Demand & Supply Flashcards
Week 3
What is a Demand Schedule?
A table showing the relationship between the price of a product and the quantity of the product demanded.
What is a Demand Curve?
A curve showing the relationship between the price of a product and the quantity of the product demanded.
What is Market Demand?
The demand by all the consumers of a given good or service.
What are the four factors of a competitive market?
- A large number of buyers and sellers
- Films are price takers
- Very similar products (homogeneous)
- Easy entry into the market (No barriers to entry/exit)
Provide two examples of a competitive market
- Fruit and Vegetable Markets
- Facebook Marketplace
What do markets rely on in a competitive market?
Markets rely on prices to allocate goods, services and resources between buyers and sellers.
What are the two types of changes in demand?
- A change in price will cause a movement along the demand curve.
- A change in a factor other than price will cause a shift in the demand curve
What are the factors affecting demand?
- Income
- Consumer Preferences
- Price of Related Goods
- Expectations of Future Prices
- Demographic Factors
What is a normal good in relation to consumer income?
A good for which demand increases as income rises and demand decreases as income falls.
What is an inferior good in relation to consumer income?
A good for which demand increases as income falls and demand decreases as income rises.
They’re usually very low-quality goods people buy when they have a limited income.
What is consumer preference?
Whether a consumer ‘likes’ or ‘dislikes’ a good or service - is often influenced by marketing and advertising.
What is the price of related goods?
The price of substitute and complement goods will have an effect on demand.
- Demand increases if the price of a substitute good rises and vice versa
- Demand increases if the price of a complement good falls and vice versa.
What do expectations of future prices mean?
- When consumers choose when to buy goods and services based on their expectations regarding future prices relative to current prices.
- If consumers expect prices to increase in the future, they have an incentive to increase their purchases now.
What are the two demographic factors?
Population and demographic
What is the population?
As population increases the demand for most goods and services increases.
What is demographic?
Changes in the characteristics of the population such as age and gender will influence demand for various goods and services.
Provide an example of a demographic change
As the population ages, the demand for cruise holidays increases.
What is the quantity supplied?
The amount of a good or service that a firm is willing and able to supply at a given price.
What is the supply curve?
A curve showing the relationship between the price of a product and the quantity of the product supplied.
What is the Law of Supply?
Producers will supply more at a higher price to maximise their profit. As price rises, supply expands. As the price falls, supply contracts. There is a positive relationship between price and quantity supplied.
What is the first reason for the law of supply?
Profit motive – Producers are more willing to sell their product at a higher price than a lower price
What is the second reason for the law of supply?
In order to produce more you require more inputs and this may cause your unit costs to rise e.g. you may need to hire more labour
What are the factors affecting supply?
- Costs of production
- Technology
- Prices of other goods
- Expectations of future prices
- Number of suppliers
- Supply disruption
What are non-price factors affecting supply?
- Price of Resources
- Technology
- Seasonal
Explain the ‘price of resources’
If the price of a resource used to produce a good rises, the cost of production rises, so supply decreases.
Explain ‘technology’
An improvement in technology occurs when a new production method is discovered that lowers the cost of producing a good, increasing supply.
Explain ‘seasonal’
Seasonal factors can influence the supply of a good. If a seasonal event causes damage to the environment then there will be a decrease in supply.
