Demand And Supply In Product Markets

Question 1

What is the goal of the consumer

Answer 1

To maximise utility

Question 2

What is the goal of the producer

Answer 2

To maximise profit

Question 3

Why is the demand curve downwards sloping

Answer 3

Diminishing marginal utility, income effect, substitution effect

Question 4

What factors shift demand

Answer 4

P - population
A - advertising
S - substitute goods
I - incomes
F - fashion/trend
I - interest rates
C - complements

Question 5

Why does supply slope upwards

Answer 5

Profit maximising
Increasing marginal costs (in SR, min 1 FOP fixed so as supply increases, costs increase beyond a certain point)

Question 6

What factors shift supply

Answer 6

P - productivity
I - indirect tax
N - number of firms
T - technology
S - subsidy
W - weather
C - COP

Question 7

Definition of demand

Answer 7

The quantity that consumers are willing and able to purchase at a given price in a given time period

Question 8

What factors determine whether substitutes are strong

Answer 8

Brand loyalty
Natural monopolies (no other choices)
Ethical concerns
Switching or transaction costs

Question 9

What are the 3 types of demand

Answer 9

Competitive demand (substitutable)
Joint demand (complements)
Composite demand (goods which have alternative uses ie sugar as sweetener or in ethanol production)