1.2 key terms

Question 1

What is demand?

Answer 1

the amount of a good that consumers are willing and able to buy at a given price

Question 2

What is supply?

Answer 2

the amount of a product that suppliers will offer to the market at a given price⁸

Question 3

Factors affecting demand: (non-price)

Answer 3

• Price of substitute products
• Seasonality
• External Shocks
• Demographics
• Advertising and branding
• Fashion, tastes and preferences
• Change in consumer incomes
• Price of complementary products

Question 4

Factors affecting supply: (non-price)

Answer 4

• Changes in costs of production
• External shocks
• Introduction of new technology
• Indirect taxes
• Government suppliers

Question 5

What is Price Elasticity of Demand? (PED)

Answer 5

The responsiveness of quantity demanded to a change in price

Question 6

What is Income Elasticity of Demand? (YED)

Answer 6

the responsiveness of demand to a change in incomes

Question 7

What does inelastic mean?

Answer 7

demand does NOT change with price

Question 8

What does elastic mean?

Answer 8

Demand DOES change with price, if we drop the price of a product then demand should rise

Question 9

What is a normal good?

Answer 9

When incomes increase, this leads to an increase in the quantity demanded. Normal goods have a positive income elasticity of demand.
Examples: family holidays

Question 10

What is an inferior good?

Answer 10

When incomes increase, the demand for inferior goods will decrease. Vice versa: a decrease in incomes will lead to an increase in demand.
Examples: necessity food items