Market forces of supply and demand

Question 1

Define market

Answer 1

Group of buyers and sellers in a particular (be specific) good or service

Question 2

Define competitive market

Answer 2

Involves many buyers and sellers

Question 3

What sort of impact does a competitive market have?

Answer 3

Negligible impact- not a monopoly

Question 4

What do supply and demand determine?

Answer 4

Prices in a market economy and in turn how the scarce resources are allocated

Question 5

What is a monopoly?

Answer 5

This is where a single buyer or seller has the power to control the market

Question 6

What is the demand relationship?

Answer 6

This is the relationship between own price and quantity demanded when all other things are equal.

Question 7

What is the law of demand?

Answer 7

The claim that, all other things equal, the quantity demanded of a good falls when the price rises.

Question 8

What type of good is the law of demand not the case for?

Answer 8

Giffen goods

Question 9

What do the demand schedule table and the demand curve graph show?

Answer 9

The relationship between price and quantity

Question 10

What does market demand refer to?

Answer 10

The sum of all individual demands for a particular good or service

Question 11

What is always on the vertical line of the demand curve?

Answer 11

Price

Question 12

What is always on the horizontal line of the demand curve?

Answer 12

Quantity demanded

Question 13

In which direction does the demand curve typically slope?

Answer 13

Downwards

Question 14

How is the market demand curve obtained graphically?

Answer 14

Individual demand curves are summed horizontally.

Question 15

What will a tax that raises the price of a good do to the demand curve?

Answer 15

It will result in a movement along the curve

Question 16

What does change in demand refer to?

Answer 16

Any change other than own price that alters the quantity demanded at every price

Question 17

List 6 factors that could cause a change in demand

Answer 17

Price of related goods
Income
Tastes
Number of buyers
Advertising
Expectations

Question 18

What are the two types of related goods that could affect the demand?

Answer 18

Substitutes

Complements

Question 19

How does the demand for the substitute change if the price increases?

Answer 19

If the price of the product increases, the demand for the substitute increases.

Question 20

Give 3 examples of complements for a phone

Answer 20

Apple Care
Phone case
Insurance

Question 21

What would happen if the price of the leading good increased?

Answer 21

The demand for both the leading product and for the complements would decrease.

Question 22

What are the two types of good that a change in income can affect?

Answer 22

Normal and inferior goods

Question 23

How will a higher income affect demand?

Answer 23

A higher income means that the higher end product can be bought so normal goods are bought rather than inferior ones

Question 24

How does the demand for normal goods change?

Answer 24

It changes in the same direction as income change

Question 25

How does the demand for inferior goods change?

Answer 25

It changes in the opposite direction as income.

Question 26

Define inferior good

Answer 26

A good for which, all things equal, an increase in income leads to a decrease in demand

Question 27

Define normal good

Answer 27

A good for which, all things equal, an increase in income leads to an increase in demand.

Question 28

In what direction does the demand curve shift if there is an increase in demand?

Answer 28

It shifts to the right and the price increases

Question 29

In what direction does the demand curve shift if there is a decrease in demand?

Answer 29

It shifts to the left and the price decreases

Question 30

In what direction does the demand curve for a normal good change if the income increases?

Answer 30

It shifts to the right and the price and demand for the good increases.

Question 31

In what direction does the demand curve for an inferior good change if the income increases?

Answer 31

It shifts to the left and demand for the good decreases.

Question 32

What is the supply relationship?

Answer 32

This is the relationship between own price and quantity supplied, all things equal.

Question 33

What is the law of supply?

Answer 33

All other things equal, the quantity supplied of a good increases when the price of the good rises.

Question 34

In what direction is the supply curve if the law of supply is being followed?

Answer 34

It is upward sloping

Question 35

What does market supply refer to?

Answer 35

The sum of all individual supplies for all sellers of a particular good or service.

Question 36

How is the market supply curve obtained graphically?

Answer 36

Individual supply curves are summed horizontally

Question 37

What does a change in supply refer to?

Answer 37

A change in a determinant other than own price

Question 38

What are 6 things that can cause a change in supply?

Answer 38

Profitability of other goods in production and prices of goods in joint supply Technology Natural/ social factors Input prices Expectations of producers about the future state of the market A change in the number of sellers in the market

Question 39

Give two examples of natural and social factors

Answer 39

Weather | Changing attitudes

Question 40

What are input prices?

Answer 40

These are the prices of the factors of production

Question 41

What happens to the supply curve if there is a decrease in supply?

Answer 41

It shifts to the left and the price increases

Question 42

What happens to the supply curve if there is an increase in supply?

Answer 42

It shifts to the right and the price decreases.

Question 43

What is meant by equilibrium price?

Answer 43

This is the price that balances quantity supplied and quantity demanded

Question 44

How can you find the equilibrium price graphically?

Answer 44

It is the price at which the supply and demand curve intersect.

Question 45

What is meant by equilibrium quantity?

Answer 45

The quantity supplied and the quantity demanded at the equilibrium price.

Question 46

How can you find the equilibrium quantity graphically?

Answer 46

It is the quantity at which the supply and demand curves intersect

Question 47

Where can the surplus be found on a graph?

Answer 47

In the region above where the demand and supply curves intersect up until the line

Question 48

Where can the shortage be found on a graph?

Answer 48

In the region below where the demand and supply curves intersect up until the line

Question 49

What is the main function of price in a free market?

Answer 49

To act as a signal to both buyers an sellers

Question 50

What does the price tell buyers?

Answer 50

What needs to be given up (usually money) in order to aquire benefits

Question 51

What does the price tell sellers?

Answer 51

It is a signal in relation to the profitability of production

Question 52

What is the law of supply and demand?

Answer 52

The claim that the price of any good adjusts to bring the quantity demanded for that good into balance.