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Economics iGCSE > 2.3 + 2.4 - Demand + Supply > Flashcards

2.3 + 2.4 - Demand + Supply Flashcards

1
Q

Demand

A

Demand is the amount of a good/service that a consumer is willing & able to purchase at a given price in a given time period

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2
Q

Ineffective demand

A

If a consumer is willing to purchase a good, but cannot afford to

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3
Q

Individual demand

A

The demand of a good/service by an individual consumer

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4
Q

Market demand

A

The combination of all the individual demand for a good/service
- calculated by adding up the individual demand at each price level

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5
Q

The income effect

A

The change in consumption resulting from a change in real income

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6
Q

Demand curve features

A

Slope right to left (upwards)
- price: y axis
- quantity: x axis

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7
Q

Movements along the a demand curve

A

A change in quantity demanded as a result of changes in the price of the good only

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8
Q

Extension of demand

A

When quantity demanded for a good increases because its price falls; it is shown by a movement down the demand curve to the right

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9
Q

Contraction of demand

A

When quantity demanded for a good falls because its price rises; it is shown by a movement up the demand curve to the left

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10
Q

An increase in demand

A

A rise in demand at any given price, causing the demand curve to shift to the right (up)

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11
Q

A decrease in demand

A

A fall in demand at any given price, causes the demand curve to shift to the left (down)

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12
Q

Ceteris Paribus

A

A Latin phrase that means “all other things held constant”

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13
Q

What is the inverse relationship between the QD and price?

A
  • When the price rises the QD falls
  • When prices fall the QD rises
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14
Q

The 6 conditions of demand

A
  • Advertising/branding
  • Changes in real/disposable income
  • Changes in taste/fashion
  • Changes in the price of substitute goods
  • Changes in the price of complement goods
  • Changes in the population size/distribution
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15
Q

How does advertising affect demand?

A
  • The more the product is advertised, the more consumers are aware of it and will demand it more
  • There is a direct relationship between branding/advertising & demand
  • Advertising increases: demand increase (shifts to the right)
  • Advertising decreases: demand decreases (shifts to the left)
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16
Q

How does change to the levels of real income affect demand?

A
  • Determines how many goods/services can be enjoyed by consumers
  • There is a direct relationship between income & demand for goods/services
  • Real income increases: demand increases (shifts right)
  • Real income decreases: demand decreases (shifts left)
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17
Q

How do tastes and fashion affect demand?

A
  • If goods/services become more fashionable, demand will increase for them (same vice versa)
  • There is a direct relationship between consumer tastes and demand for goods/services
  • Product becomes more fashionable: demand increases (shifts right)
  • Product becomes less fashionable: demand decreases (shifts left)
18
Q

How does the size and distribution of population affect demand?

A
  • When the population size of a country changes over time, so will the demand for products
  • There is a direct relationship between population size and demand for goods/services
  • Demand will also change if there is a change to the age distribution in a country
    - different ages demand different goods/services e.g an ageing population will buy more hearing aids
  • Population increase: demand increases (shifts right)
  • Population decrease: demand decreases (shifts left)
19
Q

How does a change in the price of substitutes affect demand?

A
  • Consumers will buy the product which costs less as they provide the same purpose
  • There is a direct relationship between the price of substitutes and demand
  • Price of substitute increases: demand increases for other product (shifts right)
  • Price for substitute decreases: demand decreases for other product (shifts left)
20
Q

How does a change in the price of complements affect demand?

A
  • Complementary goods are bought to be used alongside the original product
  • There is an inverse relationship between the price of complementary products and demand
  • Price of complementary good increases: demand decreases for other product (shifts right)
  • Price of complementary good decreases: demand increases for other product (shifts left)
    - people will buy more of complementary product and so will want more of the other
21
Q

Supply

A

Supply is the amount of a good/service that a producer is willing & able to supply at a given price in a given time period

22
Q

Individual supply

A

The supply of a good or service by an individual producer

23
Q

Market supply

A

The combination of all the individual supply for a good/service
- calculated by adding up the individual supply at each price level

24
Q

Supply curve

A

slope left to right (upwards)
- y-axis: price
- x-axis: quantity

25
Q

What happens to supply as price rises?

A

The quantity supplied by producers extends because production becomes more profitable

26
Q

What happens to supply as price falls?

A

The quantity supplied by producers contracts because production becomes less profitable

27
Q

Movements along the supply curve

A

If price is the only factor that changes (ceteris paribus), there will be a change in the quantity supplied (QS)

28
Q

Extension of supply

A

A movement along the supply curve to the right (higher price & higher quantity supplied) - upwards

29
Q

Contraction of supply

A

Movement along the supply curve to the left (lower price & lower quantity supplied) - downwards

30
Q

An increase in supply

A

A rise in supply at any given price, causing the supply curve to shift to the right (downwards)

31
Q

A decrease in supply

A

A fall in supply at any given price, causing the supply curve to shift to the left (upwards)

32
Q

What 6 conditions effect quantity supplied?

A
  • Cost of production / factors of production
  • Indirect tax
  • Subsidies
  • New technology
  • Change in the number of firms in the industry
  • Weather events
33
Q

How does cost of production affect supply?

A
  • If the price of raw materials or other costs of production change, firms respond by changing supply
  • There is an inverse reaction
  • Increase COP: decreased supply (shifts left)
  • Decrease COP: increased supply (shifts right)
34
Q

How does the indirect tax of a country affect supply?

A
  • Any changes to indirect taxes change the cost of production for a firm & impact supply
  • Increased tax: decreased supply (shifts left)
  • Decreased tax: increased supply (shifts right)
35
Q

Indirect tax

A

A tax levied on one party (producers) but passed on to another for payment (consumers)

36
Q

How do subsidies affect supply?

A
  • Changes to producer subsidies directly impact the cost of production for the firm
  • Subsidy increases: supply increases (shifts right)
  • Subsidy decreases: supply decrease (shifts left)
37
Q

Subsidy

A

An amount of money paid by the government to a firm, per unit of output

38
Q

How does new technology generally affect supply?

A
  • New technology increases productivity and lowers costs of production
  • ageing technology can have the opposite effect
  • Technology increases: increased supply (shifts right)
  • Technology decreases: decreased supply (shifts left)
39
Q

How does the number of firms in an industry affect supply?

A
  • The entry and exit of firms into the market has a direct impact on the supply
  • e.g. if ten new firms start selling building materials in Hanoi, the supply of building material will increase
  • No. of firms increases: supply increases (shifts right)
  • No. of firms decreases: supply decreases (shifts left)
40
Q

How do weather events affect supply?

A
  • Droughts or flooding can cause a supply shock in agricultural markets
  • a drought will cause supply to decrease
  • unexpectedly good growing conditions can cause supply to increase
  • Drought: supply decreases (shifts left)
  • Good weather: supply increases (shifts right)

Economics iGCSE (27 decks)

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