2. Identifying a Business Opportunity

Question 1

what are the factors affecting supply?

how is each one affected?

Answer 1

Productivity Indirect tax Number of firms in the industry Technology Subsidies Weather Costs of production

• productivity⬆️–>supply⬆️
• indirect tax ⬆️–>cost of production⬆️–>supply⬇️
• more firms–>supply⬆️
• improvements in technology–>supply⬆️
• subsidies–>costs of production⬇️–>supply⬆️
• poor weather–>supply⬇️
• costs⬆️–>supply⬇️

Question 2

what are the factors affecting demand? how is each one affected?

Answer 2

Population Advertising Substitutes Income Fashion Income tax Complements

•⬆️size–>⬆️demand
•most boost sales–>⬆️demand, some reduce see e.g. tobacco
•change in price for one product will affect the demand for substitute
•⬆️Y–>⬆️D (move right) ⬇️Y–>⬇️D (move left)
•fashion, trends and habits ⬆️D for some
-⬆️income tax–>⬇️demand
-price of one complement falls–>⬆️D for commentary good

Question 3

what are the five demand and supply relationships?

Answer 3

1. competitive demand: the two goods are substitutes
2. joint demand: the two goods are complements
3. derived demand: the demand for one good directly depends on the demand for the other
4. composite demand: ⬆️D for one use–>⬆️P of the product…⬆️costs of production–>⬆️costs–>⬇️supply
5. joint supply: goods are supplied together
   - ⬆️S of of one–>⬆️S of the other e.g. increased supply of beef would increase the supply of leather

Question 4

what is demand?

Answer 4

The amount of a good or service that people are willing and able to buy at a given price at a given time

Question 5

what is supply?

Answer 5

The amount producers are willing and able to produce over a range of prices

Question 6

what happens to the supply curve when there is a change in price?

Answer 6

there is movement along the S-curve
if there is an increase in supply the curve will move to the right if there is a decrease in supply the curve will move to the left so if there is an increased it will go down if there is a D crease it will move up

Question 7

what is an equilibrium?

Answer 7

demand=supply
The market is balanced so price will not change unless there is a change in one of the factors affecting demand or supply

Question 8

what happens to the equilibrium if demand increases?

Answer 8

it causes competition between buyers which increases price

-allocation of resources: firms are willing to supply more so a new equilibrium is established at P2 and Q2