Demand And Supply

Question 1

What is included in a demand/supply graph?

Answer 1

Price
Quantity
Supply Line
Demand Line
Pe
Qe

Question 2

What is the point of equilibrium?

Answer 2

A state of balance between market demand and supply - there is no excess demand or supply

Question 3

What will cause a movement in the line of demand/supply line?

Answer 3

a monetary change

Question 4

What will cause a shift in the demand/supply line?

Answer 4

when a change in any other factor than price (such as tastes, advertising, population, income, substitutes, complementary, seasonality)

Question 5

What is the point at Pe and Qe?

Answer 5

the price and quantity are at a certain point that everything is sold

Question 6

What is another name for the equilibrium point?

Answer 6

the market clearing price

Question 7

What is demand?

Answer 7

the level of interest customers have in buying a product. Usually effective if interest is backed up by payments if customers are willing/able

Question 8

What are factors that affect the demand of a product?

Answer 8

1) Price
2) Prices of other goods (Substitute/complementary goods)
3) Changes in consumer incomes( normal/luxury/inferior goods)
4) Fashion, tastes and preferences
5) Advertising and branding
6) Demographics
7) External shocks
8) Seasonal Factors (seasonal variations)

Question 9

What are risks with demand?

Answer 9

Undiversified demand

Over-trading

Question 10

What is undiversified demand?

Answer 10

When a business is solely supplying to a single business which is risky.
Also, when a business is reliant on one product
This can be reduced by spreading the demand over many businesses

Question 11

What is over-trading?

Answer 11

Growing too quickly and not properly managing costs which leads to dis-economies of scale which can make a business try to over-cater for demand

Question 12

How does price affect demand?

Answer 12

A high price can drive away people that cant afford it
It can also make the product make it seem like not a good value
Physiological pricing can taint brand images

Question 13

What is a substitute product?

Answer 13

goods that can be used in place of another normally in change with price and demand

Question 14

What is a complementary good?

Answer 14

goods that have a negative cross elasticity of demand. Due to products being strongly affected by the other performance (e.g. Cinema tickets and popcorn)

Question 15

What is a normal good?

Answer 15

any good which demand increases when income increases

Question 16

What is consumer incomes impacted by?

Answer 16

impacted and increased by positive economic activity

Question 17

What is a luxury good?

Answer 17

a good which demand increases more than proportionally as income rises

Question 18

What is an inferior good?

Answer 18

A good that falls in demand due to an increases general income eg (own brand goods)

Question 19

How do fashion, tastes and preferences impact demand of a product?

Answer 19

strong loyalty can allow owners to increase prices

• > stable demand is ideal
• affected by experiences, preferences and tastes

Question 20

How does advertising and branding impact demand of a product?

Answer 20

• lots of effective advertising can increase profit over time
• branding is greater than advertising as branding can make the business memorable and have loyalty

Question 21

How does demographics impact demand of a product?

Answer 21

• different age categories can boost certain products and influence around the industry

Question 22

How do external shocks impact demand of a product?

Answer 22

• uncontrollable factors (likely to affect the whole industry)
• Regular and fairly common (small impacts)

Question 23

How do seasonal variations impact demand of a product?

Answer 23

as some business are weaker in certain seasons whereas some business are strong throughout

Question 24

What are seasonal variations?

Answer 24

changes in business activities/inventory/profit depending on seasonality of business

Question 25

What assumes that all variables stay the same?

Answer 25

Ceteris Paribus - this is used when talking about the demand theory

Question 26

What is a inverse relationship?

Answer 26

an increase price causes decline in quantity demand

Question 27

What is a right movement on a graph of the equilibrium?

Answer 27

a extension which is an increase in demand but decrease in price

Question 28

What is left movement on the graph of the equilibrium?

Answer 28

a contraction which is a decrease in demand but increase in price

Question 29

What are supply curves?

Answer 29

a line showing the quantity of goods firms want to supply at different price levels.

Question 30

What is supply?

Answer 30

the quantity of product that producers are able to deliver within a specific time period at a given price.

Question 31

What factors can lead to a change in supply?

Answer 31

1) changes in costs of production 2) introduction of new technology 3) indirect taxes 4) government subsidies 5) external shocks 6) physical constraints 7) prices of other goods and services

Question 32

What are the axis on the graph?

Answer 32

``` x = quantity y = price ```

Question 33

How do changes in costs of production impact supply change?

Answer 33

higher costs = lower incentive to supply | due to lower profit per unit

Question 34

How do introduction in new technology supply change?

Answer 34

efficiency, production costs, almost always right | - eg robots

Question 35

How do government subsidies impact supply change? | Fiscal Policy

Answer 35

promotes supply and financial contribution to suppliers encourages supply increase supply to the right

Question 36

How do indirect taxes impact supply change?

Answer 36

onto goods and services Can increase prices and cause the customers to pay the tax. shifts left

Question 37

How do external shocks impact supply change?

Answer 37

investing into varying stock can build up stock making it wasteful caused by market price falling, global recession, market change

Question 38

What is a market price?

Answer 38

The price of a commodity that has established by the market

Question 39

How do physical constraints impact supply change?

Answer 39

Suppliers not able to cope with demand or even take advantage of successful opportunities Eventually extra supply will reduce price (surplus)

Question 40

How do prices of other goods and services impact supply change?

Answer 40

- increased competition and impact supply - increased firms supply curve to right causing increased supply - if product isn't profitable it will lead to decreased supply

Question 41

What is a shortage?

Answer 41

when there is more demand than supply which can create a black market for high value goods

Question 42

What is a surplus?

Answer 42

when there is more supply than demand

Question 43

What are 3 factors that are likely to lead to a fall in supply?

Answer 43

Restriction on availability of imported raw materials Rise in indirect taxes Rise in wages

Question 44

What are examples of indirect taxes?

Answer 44

VAT Excise tax tobacco Customs duties on imports.