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Economics Edexcel iGCSE > Demand & Supply > Flashcards

Demand & Supply Flashcards

1
Q

What is the market?

A

A set of arrangements that allows buyers and sellers to communicate and exchange goods and services

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2
Q

Give an example of why markets can fail

A

e.g. lack of competition in market = buyers may higher prices & have less choice

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3
Q

Name 2 Functions of a Market System

A
  • Price Determination
  • Resource Allocation
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4
Q

Explain how a market helps allocate a nation’s resources

A

Resources flow from declining markets where prices are falling into thriving markets where prices are rising

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5
Q

What is demand?

A

Willingness and ability of consumers to buy goods and services

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6
Q

What is the Law of Demand?

A

As the price increases, the quantity demanded decreases and vice versa

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7
Q

What is quantity demand?

A

Amount of a product that people are willing and able to purchase at one, specific price

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8
Q

Name 5 determinants of demand (factors that affect demand)

A
  • Income
  • Price of Other Goods
  • Tastes
  • Expectations
  • Population
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9
Q

Describe how population affects demand

A

If population increases as there is more people to buy the product, demand for that product will increase

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10
Q

Describe how income affects the demand for normal goods

A

Increase in income = increase demand for normal goods

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11
Q

Describe how income affects the demand for inferior goods

A

Increase in income = decrease demand for inferior goods

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12
Q

What are substitute goods?

A

Goods that are alternatives to each other

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13
Q

Describe how substitute goods affect demand

A

An increase in the price of one good will decrease the demand for it and increase the demand for its substitutes

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14
Q

What are complementary goods?

A

Goods that are purchased together because they are used together

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15
Q

Describe how complementary goods affect demand

A

When the price of complementary goods decreases, the demand increases for the good whose price has not changed

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16
Q

Describe how expectations affect demand

A

If you expect prices to fall in the future, you may out off purchases today

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17
Q

Explain how tastes affect demand

A

A change in taste will change demand

e.g. If a good becomes really popular, the demand for that good will increase

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18
Q

Why does the demand curve slopes DOWNWARDS?

A

Inverse relationship between price and quantity demanded

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19
Q

What will a change in price cause on a demand curve?

A

A change in price causes a MOVEMENT along the demand curve

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20
Q

Illustrate a change in price cause on a demand curve

A
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21
Q

What causes a shift in demand?

A

Caused by any factor OTHER THAN price

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22
Q

Illustrate the effect of the quantity demanded increasing (on a demand curve)

A
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23
Q

What is supply?

A

Willingness and ability of producers to sell goods and services

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24
Q

What is the law of supply?

A

As price increases, the quantity supplied increases and vice versa

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25
Q

Name 4 factors that affect supply

A
  1. Cost of Production
  2. Availability of Resources
  3. Advancements in Technology
  4. Number of Suppliers
  5. Indirect Taxes
  6. Subsides
  7. The Prices of Other Goods
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26
Q

Describe how the cost of production affects supply

A

Increase in cost of production (e.g. Raw materials, wages) = decrease producers’ profits (supply curve to shift to the left)

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27
Q

Describe how the availability of resources affects supply

A

Availability of resources increase = can create more products (= supply curve will shift to the right)

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28
Q

Describe how advancements in technology affects supply

A

Advancements (or improvements) in technology will increase supply as they reduce the cost of production

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29
Q

Describe how the number of suppliers affects supply

A

Increase in number of suppliers in a market = increase supply to the market (= supply curve shifts to the right)

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30
Q

Describe how subsides affect supply

A

If producer receives a subsidy = supply will increase because costs are reduced

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31
Q

Describe how indirect taxes affect supply

A

When they imposed/increases = supply will fall because indirect taxes represent a cost to firms

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32
Q

Describe how the prices of other goods affect supply

A

Firms may switch production to workable alternatives if its price starts to rise = supply of alternative product will increase while supply of existing product will fall

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33
Q

Why does the supply curve slopes UPWARDS?

A

Direct relationship between price and quantity

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34
Q

Illustrate a change in price on a supply curve

A
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35
Q

Illustrate a shift in supply on a supply curve

A
36
Q

What is market equilibrium?

A

Where quantity demanded EQUALS quantity supplied

37
Q

What is equilibrium price?

A

Price of a good or service when supply is equal to demand

38
Q

What is equilibrium quantity?

A

Quantity demanded and supplied at the equilibrium price

39
Q

What is excess demand?

A

When price DECREASES and consumers demand more and producers supply less

aka shortage

40
Q

Illustrate excess demand

A
41
Q

What is excess supply?

A

When price INCREASES and producers supply more and consumers demand less

aka surplus

42
Q

Illustrate excess supply

A
43
Q

What is price elasticity of demand?

A

The responsiveness of demand to a change in price

44
Q

How do you calculate PED?

A

Percentage Change in Price

45
Q

If PED is more than 1, it’s…

A

Elastic

46
Q

If PED is less than 1, it’s…

A

Inelastic

47
Q

If PED is exactly 1, it’s…

A

Unit Elastic

48
Q

If PED is exactly 0, it’s…

A

Perfectly Inelastic

49
Q

PED: Illustrate Unit Elastic

A

Can be a straight line

50
Q

PED: Illustrate Perfectly Inelastic

A
51
Q

PED: Illustrate inelastic demand

A
52
Q

PED: Illustrate elastic demand

A
53
Q

What is meant if the demand for product is price elastic?

A

Change in demand will be greater than change in price

54
Q

What is meant if the demand for product is price inelastic?

A

Change in price will be greater than change in demand

55
Q

PED: Name 4 factors of price elastic goods

A
  • Many close substitutes
  • Non-essential good
  • Product widely available
  • Large proportion of income
56
Q

PED: Name 4 factors of price inelastic goods

A
  • Habit forming
  • Essential good
  • Few substitutes
  • Small proportion of income
57
Q

What is price elasticity of supply?

A

Responsiveness of supply to a change in price

58
Q

How do you calculate PES?

A

Percentage Change in Price

59
Q

Name 4 factors that determine PES

A
  • Time (Production Speed)
  • Spare Capacity
  • Availability of Factors
  • Stocks
60
Q

Describe how time (production speed) affects PES

A

If a company has little time to increase supply = the supply will be INELASTIC

61
Q

Describe how spare capacity affects PES

A

If a company is not using all their resources = supply can increase quickly (ELASTIC)

62
Q

Describe how the availability of factors affects PES

A

If a firm can easily access the factors of production = changes in supply will be ELASTIC

63
Q

Describe how stocks affects PES

A

If a company has spare stocks = supply can increase quickly (ELASTIC)

64
Q

PES: Illustrate price inelastic

A
65
Q

PES: Illustrate price elastic

A
66
Q

What is income elasticity of demand (YED)?

A

Responsiveness of demand to a change in INCOME

67
Q

Describe how to calculate YED

A

Percentage Change in Income

68
Q

Describe how normal goods affects YED

A

As income increases, demand for these goods increase

69
Q

Describe how inferior goods affects YED

A

As income increases, demand for these goods decreases

70
Q

Normal goods = _______ YED

A

POSITIVE

71
Q

Inferior goods = ______ YED

A

NEGATIVE

72
Q

Interpreting YED: What happens if it’s greater than 1?

A
  • Elastic
  • Normal Good
73
Q

Interpreting YED: What happens if it’s less than -1?

A
74
Q

Interpreting YED: What happens if it’s between 0 and 1?

A
  • Inelastic
  • Normal good
75
Q

Interpreting YED: What happens if it’s between -1 and 0?

A
  • Inelastic
  • Inferior good
76
Q

Interpreting YED: 0 Decimal (e.g 0.65) = ____

A

Inelastic

77
Q

What is total revenue?

A

Total income earned by the business

78
Q

How do you calculate total revenue?

A

TR = Price × Quantity Demanded

79
Q

What happens to price & TR if a good is elastic?

A

Price Increases, TR decreases

Price decreases, TR increases

{Opposites - Price & TR}

80
Q

What happens to price & TR if a good is inelastic?

A

Price increases, TR increases

Price decreases, TR decreases

{Same - Price and TR}

81
Q

How does the government use price elasticity?

A
  • They impose indirect taxes on goods with are price inelastic
  • Because consumers cannot easily avoid buying them
82
Q

What is specialisation?

A

Producing one product in great detail

83
Q

What is occupational specialisation?

A

When an individual is specialised in one specific job

84
Q

What is factor substitution?

A

When technology takes over the job of a human workforce

85
Q

Name 3 advantages of occupational specialisation

A
  • More experienced and qualified
  • Job will be done efficiently
  • Higher salary
86
Q

Name 3 disadvantages of occupational specialisation

A
  • Job may become repetitive or boring
  • Job rotation is restricted
  • Responsibility is on one worker

Economics Edexcel iGCSE (8 decks)

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