2.3, 2.4 Demand & Supply

Question 1

How does a change in price affect demand?

Answer 1

There is movement along the demand curve (negative relationship)

Question 2

How do changes to the conditions of demand (irrespective of price) affect demand?

Answer 2

The demand curve shifts

Question 3

What factors influence demand?

Answer 3

1. Income
2. Preferences
3. Marketing
4. Substitute Goods

Question 4

How does a change in price affect supply?

Answer 4

There is movement along the supply curve (positive relationship)

Question 5

How do changes to the conditions of supply (irrespective of price) affect supply?

Answer 5

The supply curve shifts

Question 6

What might affect supply of a good or service?

Answer 6

1. Cost of Production
2. Taxes
3. Subsidies
4. Technology
5. Weather

Question 7

What is market equilibrium/market clearing price?

Answer 7

When demand = supply

Question 8

What happens when there is excess demand?

Answer 8

• At price P1, the quantity demanded (Qd) is greater than the quantity supplied (Qs)
• There is a shortage in the market equivalent to QsQd

Question 9

What happens when there is excess supply?

Answer 9

• At price P1, the quantity supplied (Qs) is greater than the quantity demanded (Qd)
• There is a surplus in the market equivalent to QdQs

Question 10

What is the formula for price elasticity of demand (PED)?

Answer 10

Question 11

What is the formula for a percentage change in an amount?

Answer 11

Question 12

Why might demand be elastic or inelastic for a product?

Answer 12

Elastic: availability of substitutes, long time period
Inelastic: product addictive, product is cheap, short time period

Question 13

What is the formula for price elasticity of supply (PES)?

Answer 13

Question 14

Why might supply be elastic or inelastic for a product?

Answer 14

Elastic:
1. Mobile factors of production
2. Abundant raw materials
3. Products easily stored

Inelastic:
1. Scarce raw materials
2. Products difficult to store