Chapter 2 Supply and Demand

Question 1

Demand

Answer 1

Demand is defined as the amount of goods that consumers have a desire, willingness and ability to purchase at given prices

Question 2

Supply

Answer 2

Supply is defined as the quantity of goods or service that producers are willing and able to sell at a given price, ceteris paribus

Question 3

Market demand/supply

Answer 3

Market demand is the sum of individual demand of all the consumers of a good or service

Market supply is a horizontal summation of the individual supply curves for that good or service in the market.

Question 4

Law of Diminishing Marginal Utility

Answer 4

the additional benefit a person derives from a given increase of his stock of a thing diminishes with every increase in the stock that he already has

Question 5

Rising marginal costs of production

Answer 5

the additional cost to produce higher levels of output will be higher than the additional cost to produce lower levels of output as the least-cost methods of production have been exploited.

Question 6

Demand factors

Answer 6

Expectations of future price changes/
Economic outlook
Changes in Government policies
Changes in consumer’s Y income (normal goods/inferior goods)
Change in Price of related products (substitutes/complements/goods in derived demand)
Changes in consumer’s Tastes and preferences

Question 7

Supply factors

Answer 7

Changes in Weather conditions
Expectations of future price changes
Change in state of Technology
Change in Production of related goods (products in competitive supply/products in joint supply)
Change in the prices of factor Inputs
Change in Government policy
Changes in the number of Suppliers

Question 8

Related goods

Answer 8

Substitute products
Complementary products
Derived demand
Competitive supply
Joint supply