Demand & Supply

Question 1

What is Demand?

Answer 1

Demand- quantity of 🚘 or 🧹 purchased at a given price over a given ⏰ period (different to want- backed up by ability to pay- effective demand)

Question 2

What is Supply?

Answer 2

Supply- quantity of a 🚘 or 🧹 firms are willing to sell at a given price over a given ⏰ period

Question 3

What is Revenue and how do you work it out?

Answer 3

Revenue- the 💵 that a government or company receives

Total revenue= (price x quantity)

Question 4

How does Price affect Demand (Law of Demand)?

Answer 4

Ceteris Paribus- as price of 🚘 ⬆️, quantity demanded ⬇️

Ceteris Paribus- as price of 🚘 ⬇️, quantity demanded ⬆️

Question 5

How does Price affect movement along the Demand curve?

Answer 5

⬇️ in price-> expansion/extension in demand

⬆️ in price-> contraction in demand

Question 6

In which direction does a contraction occur along the Demand curve?

Answer 6

Left & Up

Question 7

In which direction does a extension/expansion occur along the Demand curve?

Answer 7

Right & Down

Question 8

Which 2 reasons explain why a Demand curve slopes downwards from left to right?

Answer 8

1) As price ⬇️, 🚘 cheaper compared to substitute 🚘- more accessible- demand ⬆️
2) Diminishing marginal utility- as one consumes ⬆️ of 🚘, utility (satisfaction) gained from each extra unit ⬇️
— Total utility ⬆️ BUT ⬆️ at ⬇️ rate
— Consumers only buy ⬆️ if price ⬇️

Question 9

How does Price affect Supply (Law of Supply)?

Answer 9

Ceteris Paribus- as price of 🚘 ⬆️, quantity supplied ⬆️

Ceteris Paribus- as price of 🚘 ⬇️, quantity supplied ⬇️

Question 10

How does Price affect movement along the Supply curve?

Answer 10

⬆️ in price-> expansion/extension in supply

⬇️ in price-> contraction in supply

Question 11

In which direction does a contraction occur along the Supply curve?

Answer 11

Left & Down

Question 12

In which direction does a extension/expansion occur along the Supply curve?

Answer 12

Right & Up

Question 13

Which 2 reasons explain why a Supply curve slopes upwards from left to right?

Answer 13

1) As firms ⬆️ output-> ⬆️ production costs- costs passed to consumers- ⬆️ prices
2) ⬆️ prices-> firms encouraged to supply ⬆️ & enter market (profit maximisers)-> ⬆️ supply

Question 14

What are the Conditions of Supply?

Answer 14

1) Change in production costs- ⬆️ cost, ⬇️ supply (capital, transport, labour costs etc)
2) Technology 💻 innovation (greater capital investment)-> ⬆️ supply
3) Number of firms in the market- ⬆️ firms, ⬆️ supply
4) Change in price of related 🚘- firms may switch good production depending on market value (profit maximise)
5) 🌧☀️ ❄️ conditions- agriculture for e.g.- crop supply will ⬆️ in better weather conditions
6) Firms expectations about future prices- firms wait to release 🚘 to market if the prices will ⬆️ in the future (profit/utility maximisers)
7) Indirect taxation- ⬆️ tax-> ⬇️ supply
8) Subsides- ⬆️ 💰 from government-> ⬇️ production costs-> ⬆️ supply

Question 15

What are the Conditions of Demand?

Answer 15

1) Population size- ⬆️ population= ⬆️ demand
2) Change- price of substitute goods- if price- one good ⬆️, demand for the other good ⬆️ e.g. 🚌 and 🚞 journey
3) Change- price of complimentary 🚘- if price- one 🚘 ⬆️, demand- both goods ⬇️ e.g. tennis rackets and tennis balls
4) Change in tastes/trends
5) Changes in 💵 - ⬆️ disposable 💵 = ⬆️ demand
6) Economic growth-> ⬆️ 💵- ⬆️ demand
7) Advertising- generally-> ⬆️ demand
8) Speculative buying- investors buy/sell shares- depends- future value of 🚘- ⬆️ demand
9) Income tax ⬇️-> ⬆️ disposable 💵-> ⬆️ demand
10) ⬆️ credit facilities-> easier to obtain funds-> ⬆️ demand

Question 16

What are substitute goods?

Answer 16

Substitute 🚘 are two alternative products that could be used for the same purpose

Question 17

What are complementary goods?

Answer 17

Complementary 🚘 are products that are used together