Chapter 4 - Demand, Supply & Prices

Question 1

Who determines supply?

Answer 1

Firms

Question 2

Is demand a flow or stock?

Answer 2

Flow

Question 3

Who determines demand?

Answer 3

Households

Question 4

Name 5 factors that determine individual demand

Answer 4

1) price of product
2) price of related goods
3) income of consumer
4) taste / preference
5) size of household

Question 5

Related products are distinguished between Complements & Substitutes. Describe both.

Answer 5

Complements are goods that are used together eg radio & cd; tomato & bread
Substitutes can be used instead / as replacement for a good eg. Avos instead of tomatoes.

Question 6

What does the law of demand state?

Answer 6

Other things being equal, the higher the price of a good the lower is the quantity demanded.

Question 7

A change in demand causes a shift on the demand curve. What factors can cause this shift?

Answer 7

1) change in price of related goods (substitutes / compliments)
2) change in income
3) change in consumer’s taste / preference
4) change in population
5) change in expected future prices

Question 8

What is supply?

Answer 8

The quantities of a good / service that producers plan to sell at each possible price during a certain period

Question 9

Name 4 factors which may influence supply?

Answer 9

1) government policy
2) natural disasters
3) joint products & by-products eg beef & leather
4) productivity

Question 10

When is the market in equilibrium?

Answer 10

When the quantity demanded is equal to the quantity supplied