LS8, 9, 10 - Demand, Supply, Price Determination

Question 1

Demand

Answer 1

Quantity of a good or service purchased at a given price over a given time period

Question 2

As price increases

Answer 2

Demand decreases and vice versa

Question 3

Substitute good

Answer 3

Two alternative products that could be used for the same purpose

Question 4

Complement good

Answer 4

Products used together

Question 5

Factors affecting demand

Answer 5

Age structure of population
Change in incomes
Advertising
Changes in consumer taste/preference

Question 6

Revenue

Answer 6

Income that government or company receive

Price x quantity

Question 7

Supply

Answer 7

Quantity of a good or service firms are willing to sell at a given price over a given time period

Question 8

As price increases….

Answer 8

Supply increases and vice versa

Question 9

What does the supply diagram assume

Answer 9

Firms motivated to produce by profit
Cost of producing a unit increases as output increases

Question 10

Conditions for supply

Answer 10

Number of firms
Weather
Technology
Production cost
Prices of related goods
Expectation of future prices

Question 11

Excess demand

Answer 11

When demand exceeds supply at a given price
Below equilibrium on graph

Question 12

Excess supply

Answer 12

When supply exceeds demand at a given price
Above equilibrium on graph

Question 13

What is equilibrium price and why is it known as market clearing price

Answer 13

When supply of goods matches demand
Because at that price, exact quantity that producers take to market will be bought by consumers and nothing will be left over