1.2 Market (Wip)

Question 1

What is demand?

Answer 1

The total amount of goods and services consumers are willing and able to buy at a given price point.

Question 2

What is the relationship between demand and price?

Answer 2

Inversely proportional

Example: https://cdn.savemyexams.com/cdn-cgi/image/f=auto,width=1920,w=640/uploads/2022/06/L44o4OxC_1-2-2-movement-along-demand-curve_edexcel-al-economics.png

Question 3

What factors change demand?

Answer 3

• Consumers tastes
• Price
• Advertising
• Changes to income
• Available substitutes

Question 4

What causes the demand curve to shift?

Answer 4

Any factor that is not price changing.

Question 5

What is supply?

Answer 5

The total amount of a good or service that will be supplied at a given price point.

Question 6

What is the relationship between price and supply?

Answer 6

Directly proportional

Example: https://cdn.savemyexams.com/cdn-cgi/image/f=auto,width=1920,w=640/uploads/2022/06/IIlRP6jh_1-2-4-movement-along-supply-curve_edexcel-al-economics.png

Question 7

What causes a change in supply?

Answer 7

• Price
• Supply shocks
• Changes in cost of production
• New technology
• Indirect taxation
• Government subsides

Question 8

What is equilibrium price?

Answer 8

Equilibrium price is the point where supply and demand overlap on a supply demand graph.

Example: https://cdn.savemyexams.com/cdn-cgi/image/f=auto,width=1920,w=640/uploads/2023/03/-1-2-3-the-interaction-of-supply-and-demand.png

Question 9

How do the curves shift?

Answer 9

Demand right = rise in demand
Demand left = decrease in demand
Supply right = rise in supply
Supply left= decrease in supply

Question 10

How do the curves travel (up and down) ?

Answer 10

Up demand curve = contraction in demand
Down demand curve = extension in demand
Up supply curve = extension in supply
Down supply curve = contraction in supply

Question 11

What is price elasticity of demand (PED)?

Answer 11

How sensitive a change is demand is to a change in price.

Question 12

What does a PED above one mean?

Answer 12

Demand is highly elastic, meaning when price changes demand changes drastically.

Question 13

What does a PED equal to one mean?

Answer 13

Demand is perfectly elastic.

Question 14

What does a PED below one mean?

Answer 14

Demand is inelastic, meaning when price changes demand doesn’t change much.

Question 15

Which types of goods experience elastic demand?

Answer 15

Luxury goods.

Question 16

Which types of goods experience inelastic demand?

Answer 16

Essential goods and addictive goods.

Question 17

What are the factors determining PED?

Answer 17

• Availability of close substitutes
• Brand loyalty
• Proportion of income spent
• Time
• Essentiality of product or service

Question 18

How is PED calculated?

Question 19

What is income elasticity of demand (YED)?

Answer 19

How much demand changes for goods and services in proportion to income.

Question 20

What does a YED above one mean?

Answer 20

YED is highly elastic, meaning a change in income changes demand drastically.

Question 21

What does a YED of one mean?

Answer 21

YED is perfectly elastic.

Question 22

What does a YED below one mean?

Answer 22

YED is inelastic, meaning a change in income changes demand very little.

Question 23

What are the factors determining YED?

Answer 23

• Proportion of income spent on good or service
• Taxation
• Type of good (inferior or normal)
• minimum wage

Question 24

How is YED calculated?

Question 25

What is the significance of PED to businesses?

Question 26

What is the significance of YED to businesses?