Supplly And Demand

Question 1

Law of demand

Answer 1

P increases quantity demanded decreases

Income effect - prices higher income affords less

Substitution - prices higher buy substitute as it’s cheaper

Question 2

Demand determinants

Answer 2

Tastes 
Number and price of substitutes 
Number and price of complementary goods
Income 
Distribution of income 
Expectations

Question 3

Law of supply

Answer 3

Price increase leads to increase in quantity supplied

Profit motive - price rise more profitable

New entrants- price rises attracts new firms

Production and cost - expanding costs increase need to cover

Question 4

Supply determinants

Answer 4

Costs of production 
Profitability of an alternative 
Profitability of joint supply 
Nature and random shocks 
Aims of producers 
Expectations of producers
Change in tech 
Organisational changes 
Government policy

Question 5

Price ceiling and price floor

Answer 5

Price floor - minimum price
-surplus and lost gains from trade (deadweight loss)
(Above equilibrium )

Price ceiling - maximum price
-shortages and lost gains from trade deadweight loss
(Stop monopolistic exploitation of consumers)