1.2 market

Question 1

Define supply

Answer 1

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

Question 2

What is the basic law of supply

Answer 2

Is that the price of products rises, businesses expand production to the market.

Question 3

What does a supply curve show

Answer 3

The relationship between market price and how much a firm is willing and able to sell

Question 4

What are the factors that can effect supply

Answer 4

Productivity
Indirect tax (VAT and Excise duty)(paid by producers for supplying
Number of firms
Technology
Subsidies (money paid by government to increase market supply)
Weather/external factors/war
Cost of production

Question 5

Define demand

Answer 5

The quantity of a good or service that a consumer is willing and able to buy at a given price in a given time period

Question 6

What is the basic law of demand

Answer 6

Demand varies inversely with price - lower prices make products more affordable for customers

Question 7

What does the demand curve represent

Answer 7

The market price and the quantity demanded

Question 8

Why does the supply curve slope upwards

Answer 8

Because as the market price increases producers will supply more to the market to increase revenue

Question 9

What are the factors which effect demand

Answer 9

Population (demographics)
Advertising and marketing
Substitute goods (similar rival products)
Interest rates (cost of borrowing and reward for saving)
Fashion and trends
Income
Complementary goods (products which accompany each other)

Question 10

What does the point where the supply curve and demand curve meet mean and represnt

Answer 10

Its the equilibrium which determines the most stable price

Question 11

How does an increase in population in the oil market effect the supply and demand graph

Answer 11

Causes an increase in demand

Question 12

How does an increase in the cost of production of cars effect the supply and demand market

Answer 12

Causes a decrease in supply

Question 13

How does an increase in the price of wheat (complementary good) and a decrease in subsidies for bread effect the supply and demand graph

Answer 13

Causes a decrease in demand

Causes a decrease in supply

Question 14

How does an increase in productivity for boats and a decrease in interest rates effect the supply and demand graph

Answer 14

An increase in supply

An increase in demand

Question 15

How is an increase in supply shown on the graph

How is a decrease in supply shown on the graph

Answer 15

Inwards shift

Outwards shift

Question 16

How is an increase in demand shown on the graph

How is a decrease in demand shown on the graph

Answer 16

Outwards shift of supply

Inwards shift of supply

Question 17

Define Price Elasticity of demand

Answer 17

Measures the responsiveness of demand for a product to change its price

Question 18

What is elastic demand

Answer 18

As the price changes demand changes drastically

Question 19

What is inelastic demand

Answer 19

As the price changes the demand marginally changes

Question 20

What is the formula for Price Elasticity of demand

Answer 20

% change in quantity demanded/ % change in price

Question 21

How does a inelastic demand curve look

Why

Answer 21

Is a very steep line

Because a drastic change in price does not massively change the quantity demanded. An increase in price will increase revenue

Question 22

Work out the price elasticity demand for :

a) price =£1 , QD= 100 units
b) price = £1.20 = 90 units

Is it elastic or inelastic

Answer 22

PED = % change in QD / % change in price

Price = £1 -> 1.20 = +20%
QD = 100 units -> 90 units = -10%

= -10 / 20 = -0.5
Is inelastic as less than 1

Question 23

Define price determination

Answer 23

Where equilibrium is reached and supply and demand are used to establish the general level of price

Question 24

Define Income elasticity of demand (YED)

Answer 24

Measures the responsiveness of quantity demanded for a product following a change in income

Question 25

What is the formula for income elasticity of demand

Answer 25

%change in Quantity Demanded / % change in real income

Question 26

What is an inferior good

Answer 26

Means as income increases the quantity demanded decreases

E.g. Supermarket beans

Question 27

What is a normal good

Answer 27

Means as income increases the demand increases

E.g. Cars

Question 28

How can you tell whether the YED for a good is inferior or normal

Answer 28

YED of less than 0 is an Inferior good

YED of more than 0 is a normal good

Question 29

Calculate the YED when :
2018 Income = £27,000 Qd= 100 units
2019 Income = £30,000 Qd = 95 units

Is it an inferior good or a normal good

Answer 29

YED = % Change in Qd / % Change in income

= -5%/ +11 % = -0.45

Less than 0 so is Inferior

Question 30

Calculate the YED when :
2018 : Income = £30,000 Qd= 100 units
2019 : Income = £25,000 Qd = 85 units

Is it Inferior or normal

Answer 30

YED = % Change in Qd / % Change in income

= -15 / -16.6 = 0.9
More than 0 so is a normal good

Question 31

What is the significance of Income elasticity of demand

Answer 31

Sales forecasting (can predict sales based on it)

Financial planning (YED changes can be factored into budgets)

Product portfolio management (reduce risk by having a wide range pf products)