2: Market Forces of Supply and Demand

Question 1

What is a market?

Answer 1

A market is a group of buyers and sellers interacting to trade a particular good or service

Question 2

Characteristics of perfect competition

Answer 2

To be perfectly competitive (PC) – vertical line, a market must have two characteristics:
o The goods being offered for sale are all exactly the same (homogeneous)
o Buyers and sellers are so numerous that none can influence the market price.

Question 3

Monopoly

Answer 3

• A monopoly is a firm that is the sole seller of a product without close substitutes  a market with the absence of competition.
• The fundamental cause of monopoly is barriers to entry: a monopoly remains the only seller in its market because other firms cannot enter the market and compete with it.

Question 4

4 attributed of monopolistic competition

Answer 4

 Many sellers: many firms competing for the same group of customers
 Product differentiation  allows a degree of control over price
 Type of imperfect competition
 E.g. restaurants, clothing

Question 5

Oligopoly

Answer 5

• Market with only a few sellers.

Question 6

Demand

Answer 6

Quantity demanded of a good is the amount of a good that buyers are willing and able to purchase.

Question 7

Two ways of representing r/ship between price and quantity demanded

Answer 7

• Demand Schedule: A Table showing the relationship between the price of a good and the quantity demanded.
• Demand Curve: A Graph showing relationship between the price of a good and the quantity demanded.

Question 8

5 factors that affect demand

Answer 8

Income, price of related goods, tastes, expectations, number of buyers

Question 9

Movement along demand curve = …

Answer 9

Change in quantity demanded

Question 10

Shift in demand curve = …

Answer 10

Change in demand

Question 11

Quantity Supplied

Answer 11

Quantity supplied is the amount of a good that sellers are willing and able to sell

Question 12

Law of supply

Answer 12

The law of supply states that, other things being equal (ceteris paribus) the quantity supplied of a good rise when the price of the good rises and vice versa

Question 13

Two ways of representing the relationship between price and quantity supplied

Answer 13

• Supply Schedule: Table showing relationship between the price of a good and the quantity supplied.
• Supply Curve: Graph showing relationship between the price of a good and the quantity supplied.

Question 14

Factors other than price that affect supply (3)

Answer 14

• Input prices
• Technology
• Expectations