Demand and supply

Question 1

What is meant by demand?

Answer 1

Demand is the amount of a good/service a customer is willing and able to buy at any given price

Question 2

What is the relationship between demand and price?

Answer 2

Inverse - as price increases demand decreases

Question 3

What is meant by supply?

Answer 3

The amount of a good/service suppliers are willing and able to sell at any given price

Question 4

What is the relationship between price and quantity supplied?

Answer 4

As price increases, the quantity supplied also increases.

Question 5

What is equilibrium price?

Answer 5

The situation at which demand and supply are equal i.e both parties are happy. This is where demand and supply intersect. This determines the price and quantity that will be sold in a market.

Question 6

What are the determinants of demand?

Answer 6

Price, income, taste and fashion, demographic changes, government action, wealth, advertising and promotional offers, the price of other products.

Question 7

How does price effect the demand curve?

Answer 7

As price changes, demand will shift up and down the curve.

Question 8

How does income effect the demand curve?

Answer 8

As income decreases, demand decreases vice versa. The demand curve will shift.

Question 9

How does taste and fashion effect the demand curve?

Answer 9

This refers to latest trends ect. If a product is popular then demand will increase, the curve will shift.

Question 10

How do demographic changes effect the demand curve?

Answer 10

Refers to changes in population. If population increases, demand for certain products will increase. Curve will shift to the right.

Question 11

How does wealth effect the demand curve?

Answer 11

Wealth refers to the total worth of someone’s assets. If the worth of someone’s assets increases, then they may feel more comfortable buying products. This will shift the curve accordingly.

Question 12

How does government action effect the demand curve?

Answer 12

If the gov put taxes on products the price will increase, making customers less likely to buy and so demand falls. Curve shifts to left.

Question 13

How does advertising effect the demand curve?

Answer 13

If advertising increases, sales will increase and so will demand. This will cause curve to shift to the right.

Question 14

How does the price of other products effect demand curve?

Answer 14

Substitutes - same product diff percent brand. If the price of substitutes is cheaper then price of orig product will stay the same but quantity will decrease and then for substitute the demand will increase.

Compliments - comes with products, like games for a console. If one product bough, the demand for compliments will increase and curb energy will shift right.

Question 15

What are the determinants of supply?

Answer 15

Price, cost, taxes, subsidies, price of other products

Question 16

How does price effect the supply curve?

Answer 16

If price of a product increases then supply will also increase so the curve will shift down.

Question 17

How does cost effect the supply curve?

Answer 17

When costs goes down, supply goes up so the curve shifts down.

Question 18

What does price mean?

Answer 18

The amount hat a customer pays for a product.

Question 19

What does cost mean?

Answer 19

The amount the business spends on making, supplying and buying the product.

Question 20

How do taxes effect the supply curve?

Answer 20

Supply decreases as tax increases meaning the curve will move upwards.

Question 21

How do subsidies effect the supply curve?

Answer 21

When subsidies increase some does quantity supplied as they are paid ore money so produce will increase. This will move the supply have down.

Question 22

How does the price of other products effect the supply curve?

Answer 22

When price decreases of one product, the supply of other products will increase.

Question 23

What happens to equilibrium when price of a price increases?

Answer 23

This will result in a new equilibrium with a higher quantity being demanded and supplied at a higher price.

Question 24

What happens to equilibrium when price of a product decreases?

Answer 24

This will result in a new equilibrium with a higher quantity being demanded and supplied at a lower price.

Question 25

What is an excess of a product?

Answer 25

This is where the quantity supplied is greater than the quantity demanded. This is because price has increased too much so customers demand less.

Question 26

How do you re-establish equilibrium if there is an excess?

Answer 26

The suppliers will have to the lower the price so demand increases again.

Question 27

What is a shortage of a product?

Answer 27

This is where quantity demanded is greater than the quantity supplied. This is because price has fallen too much so more customers want to buy, but not a high enough price for suppliers to be able to.

Question 28

How do you re-establish equilibrium if there is a shortage?

Answer 28

Increase price of the product so supply increases.

Question 29

What is elasticity of demand?

Answer 29

Elasticity is how sensitive quantity demanded is to a change in price.

Question 30

What is meant by inelastic demand?

Answer 30

This is where demand is insensitive to a change in price.

Question 31

What is an example of inelastic demand and why?

Answer 31

Petrol because it s a necessity and people will buy it regardless of a price change as they need it and there are no substitutes.

Question 32

What is an example of elastic demand and why?

Answer 32

A spa day is an elastic product as it is not a necessity and there are substitutes so a price change will mean that customers will buy an alternative.

Question 33

What are the factors of elasticity?

Answer 33

Number of substitutes available, degree of necessity, wether it’s subject to habitual consumption, peak and off peak demand .