demand and supply

Question 1

what is effective demand?

Answer 1

the amount of a product consumers are willing and able to purchase at any given price

Question 2

1. what does the law of demand state?
2. what does this result in?

Answer 2

1. the higher the price the lower the quantity demanded, the lower the price the higher the quantity demanded
2. a downward sloping demand curve

Question 3

what is movement along the demand curve caused by?

Answer 3

changes in price

Question 4

1. what is supply?
2. what should be assumed about supply?

Answer 4

1. the amount of a product which suppliers will offer to the market at a given price
2. as the price of an item goes up suppliers will attempt to maximise their profits by increasing the quantity offered for sale
   - this means the lower the price the lower the quantity supplied and the higher the price the higher the quantity supplied

Question 5

what are movements along the supply curve e determined by?

Answer 5

changes in price

Question 6

1. what is the point of equilibrium in a demand and supply curve?
2. what can we derive from market equilibrium?

Answer 6

1. •the point where the demand and supply curve intersect
   • where the quantity consumers are willing to purchase matched the quantity suppliers are willing to supply at a given price.
2. a market price and market quantity however this is not fixed

Question 7

what factors cause a shift in demand?
(6)

Answer 7

• income - more disposable income more demand
• changes in taste and fashion- if goods become more fashionable demand shifts to the rights
•change in the price of complementary and substitutional goods
• successful advertising campaign
• changes in population
• government legislation

Question 8

what factors shift supply?
(4)

Answer 8

• change in costs
• weather
• introduction to new tech
• legislation

Question 9

1. define price elasticity
2. why do businesses need to analyse price elasticity?

Answer 9

1. the measurement of the responsiveness of reman to a change in price
2. managers need to know how sensitive the demand for a good or service is to a change in price

Question 10

1. what does it mean if a g/s is price elastic?
2. give examples

Answer 10

1. a change in price will cause a more than proportional change to quantity demanded
2. branded goods, plane fares

Question 11

1. what does it mean if a g/s is price inelastic?
2. give an example

Answer 11

1. a change in price cause a less than proportional change in quantity demanded
2. electricity, water

Question 12

what do businesses want price in elasticity?

Answer 12

• they have more control over their price
• if a good is inelastic revenues would increase because business owners can push prices up

Question 13

how can businesses make demand for their goods more price inelastic? (3)

Answer 13

• encourage consumer loyalty
• reduce/ restrict competition in the market
• increase brand value

Question 14

what is income elasticity of demand (YED) ?

Answer 14

•the responsiveness of demand to changes in income
• as people earn more they consume more which drives up demand for g&s

Question 15

what does it mean if a g/s is income elastic?

Answer 15

a change in income causes a more than proportional change in quantity demanded

Question 16

what does it mean if a g/s in income inelastic?

Answer 16

a change in income causes a less than proportional change in quantity demanded

Question 17

when is income elasticity of demand negative?

Answer 17

when a rise in incomes causes a fall in demand

Question 18

1. what happens to normal goods when the incomes of consumers increase?
2. give an example of a normal good

Answer 18

1. demand for normal goods increased
2. furniture, cars

Question 19

1. list the key features of a luxury good
2. give an example

Answer 19

1. falls into the category of normal goods but more sensitive to changes in income
2. if income increases the demand for a gym membership booms but as soon as income falls people quickly cancel their gym memberships to save money

Question 20

1. list the key features of an inferior good in relation to YED
2. give an example of

Answer 20

1.
• have negative income elasticity of demand
• when income falls demand rises

2. shop own label products