Behavioural factors

Question 1

What is demand?

Answer 1

Quantity of good/ services consumers are willing AND able to buy at a certain price on a given time
- has to be effective

Question 2

What is the law of demand?

Answer 2

Inverse relationship between price and quantity demanded
- as price increase, demand decreases - ceteris paribus

Question 3

What is ceteris paribus?

Answer 3

All other factors are unchanged, which allows zoom in on one factor

Question 4

What are the 2 price effects on demand?

Answer 4

1. Income effect
2. Substitution effect - price of competitors

Question 5

What are the non-price factors for demand?

Answer 5

PASIFIC
Population, Advertising, Substitute price, Income, Fashion/taste, Interest rates, Complements price (brought with another like printer ink)

Question 6

What is a normal good?

Answer 6

As income increases, demand increases
e.g luxury cars, holidays

Question 7

What is a infury good?

Answer 7

As income increases, demand decreases
e.g fast food, public transport

Question 8

What is commodity?

Answer 8

A raw material or agricultural product that can be sold
e.g wheat, energy

Question 9

Marginal costs

Answer 9

Change in total cost of production for producing 1 more unit
change in total costs/ change in quanitity

Question 10

Utity

Answer 10

Measure of satisfaction/ benefit from consuming good/ service

Question 11

Competitive firms

Answer 11

Price takes, no single firm can change the market

Question 12

Price takers

Answer 12

Company that must accept prevailing prices as they have a lack of market share to influence price on own

Question 13

Exogenous

Answer 13

Having external cause, independent factors effect from outside

Question 14

Diminishing rate of returns

Answer 14

Decrease in marginal output

Question 15

What is supply?

Answer 15

Quantity of good a producer is willing and able to produce at time

Question 16

Law of supply

Answer 16

Direct relationship between price and quantity supplied
- As price increases, quantity increases

Question 17

Why does supply curve change?

Answer 17

Profit motives
- if they produce more they need higher prices to cover costs

Question 18

What is profit maximisation?

Answer 18

Firms set a price equal when MC = MR
(price of producing one more unit)

Question 19

What indirect factors are there that change the supply curve?

Answer 19

PINTS WC
Productivity, Indirect tax, No.of firms, technology, Subsidy, Weather, Cost of production (labour, oil)

Question 20

What is it called when graph increases?

Answer 20

Extention of ….

Question 21

What is it called when a graph decreases?

Answer 21

Contraction of ….