Demand and Supply Flashcards

1
Q

What is demand

A

The amount of products consumers are willing and able to purchase

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2
Q

What does effective demand curve look like

A
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3
Q

What does the law of demand state

A

the higher the price the lower the quality demand

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4
Q

What does the law of demand mean
What does the demand curve look like

A

consumers are willing and able to buy less as prices rise
Downward slopping curve

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5
Q

What is movement along demand curve caused by

A

Change in price

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6
Q

What is supply

A

The amount of product suppliers will offer a market at a given price

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7
Q

What does a supply curve look like

A
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8
Q

What do suppliers do when the price of an item goes up

A

Suppliers try to maximise profit by increasing quantity offered for sale
So the lower the price the lower the quantity supplied and the higher the price the higher the quantity

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9
Q

Why is it that lower prices means lower quantity and high prices means higher quantity

A

At low prices only most efficient suppliers profit so supply is limited
As prices increase profit motive attracts new resources and high price allows less efficient producers to make profit

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10
Q

Describe market equilibrium price graph

A
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11
Q

On the market equilibrium price graph describe what is happening when the demand and supply curve intersect

A

It is the point where quantity consumers are willing to purchase matches quantity suppliers are willing to sell

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12
Q

What is this situation known as

A

market equilibrium

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13
Q

What does market equilibrium allow us to calculate

A

Market price and market quantity

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14
Q

Is market equilibrium fixed, explain

A

no it will change over time because of changes in patterns of demand and supply

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15
Q

As well as price which other factors will effect demand and supply for a product

A

changes in price causes movement up and down the demand and supply curve

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16
Q

Describe the shift in demand curve

A

Demand curve shifts out to the right, there is more demand at each price level.
D! To D2
Inward shift to left indicates a decrease in demand - less demand at each price level

17
Q

What factors effect demand

A

1 increase in consum ermer income is likely to shift demand curve right for normal and luxury goods. Fall in income causes curves to shift in - to the left as demand decreases

2 changes in fashion and trends. If goods become fashionable curve shifts right - increase demand a t each price level. If goods go out of fashion curve shifts left- demand decrease

3 changes in price of goods - complimentary good (goods used alongside goos eg if holidays demand goes up so does demand for sun lotion) and substitute goods eg if train favors rise some people will travel by car and may lead to demand in petrol rifting demand curve for petrol to the right

4 successful advertising campaign can cause curve for product to shift to the right

5 changes in population Uk is an aging population which has resulted in an increase demand for retirement homes

6government legislation - eg legislation passed making child car seats compulsory significantly increases demand

18
Q

describe the shift in demand curve when there is an increase in price

A

there is a shift outwards (caused by perhaps increasing incomes or price or substitute goods)
Initially at market equilibrium is P and D. New equilibrium is created D1 which cuts the original supply curve. Prices rise to P1 and quantity demand and supplied expands to Q1

19
Q

Describe the shift in demand curve when there is a fall in price
What is the impact of the shift of the demand curve

A

We see shift to left of demand curve ( perhaps cause by fall in price of a substitute)
To start there is equilibrium with price P and quantity Q and after there is a shift in price demand curve.
There is a new equilibrium with P1 and quantity Q1.
The impact of the shift of the demand curve has been reduced price and to cause a contraction in the quantity demanded and supplied

20
Q

Describe the shifts in supply curve when there is a change in price

A

ther is a shift outwards of supply curve S2 caused by falling cost.
Initially at market equilibrium we have price P and quantity Q
Shift outwards results in a fall in price to P2 and increased quantity demanded and supplied Q2
ALSO shows a shift of supply curve S1 (perhaps caused by poor harvest)
Initially at market equilibrium we have price P and quantity Q shift to supply curve to left results increase in price to P1 bad fall in quantity demanded and supplied at Q2

21
Q

Why is it important to understand price elasticity of demand

A

Business managers need to know the impact of changes in price on likely levels of demand

22
Q

What will elasticity of demand be like for markets approaching perfect competition

A

likely to be highly elastic

23
Q

What does the term highly elastic mean

A

a change in price will cause a more proportional demand in quantity demanded - price goes up demand falls drastically. Price falls demand increase

24
Q

In near perfect competition goods are mostly non differentiated. Why is the impact of change in price on demand level predictable PRICE ELASTIC/PRICE SENSTIVE

A

people will not pay more when they can buy virtually identical goods for a. Lower price

25
Q

Price inelastic /Price Insensitive
If goods have an inelastic price and inelasticity of demand what does a change in price cause

A

a less proportional change in quantity of demand
If price goes up demand falls a little if prices go down demand increases a little

26
Q

When does inelastic price elasticity of demand usually occur

A

when levels of competition are low
Where the are good substitutes
Goods are necessities or addictive

27
Q

Why is this

A

in these circumstances the business has much more control over price than companies in a highly competitive marker

28
Q

With regard to price elasticity what is the objective of most businesses

A

to make price elasticity of demand of their goods more inelastic

29
Q

Why is this their objective

A

it means they have more control over price - they are the price makers not price takers

30
Q

What is the result of price elasticity of demand being inelastic and increasing prices

A

result is a less than proportional fall in quantity demanded resulting in fall of revenue

31
Q

When can a business make demand for their goods to be price inelastic

A

1 if they encourage consumer loyalty
2 reduce or restrict competition in the market
3 increase brand value

32
Q

Elasticity of demand

A

www.http://bit.ly/1PZGmOf

33
Q

What is income elasticity

A

it to how responsive demand is to the changes in income

34
Q

In business what does the term real mean

A

Allowing for the implact of inflation

35
Q

Generally what happens to real incomes over time

A

They increase leading to increase in wealth and a rise in demands for goods

36
Q

By linking this pattern of changing demand to changing income what can we measure

A

Income elasticity of demand for types of goods

37
Q

What are the 3 states of income elasticity

A

Income elasticity can be elastic - changes inn income cause mere than a proportional change in quantity demand eg 5% rise in income leads to 10% increase in demand for pizza
Income elasticity of demand can be inelastic - change in income causes less than proportional change in quantity e and eg fall of income of 4% but demand of toothpaste falls by 2%
Income elasticity of demand can be negative - when there is a rise in income causes a fall in demand eg income increases by 5% and there is a fall in demand for supermarket own brand