Demand And Supply

Question 1

Define excess demand and excess supply

Answer 1

Excess demand: where demand is greater than supply and there are shortages in the market
Excess supply: where supply is greater than demand and there are unsold goods in the market

Question 2

Definitions for demand

Answer 2

Demand curve like drawn on graph that shows how much of a good will be bought at different prices

effective demand: amount of a good people are willing to buy at given prices over a given period of time supported by the ability to pay

inverse relationship: (between price and quantity demanded) when price goes up, the quantity demanded falls and when the price goes down the
quantity demanded rises

Question 3

Advertising

Answer 3

Promotion, Awareness, brand loyalty - AO4 difficult to measure impact of advertising expenditure on quantity demanded
Depends on effectiveness of advertising, opportunity cost, not guaranteed

Question 4

Income

Answer 4

Disposable income rises demand rises spend more, normal good income rise demand rise
However minority inferior goods income rise demand falls
Depends on income elasticity of demand

Disposable income: income that is available to someone over a period of time to spend; it includes state benefits
but excludes direct taxes.

Question 5

Fashion and tastes - trends

Answer 5

Strongly influences by social changes, clothing - changes in consumer tastes and fashion

Question 6

Price of substitutes and complements

Answer 6

Substitute goods: goods bough as an alternative to another but perform the same function
Complementary goods: goods purchased together because they are consumed together

Question 7

Demographic changes

Answer 7

Population 
Age distribution 
Gender distribution 
Geographical distribution e.g. urban areas
Ethnic groups e.g, culture associated

Question 8

Factors affecting supply

Answer 8

Cost of production - fall more profit, less profit / availability of resources
Indirect taxes - taxes levied on spending VAT increase cost
(Gov use raise revenue for gov expenditure and discourage consumption of harmful products, protect environment)
Subsidy - money paid by gov to organizations to lower prices reduce cost of production, encourage production of certain good - lack incentive to improve efficiency/opp cost
Changes in technology - more efficient reduce cost more profit
Natural factors: natural disaster / good weather growing condition improve crop yield increasing supply