2.2,2.3,.2.4 Demand, Supply and the Market Mechanism

Question 1

Demand

Answer 1

A consumer’s willingness and desire to purchase goods and services at a specific price.

Question 2

Individual demand

Answer 2

One consumer’s willingness and ability to purchase a product or service at a given price.

Question 3

Market demand

Answer 3

The sum of all consumers’ willingness and ability to purchase a product or service at a given set of prices.

Question 4

The demand curve

Answer 4

The relationship betweent the price of a product and the quantity demanded by the market.

Question 5

Prices changes and the demand curve

Answer 5

When prices change, there is a movement along the demand curve.

Question 6

Contraction of demand

Answer 6

When there is an increase in price, there is a decrease in the quantity demanded.

Question 7

Extension of demand

Answer 7

When there is a fall in price, there is an increase in the quantity demanded.

Question 8

Competitive demand

Answer 8

When consumers demand one or another good- they are in competition with each other. They are substitutes. e.g. Samsung phones and Apple phones.

Question 8

Joint demand

Answer 8

Where products complement each other. They products in demand together e.g. cars and petrol

Question 9

Composite demand

Answer 9

When a product is demanded for multiple uses e.g. milk or oil

Question 10

Shift in the demand curve

Answer 10

When the demand curve shifts left or right do there is a change in the quantity demanded at every price.

Question 11

Increase in demand…. the demand curve shifts

Answer 11

Right

Question 12

Decrease in demand….the demand curve shifts

Answer 12

Left

Question 13

Factors which can cause a shift in the demand curve…

Answer 13

Changes in income, taxes, price of complementary or substitute goods, tastes and fashions, advertising and marketing, size of population etc.

Question 14

Supply

Answer 14

Ability and willingness of a firm to sell products at a given price.

Question 15

Supply curve

Answer 15

Relationship between the price of a product and the quantity supplied by the business.

Question 15

Individual supply

Answer 15

One business’s willingness and ability to sell a product at a given price.

Question 16

Market supply

Answer 16

Sum of all businesses’ willingness and ability to sell a product at a given set of prices.

Question 17

Joint supply

Answer 17

When products are produced together e.g. one product is a by-product of another.

Question 18

Competitive supply

Answer 18

When a producer has alternate uses for the factors of production and so decides what to produce.

Question 19

Movements along the supply curve

Answer 19

When the supply of a good changes according to the price.

Question 20

Extension of supply

Answer 20

There is an increase in price so the quantity supplied increases

Question 21

Contraction of supply

Answer 21

When the price falls the quantity supplied decreases.

Question 22

An increase in supply

Answer 22

The whole supply curve shifts outwards or moves to the right.

Question 23

When the supply curve shifts

Answer 23

The supply to the market changes at all prices.

Question 24

A decrease in supply

Answer 24

The whole supply curve shifts inwards or moves left.

Question 25

Factors that affect the supply

Answer 25

These a linked to the factors of production, other products supplied and government policies.

Question 26

Short run

Answer 26

In the short run, at least one of the factors of production are fixed.

Question 27

Long run

Answer 27

All the factors of production can change.

Question 28

How do factors of production affect supply?

Answer 28

Cost of labour, cost of capital, cost of land, technology.

Question 29

How does taxation affect supply?

Answer 29

If taxes on businesses increase, supply will decrease as there is less incetive to supply goods or services. This is an inward shift of the supply curve.

Question 30

How do subsidies affect supply?

Answer 30

If the government pays firms to supply goods, this will increase supply and the supply curve will shift outwards.

Question 31

Price of jointly supplied products increases, what will happen to supply?

Answer 31

Supply of both goods will increase as the firm supplies more of both goods.

Question 32

Price of competitively supplied products increases..

Answer 32

A firm may switch to the higer priced item as it may receive greater profits.

Question 33

Market equilibrium

Answer 33

Point at which the quantity supplied is equal to the quantity demanded of a particular product. This is where the price is agreed.

Question 34

Market disequilibrium

Answer 34

A situation where there is excess demand or excess supply.

Question 35

Excess supply

Answer 35

A situation where the price is too high and there are unsold products on the market.

Question 36

Excess demand

Answer 36

A situation where the price is too low meaning there are unsatsifed consumers in the market.

Question 37

Price mechanism

Answer 37

The price plays three roles in the market- signalling, incentivising and rationing.

Question 38

Incentivising

Answer 38

The price gives an incentive to producers to increase or descrease output as they think about their profits.

Question 39

Rationing

Answer 39

The price means agents alter their behaviours in the market to change their demand or supply.

Question 40

Allocative efficiency

Answer 40

The free market is allocatively efficient because the price= the cost of producing the last product supplied to the market. This is where consumers are all receiving what they are demanding.

Question 41

Productive efficiency

Answer 41

The free market incentivises firms to produce at their lowest average costs.

Question 42

Consumer surplus

Answer 42

Difference between the price consumers are willing to pay and the market price. If they were willing to pay above the market price- there is consumer surplus.

Question 43

Producer surplus

Answer 43

Difference between the market price and price producers were willing to supply the market at. If producers were willing to supply at lower than the market price, there is producer surplus.