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Economics > Demand, Supply and Market Equilibrium > Flashcards

Demand, Supply and Market Equilibrium Flashcards

Economics is the study of financial decisions of buyer, seller, government and international traders.

1
Q

What is economics?

A

Economics is the study of financial decisions of buyers, sellers, government and international traders.

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2
Q

What is micro economics?

A

It is the study of financial decisions of buyers and sellers.

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3
Q

What is macro economics?

A

It is the study of financial services of government and international traders.

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4
Q

Buyers are also known as________?

A

Consumers and individuals

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5
Q

Sellers are also known as_______?

A

Producers and firm.

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6
Q

Government is also known as________?

A

State.

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7
Q

International traders are also known as__________?

A

Importers and Exporters.

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8
Q

What is Demand?

A

Demand is the quality of goods which buyers are wiling and able to buy at different price leads.

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9
Q

What are determinants of demand?
(Factors effecting Demand)

A
  1. Price of the goods
  2. Income of consumer
  3. Price of complementary goods
  4. Price of substitute goods
  5. Population/ No. of buyers
  6. Future expectations about price and shortage
  7. Taste or preference
  8. Advertisement
  9. Availability of credit facilities
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10
Q

Which is the primary/ key determinant of demand and its effect on demand?

A

Price of the goods is primary/ key determinant of demand.
If price of a good increases its quantity demanded decreases and vice versa.

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11
Q

What is the effect of income of consumer/ buyer/ individual on demand?

A

For normal goods/ things if income increases its demand increases, if income decreases its demand decreases.

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12
Q

What is the effect of income of consumer/ buyer/ individual for inferior goods on demand?

A

For inferior goods if income increases its demand decreases, if income decreases its demand increases.

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13
Q

What are independent goods?

A

If price of one good or quantity of one good does not effect the price or quantity of other good it is known as independent good.

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14
Q

What are related goods?

A

If price or quantity of one good effects the price or quantity of other good it is known as related goods.

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15
Q

What are types of related goods?

A

There are two types of related goods:
1) Compliment Goods
2) Substitute Goods

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16
Q

What are Compliment goods?

A

Goods that are used together are known as compliment goods.
Car and petrol, Tea and sugar, pen and ink, needle and thread,

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17
Q

What are Substitute goods?

A

These goods are not used together. Purpose of using one good is same as the other . So, one good fulfills the purpose.
Coke and Pepsi, Cream and Uber, petrol and CNG, Suzuki and Honda, Tea and Coffee, Cooking oil and Ghee

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18
Q

what is the effect of price of complement goods on demand?

A

If the price of a complementary good increases demand of/for main good decreases.

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19
Q

What is the effect of price of substitute goods on demand?

A

If the price of a substitute good increases demand for main good increases, if the price of a substitute good decreases demand for main good decreases.

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20
Q

What is the effect of population/ no. of buyers on demand?

A

If population of buyers increases demand for goods increases.

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21
Q

How demand effects on future expectations about price and shortage?

A

If future expectations for price increases, then current demand for the product increases
For Example:
Petrol

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22
Q

How demand effects taste or preference?

A

If the taste or preference changes because of any special occasion then the demand for products increases or decreases.
For Example:
Demand for dates increases in Ramadan.

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23
Q

What is the effect of demand on advertisement?

A

Demand for products increases or decreases with advertisement.

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24
Q

How availability of credit facilities is effected by demand?

A

If credit facilities are available demand for the products increases.

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25
Q

What is the law of demand?

A

When the price of a good rises ceteris paribus, the quantity demanded will contract and vice versa.

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26
Q

What is ceteris paribus?

A

Ceteris paribus means the factors which are discussed will change while other factors remain constant (unchanged).

27
Q

What is primary determinant and non- price determinants or secondary determinants in the law of demand?

A

Price is primary determinant.
Other factors are known as secondary determinants or non- price determinants

28
Q

Why slope of demand curve is negative?

A

1) Income effect
2) Substitution effect (shift karna)
3) Law of diminishing marginal utility
✓ People will feel poorer. They will not afford to buy so much of the good with their money. The purchasing power of their income has fallen in economic theory. This is known asincome effect of a price rise
✓ The good will now is dearer relative to other goods. People will thus switch to alternative or substitute goods. This is called the substitution effect of a price rise.

29
Q

Explain with an example why slope of demand curve is negative?

A

Slope of demand curve is negative because of following reasons:
1) Income effect
2) Substitution effect
3) law of diminishing marginal utility
For Example:
If price of Pepsi decreases it’s demand increases.
Reason
✓ If price of Pepsi decreases, it’s consumers real income increase.
✓ Consumers of Coke will substitute their product with Pepsi
✓

30
Q

What is the effect of taxes on prices?

A

If government implies tax price of a product increases.

31
Q

What are essentials or assumptions of the law of demand?

A

Essentials or assumptions of the law of demand:
✓ There is no change in average income of consumers.
✓ There is no change in population size.
✓ No change in prices of related goods like, substitutes and complements are not changed.
✓ No change in Taste, Fashion and Weather.
✓ No change in Future Expectations that is consumers expectations regarding the prices of any product remains unchanged.
✓ There is no change in advertisement that will impact demand.

32
Q

What is the difference between market demand and individual demand?

A

Market demand is the collective demand of all consumers for a product in the market intend to buy at different possible prices while Individual demand curve represents individual consumer or household in the market.
The market demand curve is obtained by adding up all the individual demand curves for every consumer in the market or it is the horizontal summation of all individual demand curves.

33
Q

What are the limitations or exceptions for the law of demand?

A

There are certain cases where the law of demand does not apply i.e., the demand does not rise when the prices fall and vice versa. These exceptions or limitations are as under:
1. Basic necessities of life
2. Use as confer distinction
3. Change in income
4. Ignorance of the consumer
5. Uncertain conditions
6. Giffen Goods

34
Q

How basic necessities of life are exceptions or limitations for the law of demand?

A

The law of demand is not applicable to the basic necessities such as sugar, rice, wheat because people will keep on buying these commodities regardless of the increase or decrease in prices.

35
Q

Why the use of goods as confer distinction is exception or limitation for law of demand?

A

Those goods which possess some distinctive features, are considered as exception of law of demand. Because as price of such goods increases, their demand increases for a particular group of society.

36
Q

Why change in income is exception or limitation of law of demand?

A

The rise and decline in income of people also have a reverse effect on law of demand. If a price of a commodity rises it is unlikely that the demand will rise, however it happens if the income has increased because then the power of spending also increases.

37
Q

How ignorance of consumer is exception or limitation of law of demand?

A

Often the consumer is not unduly bothered about the price he is paying for a product, even though it is possible that he may also be able to pay less for the same good somewhere else as he does not have the complete knowledge of the market.

38
Q

How uncertain conditions are exceptions or limitations for the law of demand?

A

If high uncertainty is prevailing in the market, there is a fear of being shortage of a commodity in near future, people will buy more of it in spite of higher prices.

39
Q

How consumer’s income increases?

A

Consumer’s income increases due to decrease in rate of direct taxes due to an increase in the rate of economic growth, due to decrease in the rate of interest.

40
Q

Define direct demand.

A

The demand of a certain good that is directly demanded by the customer is known as direct demand.

41
Q

Define Giffen goods.

A

It is a type of inferior good whose demand increases if it’s price increases.

42
Q

What is practical importance of law of demand?

A
  1. Price determination
  2. Firm’s decision making
  3. Helpful for finance minister
43
Q

Explain price determination as practical importance of the law of demand.

A

The law of demand contributes to the determination of price of a certain commodity. Also, the producer can see the effect on demand due to increase or decrease in price and can take decisions accordingly.

44
Q

Explain firm’s decision making as practical importance of the law of demand.

A

The demand schedule helps the entities plan for future by analyzing the impact of change in prices on the quantity demanded at both; the national and international level.

45
Q

How practical importance of the law of demand is helpful for finance minister?

A

It is of great help for the state as well in the due course of rising tax on certain commodities. If the increased tax causes the price of a commodity to be increased to a level where the demand falls, then there would be no use raising the tax level as ultimately the overall amount of the taxable revenue would remain almost the same.

46
Q

Explain movement along demand curve and shift.

A

The relation between price and quantity that is described by the demand curve is valid only when it is the price of the product itself changes (change in quantity demanded or extension and contraction in demand). If instead, something else, changes then the demand curve will shift (change in demand or rise and fall in demand).

47
Q

Which factors are responsible for change in demand or shift in demand curve?

A
  1. Changes in income:
    As the income of consumer rises, he will purchase more of those products which are still available at the same prices. Hence their demand will rise and vice versa.
  2. Taste:
    Change of taste or liking/disliking can affect demand for a product. For Example: Someone likes to use more of sugar but later taste gets change, the demand for sugar will fall without bothering it’s price.
  3. Weather conditions:
    During the winter season, the demand for tea or coffee is very high because consumers prefer such things. However during the summer season the situation is just the opposite as people prefer soft drinks.
  4. Changes in population:
    A larger population will mean, all things remaining equal, that the demand for most goods and services will increase. As in case of housing industry, the demand for houses increases with increase in population in town.
  5. Changes in price of substitutes:
    Price of substitutes also effect the demand for a product. An increase in the price of one good will cause an increase in demand for the other products as well as that product will become relatively less expensive. For instance, if the price of LG products will increase, few consumers will shift to its substitute in spite to change in price of the other product.
  6. Changes in advertisement:
    A successful advertising campaign for a certain good will increase demand for it.
48
Q

Define Supply.

A

Quantity of goods which suppliers are willing and able to sell at different price level.

49
Q

What are the determinants of supply?

A

Determinants of supply are:
1. Price of the product
2. Availability and quality of the factors of production/inputs
3. Cost of input
4. Technology
5. Indirect taxes and subsidies on product
6. Environmental Conditions
7. Price of complement in production
8. Price of substitute in production
9. Number of sellers in the market
10. Time and Supply

50
Q

Define Stock.

A

Stock is a quantity of goods which suppliers are not willing to sell.

51
Q

What are types of market?

A

• Local Market
• Regional Markets
• National Markets
• International Markets
• Online or Virtual Markets
• Goods Market
• Factors or Resource Market
• Financial Markets

52
Q

What is complement in production?

A

• Produced together
• Same production process
• Beaf and Leather

53
Q

What is Substitute in production?

A

• Produced by a firm
• As Alternative
• Air Conditioners and Refrigerators

54
Q

What is the effect of price of the product on supply?

A

It is key/ primary determinant of the product.
If price of a product increases its quantity supplied increases.
If price of a product decreases its quantity supplied decreases.

55
Q

What are factors of production?

A

• Land
• Labor
• Capital
• Enterprise/ Entrepreneurs are factors of production.
Availability and quality of factors of production also effects supply.

56
Q

What is the effect of cost of input on supply?

A

If cost of input increases, supply decreases, and If cost of input decreases, supply increases.

57
Q

What is the effect of technology on supply?

A

With improved/ updated technology, productivity increases

58
Q

What is direct Tax?

A

Direct Tax means the tax on income.

59
Q

What is indirect tax?

A

Indirect tax means the tax on expenditure.

60
Q

What is the effect of indirect taxes on supply?

A

When government increases indirect taxes, cost of input increases and supply decreases.
When government decreases indirect taxes, cost of input decreases and supply increases

61
Q

What is the effect of subsidies on supply?

A

When government increases subsidies, cost of input decreases and supply increases.
When government decreases subsidies, cost of input increases and supply decreases.

62
Q

How environmental conditions effect supply?

A

There are two types of production:
• Industrial
Developed Countries
• Agricultural
Developing countries
Bad weather condition effects production
•Supply decreases with bad weather
•Supply increases with good weather

63
Q

What is the effect of complement in production?

A

Sirf complement ho to consumer ke point of view se
It is the type of goods which are produced in the same production process.

64
Q

What is the effect of price of substitute in production on supply?

A

It is the type of goods which are produced as alternative in firm.
If price of one good in production increases supply of the other good decreases

Economics (13 decks)

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