Demand and Supply

Question 1

What is demand

Answer 1

The amount of products consumers are willing and able to purchase

Question 2

What does effective demand curve look like

Question 3

What does the law of demand state

Answer 3

the higher the price the lower the quality demand

Question 4

What does the law of demand mean
What does the demand curve look like

Answer 4

consumers are willing and able to buy less as prices rise
Downward slopping curve

Question 5

What is movement along demand curve caused by

Answer 5

Change in price

Question 6

What is supply

Answer 6

The amount of product suppliers will offer a market at a given price

Question 7

What does a supply curve look like

Question 8

What do suppliers do when the price of an item goes up

Answer 8

Suppliers try to maximise profit by increasing quantity offered for sale
So the lower the price the lower the quantity supplied and the higher the price the higher the quantity

Question 9

Why is it that lower prices means lower quantity and high prices means higher quantity

Answer 9

At low prices only most efficient suppliers profit so supply is limited
As prices increase profit motive attracts new resources and high price allows less efficient producers to make profit

Question 10

Describe market equilibrium price graph

Question 11

On the market equilibrium price graph describe what is happening when the demand and supply curve intersect

Answer 11

It is the point where quantity consumers are willing to purchase matches quantity suppliers are willing to sell

Question 12

What is this situation known as

Answer 12

market equilibrium

Question 13

What does market equilibrium allow us to calculate

Answer 13

Market price and market quantity

Question 14

Is market equilibrium fixed, explain

Answer 14

no it will change over time because of changes in patterns of demand and supply

Question 15

As well as price which other factors will effect demand and supply for a product

Answer 15

changes in price causes movement up and down the demand and supply curve

Question 16

Describe the shift in demand curve

Answer 16

Demand curve shifts out to the right, there is more demand at each price level.
D! To D2
Inward shift to left indicates a decrease in demand - less demand at each price level

Question 17

What factors effect demand

Answer 17

1 increase in consum ermer income is likely to shift demand curve right for normal and luxury goods. Fall in income causes curves to shift in - to the left as demand decreases

2 changes in fashion and trends. If goods become fashionable curve shifts right - increase demand a t each price level. If goods go out of fashion curve shifts left- demand decrease

3 changes in price of goods - complimentary good (goods used alongside goos eg if holidays demand goes up so does demand for sun lotion) and substitute goods eg if train favors rise some people will travel by car and may lead to demand in petrol rifting demand curve for petrol to the right

4 successful advertising campaign can cause curve for product to shift to the right

5 changes in population Uk is an aging population which has resulted in an increase demand for retirement homes

6government legislation - eg legislation passed making child car seats compulsory significantly increases demand

Question 18

describe the shift in demand curve when there is an increase in price

Answer 18

there is a shift outwards (caused by perhaps increasing incomes or price or substitute goods)
Initially at market equilibrium is P and D. New equilibrium is created D1 which cuts the original supply curve. Prices rise to P1 and quantity demand and supplied expands to Q1

Question 19

Describe the shift in demand curve when there is a fall in price
What is the impact of the shift of the demand curve

Answer 19

We see shift to left of demand curve ( perhaps cause by fall in price of a substitute)
To start there is equilibrium with price P and quantity Q and after there is a shift in price demand curve.
There is a new equilibrium with P1 and quantity Q1.
The impact of the shift of the demand curve has been reduced price and to cause a contraction in the quantity demanded and supplied

Question 20

Describe the shifts in supply curve when there is a change in price

Answer 20

ther is a shift outwards of supply curve S2 caused by falling cost.
Initially at market equilibrium we have price P and quantity Q
Shift outwards results in a fall in price to P2 and increased quantity demanded and supplied Q2
ALSO shows a shift of supply curve S1 (perhaps caused by poor harvest)
Initially at market equilibrium we have price P and quantity Q shift to supply curve to left results increase in price to P1 bad fall in quantity demanded and supplied at Q2

Question 21

Why is it important to understand price elasticity of demand

Answer 21

Business managers need to know the impact of changes in price on likely levels of demand

Question 22

What will elasticity of demand be like for markets approaching perfect competition

Answer 22

likely to be highly elastic

Question 23

What does the term highly elastic mean

Answer 23

a change in price will cause a more proportional demand in quantity demanded - price goes up demand falls drastically. Price falls demand increase

Question 24

In near perfect competition goods are mostly non differentiated. Why is the impact of change in price on demand level predictable PRICE ELASTIC/PRICE SENSTIVE

Answer 24

people will not pay more when they can buy virtually identical goods for a. Lower price

Question 25

Price inelastic /Price Insensitive If goods have an inelastic price and inelasticity of demand what does a change in price cause

Answer 25

a less proportional change in quantity of demand If price goes up demand falls a little if prices go down demand increases a little

Question 26

When does inelastic price elasticity of demand usually occur

Answer 26

when levels of competition are low Where the are good substitutes Goods are necessities or addictive

Question 27

Why is this

Answer 27

in these circumstances the business has much more control over price than companies in a highly competitive marker

Question 28

With regard to price elasticity what is the objective of most businesses

Answer 28

to make price elasticity of demand of their goods more inelastic

Question 29

Why is this their objective

Answer 29

it means they have more control over price - they are the price makers not price takers

Question 30

What is the result of price elasticity of demand being inelastic and increasing prices

Answer 30

result is a less than proportional fall in quantity demanded resulting in fall of revenue

Question 31

When can a business make demand for their goods to be price inelastic

Answer 31

1 if they encourage consumer loyalty 2 reduce or restrict competition in the market 3 increase brand value

Question 32

Elasticity of demand

Answer 32

www.http://bit.ly/1PZGmOf

Question 33

What is income elasticity

Answer 33

it to how responsive demand is to the changes in income

Question 34

In business what does the term real mean

Answer 34

Allowing for the implact of inflation

Question 35

Generally what happens to real incomes over time

Answer 35

They increase leading to increase in wealth and a rise in demands for goods

Question 36

By linking this pattern of changing demand to changing income what can we measure

Answer 36

Income elasticity of demand for types of goods

Question 37

What are the 3 states of income elasticity

Answer 37

Income elasticity can be elastic - changes inn income cause mere than a proportional change in quantity demand eg 5% rise in income leads to 10% increase in demand for pizza Income elasticity of demand can be inelastic - change in income causes less than proportional change in quantity e and eg fall of income of 4% but demand of toothpaste falls by 2% Income elasticity of demand can be negative - when there is a rise in income causes a fall in demand eg income increases by 5% and there is a fall in demand for supermarket own brand