Demand and Supply

Question 1

What are shifts in demand?

Answer 1

1. Change in income
2. Change in population
3. Expected price
4. Change in preference and taste
5. Change in substitute
6. Change in complementary

Question 2

What role does price have in market economies

Answer 2

1. Relative scarcity of goods and services
2. Allocate resources in the production of goods and services
3. Acts as incentives or signals for producers and entrepreneurs to take risks in organising the factors of production
4. Acts as a rationing device in enabling markets to clear.
5. Prices are an equilibrating device in markets.

Question 3

Relative Price

Answer 3

Relative prices reflect the relative opportunity cost of selecting one alternative, relative to another alternative in consumption or production.

Question 4

Contraction of demand

Answer 4

When an increase in the price of a good or service causes a decrease in quantity demanded. It is shown by an upward movement along the demand curve.

Question 5

Expansion of demand

Answer 5

When a decrease in the price of a good or service causes an increase in quantity demanded. It is shown by a downward movement along the demand curve

Question 6

Increase in demand

Answer 6

Movement in the demand curve to the right

This means that consumers are willing and able to buy more of the product at a higher price than before

Question 7

Decrease in demand

Answer 7

Consumers are willing and able to buy less of the product at each possible price than before.

Lower price - a movement to the left

Question 8

Factors that cause a shift in demand

Answer 8

Age and population
Expected prices
Expected income
Taste and preferences
Price of other goods/service

Question 9

What is supply?

Answer 9

The quantity of a good or service that all firms in a particular industry are willing and able to offer for sale at different price levels at a given point in time.

Question 10

What is market supply?

Answer 10

Some of the individual firm supplies of individual produces at various price levels

Question 11

What is production?

Answer 11

The supply of goods and services but business firms

Question 12

What are the six factors affecting market supply?

Answer 12

1. The price of the good / service itself
2. The price of other goods/services
3. The state of technology
4. The cost of factor production
5. Quantity of goods available
6. Climate and seasonal influence

Question 13

How does the price of the good or service itself affect supply?

Answer 13

• The expected price of a good or service, and its taste/preference (trend) - more or less demand
• Producers’ ability and willingness to supply it.

Question 14

How does the state of technology affect supply?

Answer 14

• Lower production costs, allowing firms to supply more goods and a given time.
• Allows firms to adjust production runs to quickly accommodate changing demand patterns

Question 15

How does the change in the cost of factor production affect supply?

Answer 15

Cost down = supply of goods up

Question 16

What does the law of supply state?

Answer 16

As the price of a certain product rises, the quantity supplied by producers will rise

Question 17

Why does the law of supply occur?

Answer 17

Profitability for firms within the industry

Growth within the industry, increasing supply

Question 18

What way does the supply curve slope?

Answer 18

Upwards, left to right

Question 19

What way does the demand curve slope?

Answer 19

Downwards, right to left

Question 20

What are the movements along the supply curve called?

Answer 20

Expansions and contractions

Question 21

Contraction of supply

Answer 21

Is when a decrease in price of a good or service causes a decrease in quantity supplied. it is shown by downward movement along the supply curve.

Question 22

Expansion of supply

Answer 22

Is when an increase in the price of a good or service causes an increase in quantity supplied. It is shown by an upward movement along the supply curve.

Question 23

What happens with an increase in supply?

Answer 23

The movement to the right

1. More supply
2. Lower price sold at

Question 24

What happens with a decrease in supply?

Answer 24

The movement to the left

1. Less supply
2. Higher price sold at

Question 25

What causes an increase in supply?

Answer 25

1. Decrease in price of other goods
2. Decrease in cost of factors of production
3. Increase in quantity of resources available
4. Improved technology
5. Climate favorable

Question 26

What causes a decrease in supply?

Answer 26

1. Increase in price of other goods
2. Increase in cost of factors of production
3. Decrease in the quantity of resources available
4. Regulations for health and safety
5. Climate less favorable

Question 27

What are the 5 factors affecting the price elasticity of demand?

Answer 27

1. Whether the good is a luxury or a necessity
2. Whether the good has any close substitutes
3. The expenditure on the product as a proportion of income
4. The length of time subsequent to a price change
5. Whether a good is a habit-forming (addictive) or not

Question 28

What are the 3 factors affecting the elasticity of supply?

Answer 28

1. Ability to hold and store stock
2. Excess in capacity
3. Time lags after a price change

Question 29

Outline time lags

Answer 29

The greater amount of time that producers have to respond to a price change, the more elastic the supply for the product
In short run - inelastic
In long run - elastic

Question 30

Hold and store stock examples

Answer 30

Tables - durable - elastic
Vegetables - perishable - inelastic