1.2.3 Markets

Question 1

What is Demand?

Answer 1

The quantity of a good/service that consumers are willing and able to buy at a given price, at a particular time

Question 2

What is Supply?

Answer 2

Supply is the quantity of a good/service that producers are willing and able to supply to the market at a given price, at a particular time.

Question 3

What is Market Equilibrium (Equilibrium Price)?

Answer 3

When the quantity that buyers demand is the same as the quantity the sellers wish to supply.
It is the point at which demand is equal to supply.

Question 4

What is the free interaction of supply and demand known as?

Answer 4

The free interaction of supply and demand is known as market forces.

Question 5

When will the market be in disequilibrium?

Answer 5

1. When supply and demand aren’t equal the market is in disequilibrium
2. If there’s excess supply or demand the market will be in disequilibrium

Question 6

What is Excess Demand?

Answer 6

When the demand for a good/service is greater than its supply

Question 7

What is Excess Supply?

Answer 7

When the quantity supplied to a market is greater than the quantity demanded

Question 8

What will cause an extension in demand?

Answer 8

A decrease in price causes an extension in demand

Question 9

What will cause a contraction in demand?

Answer 9

An increase in price causes a contraction in demand

Question 10

When does the demand curve shift to the left?

Answer 10

Demand curve shifts to left when there is a decrease in the amount demanded at every price.

Question 11

When does the demand curve shift to right?

Answer 11

Demand curve shift to the right when there is an increase in the amount demanded at every price

Question 12

What will cause an extension in supply?

Answer 12

An increase in price causes an extension in supply

Question 13

What will cause a contraction in supply?

Answer 13

A decrease in price will cause a contraction in supply

Question 14

When does the supply curve shift to left?

Answer 14

A supply curve shifts to the left when there’s a decrease in the amount supplied at every price.

Question 15

When does the supply curve shift to the right?

Answer 15

A supply curve shifts to the right when there’s an increase in the amount supplied at every price

Question 16

If the demand curve shifts, assuming no change in supply curve
What will happen to price and supply if demand increases?

Answer 16

If demand increases then price will increase and supply will extend creating a new equilibrium price.

Question 17

If the demand curve shifts, assuming no change in supply curve
What will happen to price and supply if demand decreases?

Answer 17

If demand decreases then the price will fall and supply will contract creating a new equilibrium price

Question 18

If the supply curve shifts, assuming no change in the demand curve
What will happen to price and demand if supply increases?

Answer 18

If the supply increases then price will fall and demand will extend creating a new equilibrium price.

Question 19

If the supply curve shifts, assuming no change in the demand curve
What will happen to price and demand if supply decreases?

Answer 19

If supply decreases then the price will rise and demand will contract creating a new equilibrium price.

Question 20

What will a change in price lead to?

Answer 20

A change in price will lead to a movement along the supply or demand curve

Question 21

What will a change in any other factor that’s not price lead to?

Answer 21

A change in any other factor will lead to a shift in the demand or supply curve

Question 22

What are some changes that will cause a shift in the demand curve?

Answer 22

• Consumer Income
• Prices of other goods and services
• Consumer tastes and fashion
• Other factors e.g. advertising, seasonal changes, external shocks, demographics

Question 23

What are some changes that will cause a shift in the supply curve?

Answer 23

• The impact of changing costs of production
• Improvements / New technology
• Government policies e.g. Indirect taxes & Subsidies
• Other factors e.g. expectations, weather conditions, external shocks