Supply And Demand

Question 1

Demand

Answer 1

The want or willingness of consumers to buy goods and services but consumers must have enough money to buy goods and services they demand.

Question 2

Effective Demand

Answer 2

Desire for a good or device supported by the ability and willingness to pay.

Question 3

Individual Demand

Answer 3

The demand of just one consumer.

Question 4

Market Demand

Answer 4

The total demand for a product from all its consumers.

Question 5

Demand Example

Answer 5

Consumers want more pears.
Demand for pears increase.
Price of pears increase.
Production of pears become more profitable.
Producers allocate more resources to production of pears.
Producers increase rate of production for pears.

Question 6

Demand Curve

Answer 6

The demand curve shows the relations between the price and the quantity.

Any change in price leads to a movement along the demand curve.

Question 7

Contraction Of Demand

Answer 7

Caused by increase in Price

Question 8

Extension Of Demand

Answer 8

Caused by decreases in price.

Question 9

Shifts in the Demand Curve

Answer 9

If the demand curve itself shifts, this is called and increase or decrease.

At every price consumers will demand more….
There is and increase in demand shifting the curve to the right.

Question 10

Taste

Answer 10

Affected by Fashions, Advertising

Question 11

Compliment

Answer 11

Car, Car Insurance

Question 12

Income

Answer 12

Disposable Income(Income after tax had been deducted) as income rises demand rises.

Question 13

Market Size

Answer 13

People entering the country will increase population size therefore increasing market size.

Question 14

Expectation Of Future Price Changes

Answer 14

Housing Market

Question 15

Seasons

Answer 15

Christmas Summer

Question 16

Substitute Goods

Answer 16

If price of peas goes up demand goes down.

Question 17

Supply

Answer 17

Supply is the quantity of a good or service that a producer is willing and able to supply to the market at a given price in a given time period.

Question 18

Supply Curve

Answer 18

Shows a relationship between the price and quantity a firm is willing and able to sell over any given period(e.g month/annum)

Has a positive relationship. As price goes up the quantity supplied goes up.

Question 19

Supply Curve Slopes Upwards;

Answer 19

Profit motive- when the market price rises, it becomes more profitable for businesses to increase output.

Production and cost- when output expands, a firms production costs tend to rise, therefor a higher price is needed to cover these extra costs of production.

Question 20

Extension Of Supply

Answer 20

Increase in price

Question 21

Contraction of supply

Answer 21

Decrease in price

Question 22

Shifts in the supply curve

Answer 22

If the curve itself shifts, this is called an increase or decrease, it is caused by a change in a factor other than price.

Question 23

Market Price

Answer 23

The economic price for which a good or service is offered in the market place.

Question 24

Equilibrium Price

Answer 24

The market price where the quantity of goods supplied is equal to the quantity of goods demanded. This is the point at which the demand and supply curves in the market intersect.

Question 25

Surplus

Answer 25

When the market price is above equilibrium price, there is more supplied Han demanded this there is a supplies of that good or service. Suppliers will lower the price and decrease the quantity supplied. The lower price will cause the quantity demanded to also increase. This occurs until the equilibrium price is reached and the quantity supplied equals the quantity demanded.

Question 26

Shortage

Answer 26

When market price is below equilibrium price there is less supplied than demanded this there is a shortage of that good or service. Suppliers will raise the price and increase the quantity supplied. The higher price will cause the quantity demanded to also decrease. This occurs until equilibrium is reached and the quantity supplied equals quantity demanded.

Question 27

Price Ceiling

Answer 27

The maximum price a seller is allowed to charge for a product or service. A price ceiling must be set below the equilibrium price to be effective.

Question 28

Price Floor

Answer 28

A government or group imposed price control or limit on how low a price can be charged for a product. A price floor must be higher than the equilibrium price to be effective.

Question 29

Price Elasticity Of Demand

Answer 29

The way a change in price affects quantity demanded.

It measures the responsiveness of quantity demanded of a good or service to a change in its price.

When demand is very responsive to change in price it is said to be price elastic.

When demand is not very responsive to change in price it is said to be price inelastic.

PED = [(QD2 - QD1)/QD1]x100
[(P2 - P1)/P1]x100

Question 30

Factors Affecting Price Elasticity Of Demand

Answer 30

Availability of Substitutes - If a good has few alternatives, it will be more Inelastic.

Time Period - Longer time period means demand becomes more price elastic e.g Alternatives are developed, habits change.

Necessities have a lower PED than luxuries - Increase in price less likely to reduce QD as they are more essential.

When Spending on a good accounts for a relatively low proportion of total income, demand will tend to be more Inelastic.

Question 32

Factors Affecting Elasticity Of Supply

Answer 32

Producer Substitutes- Goods which a producer can easily produce as alternatives e.g one model of a car for another in the same range.
If you have many substitutes, supply will tend to be elastic.

Time- The shorter the time period, the more difficult firms find it to switch from making one product to another. The shorter the time period, supply will tend to be Inelastic.

Spare Capacity- The more spare capacity there is, the easier it is to increase output if price rises. If you have spare capacity, supply will tend to be elastic.

Number Of Producers- The more Producers there are, the easier it should be for the industry to raise output. The more producers supply will tend to be elastic.

Nature of product- If a product can be stored. if it can be stored, supply will tend to be elastic.

Question 33

Price Elasticity Of Supply

Answer 33

Measures the responsiveness of QS to changes in price.

PED = [(QS2 - QS1)/QS1]x100
[(P2 - P1)/P1]x100

Question 36

Value

Answer 36

Perfectly Inelastic (0) - There is no response in supply/demand to a change in price.

Inelastic (0 to 1) - % Change in QS/QD is less than % Change in Price.

Unitary (1) - The % Change in in QS/QD = % Change in Price.

Elastic (1 to Infinity) - % Change in QS/QD is more than % Change in Price.

Perfectly Elastic (Infinity) - Producers are Prepared to supply/ Consumers demand any amount at any given price.