2.1 Demand and supply curves

Question 1

What is effective demand?

Answer 1

It is the quantity that consumers are willing to buy at the current market price

Question 2

What is individual demand?

Answer 2

It is the quantity of a good or service bought at a certain price at one point in time

Question 3

What is market demand

Answer 3

It is the sum of all the individual demands on the market

Question 4

What causes movement along a demand curve?

Answer 4

There is expansion and contraction of demand. Only changes in price will cause movements along the demand curve

Question 5

Determinants that shift the demand curve? (Pneumonic)

Answer 5

PIIRATES
Population - the larger the population the higher the demand
Income - More disposable income means higher demand
Interest rates - Lower interest rates mean more demand
Related goods - Substitutes and Compliments. If the price of a substitute increases, demand for your product increases. If the price of complement increases, demand for your product will decrease
Advertising - increase demand
Tastes and fashions - IF consumer tastes change, the curve will have to shift
Expectations - if they expect the price of something to increase in the future they are more likely to buy right now increasing demand
Seasons - Demand changes according to the season

Question 6

What is individual supply?

Answer 6

It is the supply producers are willing and able to sell at a given price in a given period of time

Question 7

What is market supply?

Answer 7

It is the sum of all individual supply in a market

Question 8

Why are supply curves upward sloping?

Answer 8

This is as if price increases, t is more profitable for firms to supply the good, so supply increases

Question 9

What causes movement along a supply curve

Answer 9

Only changes in price cause expansion and contraction of supply

Question 10

Determinants that shift the supply curve? (Pneumonic)

Answer 10

PINTSWC
Productivity - higher productivity shifts supply to the right
Indirect taxes - they decrease supply
Number of firms - more firms means more supply
Technology - More advanced tech means more supply
Subsidies - can cause an outward shift in supply
Weather - favourable conditions cause an increase in supply
Costs of production - the lower the costs of production the higher the supply