Chapter 3/4/5/6/7

Question 1

Define demand.

Answer 1

How much of a product will be bought at given prices.

Question 2

Define effective demand

Answer 2

How much of a good will be bought supported by the ability to afford it.

Question 3

What kind of a relationship do demand and price have?

Answer 3

Inverse relationship- as price increases, demand decreases.

Question 4

What happens when the demand curve shirts to the right? And the left?

Answer 4

Right- Quantity demanded at any given price has increased.
Left- Quantity demanded at any given price will fall.

Question 5

What factors shift the demand curve?

Answer 5

1. Population/demographic
2. Advertising
3. Substitutes
4. Income
5. Fashion/tastes
6. Complements

Question 6

Explain how income shifts the demand curve.

Answer 6

As disposable income rises, demand for normal goods rise but demand for inferior goods fall.

Question 7

What are normal goods?
What are inferior goods?

Answer 7

Normal goods- When income rises, demand rises.
Inferior goods- When income rises, demand falls.

Question 8

Explain how price of substitutes shifts the demand curve.

Answer 8

As the price of a substitute for a product falls, demand for the product will fall.

Question 9

Explain how price of complements shifts the demand curve.

Answer 9

As the price of a complement rises, the demand for the product falls.

Question 10

Define substitute and complementary goods.

Answer 10

Substitute- goods that are alternatives to each other.
Complementary- goods purchased and consumed together.

Question 11

Define supply.

Answer 11

How much of a good is willing to be offered for sale, by sellers, at given prices.

Question 12

What kind of a relationship do price and supply have?

Answer 12

Direct/ proportionate relationship.

Question 13

What is fixed supply?

Answer 13

Supply may be fixed if its not possible to provide more of it, e.g tickets for a match (limited).

Question 14

What factors cause the supply curve to shift?

Answer 14

1. Production costs
2. Indirect tax
3. Subsidies
4. Technology
5. Natural disasters

Question 15

Explain how subsidies shift the supply curve.

Answer 15

If subsidies are given to firms, costs of production will be lower so supply will shift to the right.

Question 16

Describe how indirect taxes shift the supply curve.

Answer 16

If more taxes need to be paid by firms, costs of production will rise, the supply curve will shift to the left.

Question 17

Describe how new technology will shift the supply curve.

Answer 17

New technology= more efficient labor, so more output produced, supply curve shifts to the right.

Question 18

Describe how costs of production cause the supply curve to shift.

Answer 18

If costs rise, the businesses may lose profit or may even be in loss, this will reduce motivation for businesses- supply curve shifts to the left.

Question 19

Define subsidy.

Answer 19

Money paid to firms by the government to reduce production costs.

Question 20

What is equilibrium price?

Answer 20

The price at which quantity demanded and supplied are equal.

Question 21

How do we calculate total revenue?

Answer 21

Total revenue= Price x quantity

Question 22

What is excess supply?
What is excess demand?

Answer 22

Excess supply- Supply> demand, goods are leftover/unsold in the market.
Excess demand- when demand> supply, customers are left without goods in the market.

Question 23

How do we remove excess supply and excess demand?

Answer 23

Excess supply- lower prices/ reduce supply
Excess demand- increase prices/ increase supply