Demand/Supply- Equilibrium - Chapter 2 (R)

Question 1

Definition: Demand

Answer 1

Is the desire, willingness and ability to purchase

Question 2

What is the Law of Demand

Answer 2

The law of demand holds that other things equal, as the price of a good or service rises, its quantity demanded falls.

Question 3

What is the relationship of Law of demand

Answer 3

The law of Demand is an inverse relationship between P&Q (Price and Quantity)

Question 4

What are the non-price factors affecting demand

Answer 4

1. Substitutes
2. Population
3. Income
4. Tastes/preferences
5. Expected Future Prices
6. Complimentary

Question 5

Definition: Income

Answer 5

Is the Consumers ability to pay

Question 6

Definition: Population

Answer 6

Increase in population means an increase in consumers(increase in demand) While a decrease in population is opposite (decrease in demand)

Question 7

Definition: Taste And Preferences

Answer 7

Preferences and tastes explain why consumers prefer a product over its alternatives. So, when their preferences and tastes change, it also affects their demand for it.

Question 8

Definition: Prices of Substitutes and Compliments

Answer 8

Two goods substitute each other because they fulfil the same need. So, when consumers need to choose one they will most likely go for the substitute because its cheaper

Question 9

Definition: Expected Future Prices

Answer 9

This is when the consumer doesn’t buy at the current price but focuses on future trends and price changes (black Friday sales)

Question 10

The two demand curves are…

Answer 10

1. Individual
2. Market

Question 11

Definition: Movement

Answer 11

A movement is a change in price

Question 12

A movement up the demand curve is a ….

Answer 12

Contraction

Question 13

A movement down the demand curve is a….

Answer 13

Expansion

Question 14

Increase = Contraction and …

Answer 14

Decrease = Expansion

Question 15

What are the two changes in non-price of demand

Answer 15

Increasing = up (out)
Decreasing= down (in)
(in the graph when there is two lines of supply this is what means what)

Question 16

Definition: Supply

Answer 16

• Quantity available in the market to be sold
• Desire to maximise profits
• Involves incentives

Question 17

Law of supply

Answer 17

Holds that other things equal, as the price of good rises, its quantity supplied will rise, and vice versa

Question 18

What is the quantity supplied?

Answer 18

the amount of the good that producers plan to sell at a particular price

Question 19

Why do producers produce more output when the price rises?

Answer 19

To make a profit because they can cover the increasing cost of production as they can produce.

Question 20

What are the non price factors affecting supply

Answer 20

1. Cost of Production
2. Expected future prices
3. Number of suppliers
4. Technology
5. Events affecting the availability of resources and the supply chain

OR

G government regulations and taxes
E expectations
S sellers (no. of)
T technology
I inputs (cost of)
P prices of other goods

Question 21

Definition: Cost of Production

Answer 21

When land, labour and capital costs are large, then the cost of producing goods increases also. This means that suppliers will reduce their level of supply (output) as the cost to make the goods has risen.

Question 22

Definition: Expected Future Prices

Answer 22

The expectations of businesses regarding the price of goods will affect how much they supply.

Question 23

Definition: Number of Suppliers

Answer 23

If there is a large number of businesses and sellers within a market, then the level of output and supply will increase.

Question 24

Definition: Technology

Answer 24

Technology is seen as more efficient, therefore allowing producers to increase their output and cut labour costs. An increase in the level of technology or capital machinery used within a business means that the quantity supplied will increase.

Question 25

What are the two changes in non-price of supply?

Answer 25

Decrease= Up
Increase= down
(in the graph when there are two lines of supply this is what means what)

Question 26

The Concept of Market Equilibrium

Answer 26

A market is in equilibrium if at the market price the quantity demanded is equal to the quantity supplied.

Question 27

The concepts of Market clearing

Answer 27

The market clearing price is the price at which the demand for a good by consumers is equal to the number of goods that can be produced at that price.

Question 28

Definition: Surplus

Answer 28

Quantity supplied is more than (signal) quantity demanded. Price goes down →flexibility

Occurs when a good/service is priced too high

In order, to eliminate surplus producers will lower the price in order to increase the demand until they can clear the market

Question 29

Definition: Shortage

Answer 29

Quantity supplied is less than(signal) quantity demanded price goes up → flexibility