Demand and Supply

Question 1

What is a Market?

Answer 1

Created when buyers and sellers interact.

Question 2

What is a Sub-Market?

Answer 2

A specific part of the overall market with unique characteristics.

Example: In banking, sub-markets include credit cards, loans, mortgages, and savings accounts.

Question 3

What is Individual Demand?

Answer 3

The demand of an individual or firm, measured by the quantity they buy at a given price.

Question 4

What is Market Demand?

Answer 4

The sum of all individual demands in a market.

Question 5

What is Derived Demand?

Answer 5

Demand for one good linked to the demand for a related good.

Example: Demand for bricks is derived from the demand for building new houses.

Question 6

What is Composite Demand?

Answer 6

A good has more than one use.

Example: If demand for cheese increases, milk supply for cheese rises, leaving less milk for butter.

Question 7

What is Joint Demand?

Answer 7

Goods bought together.

Example: A camera and memory card.

Question 8

What is Competitive Demand?

Answer 8

Goods that are substitutes.

Example: Samsung TV and Sony TV.

Question 9

What is the Law of Demand?

Answer 9

As price decreases, demand increases, assuming all else remains constant.

Question 10

What is Marginal Utility?

Answer 10

The extra satisfaction gained from consuming one additional unit.

Question 11

What are the Income and Substitution Effects?

Answer 11

Substitution Effect: When the price increases, consumers may switch to substitutes.
Income Effect: Higher prices reduce disposable income, which may lead to reduced demand.

Question 12

What is Expansion in the Demand Curve?

Answer 12

A decrease in price leads to an increase in quantity demanded.

Question 13

What is Contraction in the Demand Curve?

Answer 13

An increase in price leads to a decrease in quantity demanded.

Question 14

What causes Shifts in the Demand Curve?

Answer 14

A shift in the demand curve occurs when factors other than price change.

Question 15

What is an Outward Shift in the Demand Curve?

Answer 15

More goods are demanded at the same price.

Question 16

What is an Inward Shift in the Demand Curve?

Answer 16

Fewer goods are demanded at the same price.

Question 17

What are the factors that shift demand (PASIFIC)?

Answer 17

P: Population, A: Advertising, S: Substitutes, I: Income, F: Fashion and Taste, I: Income Tax, C: Complements

Question 18

What is Consumer Surplus?

Answer 18

The difference between the price a consumer actually pays and the price they are willing to pay.

Illustration: The area above the market price and below the demand curve represents consumer surplus.

Question 19

What is Individual Supply?

Answer 19

The quantity a producer is willing to sell at a certain price in a specific period.

Question 20

What is Market Supply?

Answer 20

The sum of all individual supplies in a market.

Question 21

What is Joint Supply?

Answer 21

Producing one good increases or decreases the supply of another.

Example: More lamb leads to more wool.

Question 22

What is Composite Supply?

Answer 22

A good can be sourced from different methods or suppliers.

Example: Light can be produced from candles, electricity, and gas.

Question 23

What is Competitive Supply?

Answer 23

Two goods that use the same resources and compete for the same market.

Example: Electricity vs. candles for light production.

Question 24

Why are Supply Curves Upward Sloping?

Answer 24

Higher prices encourage firms to supply more since it becomes more profitable.

Question 25

What happens when output increases in supply?

Answer 25

Firms' costs rise, requiring higher prices to cover costs.

Question 26

What is Expansion of Supply?

Answer 26

As price rises, quantity supplied increases.

Question 27

What is Contraction of Supply?

Answer 27

As price falls, quantity supplied decreases.

Question 28

What are the factors that shift supply (PINTSWC)?

Answer 28

P: Productivity, I: Indirect Taxes, N: Number of Firms, T: Technology, S: Subsidies, W: Weather, C: Costs of Production.

Question 29

What is Producer Surplus?

Answer 29

The difference between the price producers are willing to accept and the price they actually receive. ## Footnote Illustration: Represented by the area below the market price and above the supply curve.

Question 30

What is Equilibrium Price and Quantity?

Answer 30

The point where supply meets demand, resulting in a market clearing price.

Question 31

What is Excess Demand?

Answer 31

When price is below equilibrium, demand exceeds supply, causing upward pressure on price.

Question 32

What is Excess Supply?

Answer 32

When price is above equilibrium, supply exceeds demand, causing downward pressure on price.

Question 33

What happens when demand or supply curves shift?

Answer 33

A new equilibrium is established.

Question 34

What causes Commodity Price Volatility?

Answer 34

Commodity Prices can be unstable due to various factors like weather, speculation or technological advances.

Question 35

What are the market specificities in Housing?

Answer 35

Prices affect consumer wealth and spending. Demand for housing is often volatile due to changing interest rates and wealth effects.

Question 36

What are the market specificities in Transport?

Answer 36

Demand varies by time and congestion, influenced by factors like petrol prices and ticket costs.

Question 37

What are the assumptions of the Supply and Demand Model?

Answer 37

Prices drive demand and supply, perfect information exists in the market, producers and consumers act rationally.

Question 38

What are the limitations of the Supply and Demand Model?

Answer 38

Real-world deviations exist, such as imperfect information and irrational behavior.