1.2.3 Markets

Question 1

What is the definition of Supply

Answer 1

• This is the amount of product or service that a business is willing and able to provide at a given price
• supply line goes from left to right, low to high diagonally

Question 2

What is the definition of Demand

Answer 2

• This is the amount of product or service that customers are willing and able to buy at a given price
• demand line goes from left to right, high to low diagonally

Question 3

What is market clearing Price

Answer 3

• The interaction of buyers and sellers will provide an equilibrium price in a market where demand and supply is equal
• This is called the market clearing price
• The point where the supply curve meets the demand curve is the equilibrium point

Question 4

What is a surplus

Answer 4

• Where supply exceeds demand then there is a surplus
• This may be due to the price being too high

Question 5

What is a shortage

Answer 5

• Where demand exceeds supply there will be a shortage
• This may be because the price being charged is too low

Question 6

What non-price factors that affect supply

Answer 6

1. Cost of production
2. Introduction of new technology
3. Indirect taxes (e.g. VAT)
4. Government subsidies
5. External shocks

Question 7

What non-price factors that affect demand

Answer 7

1. Price of substitutes
2. Alternative brands
3. Price of compliments
4. Changes in consumer income
5. Trends in fashion and tastes
6. Advertising and branding
7. Population structure / demographics
8. Time of year
9. Weather and climate
10. External shocks