

the amount customers pay for a product

Question 21

how does price affect demand?

Answer 21

as price decreases, quantity increases
it is an inverse relationship

Question 22

how does income affect demand?

Answer 22

as income increases, demand increases
it is a direct relationship

Question 23

how does wealth affect demand?

Answer 23

when wealth increases, demand will also increase because people feel that they have more to spend

Question 24

how does an increase in wealth affect the demand curve?

Answer 24

shift to the right

Question 25

how does taste and fashion affect demand?

Answer 25

demand will increase as people want to be ‘in trend’

Question 26

how does trend and fashion affect the demand curve?

Answer 26

shift to the right

Question 27

how does advertising, promotional offers and public relations affect demand?

Answer 27

demand will increase as more people hear about the product/service and therefore want to buy it

Question 28

how does adverts, offers and public relations affect the demand curve?

Answer 28

shift to the right

Question 29

how do demographic changes affect demand?

Answer 29

demand will increase as more people require the products

Question 30

how is the demand curve affected when demographic changes?

Answer 30

shift to the right

Question 31

how does the price of other products - substitutes affect demand?

Answer 31

increase demand for the substitute as the main product might be too expensive or not available

Question 32

how does the demand curve change with substitutes?

Answer 32

supply curve doesn’t change for the increased price product (other than the price line rising), the curve will shift to the right of the substitute

Question 33

how do the price of other products - complements affect demand?

Answer 33

demand is increased for the complement as the price of the main product falls (as they can afford the complement)

Question 34

how do complements affect the demand curve?

Answer 34

price of one product will decrease, moving the dotted price line down, and the supply curve for the other will shift to the right because the price stays the same, but more are bought

Question 35

how does government action affect demand?

Answer 35

demand will increase, but sometimes it may cause demand to decrease (increase in healthy foods in keep fit campaign, but decrease in cigarette sales)

Question 36

how does government action affect the supply curve?

Answer 36

shift to the right if there is in increase in demand
shift to the left if there is a decrease in demand

Question 37

define tax

Answer 37

compulsory charges on individuals and organisations by the government

Question 38

as tax increases what happens to supply?

Answer 38

supply will decrease as the cost of the product becomes too expensive for the seller to purchase

Question 39

what are subsidies?

Answer 39

aka grants
payment from the government to businesses or individuals

Question 40

if a business is paid a subsidy what happens to supply?

Answer 40

supply will increase (usually a subsidy is given to a business in order to use for something specific e.g. solar panels)

Question 41

what are the 5 factors that affect supply?

Answer 41

cost, price, tax, subsidies, price of other products

Question 42

what are some types of taxes?

Answer 42

council
road
income
sugar
alcohol
sugar
inheritance
stamp duty
cigarette
corporation

Question 43

how does tax affect supply?

Answer 43

Supply decreases as tax increases. It is an inverse relationship

Question 44

how do subsidies (grants) affect supply?

Answer 44

Supply will increase as grants increases (because the government is paying money for the business to add something e.g., car charging points)

Question 45

how do price of other products (substitutes and complements) affect supply?

Answer 45

A fall in the price of one means supply will decreases. Meaning, the price of another stays the same but its supply will increase as the business buys more of it because it is more profitable to sell.

Question 46

How is excess shown on a graph?

Answer 46

draw an equilibrium graph, then if there is an increase in price draw a new dotted line above P. This line goes all the way to the end of the supply line. Then draw two dotted lines down from where the dotted line crosses the S and D lines. The triangle above is excess. Shade this in.

Question 47

How is shortage shown on a graph?

Answer 47

draw an equilibrium graph, then if there is a decrease in price draw a new dotted line below P. This line goes all the way to the end of the demand line. Then draw two dotted lines down from where the dotted line crosses the S and D lines. The triangle below is shortage. Shade this in.

Question 48

How can a business come out of excess?

Answer 48

if they lower the price of the product then more people will buy it, so the excess decreases.

Question 49

How can a business come out of a shortage?

Answer 49

increase the price of the product, then not as many people will buy it so the demand for it will decrease.