Demand and Supply

Question 1

Demand

Answer 1

The quantity consumers are willing and able to buy at a given price

Question 2

Supply

Answer 2

The quantity firms are willing and able to produce at a given price

Question 3

Utility

Answer 3

The satisfaction consumers gained from purchasing / consuming a good or servei

Question 4

Diminishing marginal utility

Answer 4

For every additional unit consumed, there is a fall in utiliy

Question 5

Why is demand curve a downward slope?

Answer 5

1. Dimishing marginal utility
2. Income effect (Price falls –> Higher Purchasing power)
3. Substitution effect (Price falls –> cheaper than alternatives)

Question 6

How does a change in price affect the demand curve?

Answer 6

A movement along the demand curve (contraction or extension)

Question 7

What are the reasons for a shift in demand curve?

Answer 7

Population
Advertising 
City speculator
Interest rate
Fashion
Income (disposable)
Complementary goods
Substitute

Question 8

Normal goods

Answer 8

When income rises, demand of the good rises (e.g. car)

Question 9

Inferior goods

Answer 9

When income rises, demand of the good drops (e.g. public transport)

Question 10

Real disposable income

Answer 10

Income consumers have after tax has been deducted

Question 11

Complements

Answer 11

Goods that are consumed together (joint demand)

Question 12

Substitutes

Answer 12

Goods that are in competitve demand and act as a replcement of other goods

Question 13

Why is supply curve an upward sloping?

Answer 13

1. Profit incentive
2. Production Costs
3. New firms (More firms ==> more supply)

Question 14

What are the reasons for a shift in supply curve?

Answer 14

Productivity
Indirect tax
New Entrants 
Technology
Subsidies 
Weather 
Costs of production

Question 15

Indirect tax

Answer 15

A tax on expenditure imposed by government on producers (e.g. VAT)

Question 16

Ceteris Peribus

Answer 16

All the other factors remain constant –> Easier to analyse

Question 17

Market equilibrium

Answer 17

When price is at the level when quantity demanded equals quantity supplied

Question 18

Market

Answer 18

A place where buyers and sellers meet to exchange goods and services

Question 19

What are the 4 economic agents?

Answer 19

Consumers, firms, government, owners of factors of production

Question 20

What are the functions of money?

Answer 20

1. Signaling function
2. Incentive function
3. Rational function (it rationals the demand to people who are willing to pay a higher price when the supplied is limited)

Question 21

What do consumers want to maximise?

Answer 21

Utility

Question 22

What do firms want to maximise?

Answer 22

Profits

Question 23

Consumer surplus

Answer 23

The difference between what a consumer is willing to pay (demand curve) and what they actually pay (market price)

Question 24

Producer surplus

Answer 24

The difference between what a producer is willing to sell (supply curve) and what they actually sell