Demand, supply and prices

Question 1

Economist’s definition of demand:

Answer 1

Quantities of a good or service that potential buyers are willing and able to purchase during a certain period.

Question 2

Willing to purchase:

Answer 2

Refers to the condition that you are willing to pay.

Question 3

Main aspects of economist’s definition of demand:

Answer 3

Differs from needs to wants.
Indicates willingness to purchase.
Indicates ability to purchase.
It is for a specified period.

Question 4

Factors that determine the demand for goods:

Answer 4

Tastes and preferences (T).
Income (Y).
Price of the product (Px).
Number of potential buyers (N).
Price of related goods (Pg).
Substitutes.
Complements.
Other factors - weather and expected prices.

Question 5

Demand equation:

Answer 5

Qd = f (T, Y, Px, N, Pg,….)

Question 6

Law of demand:

Answer 6

Higher the price the lower the quantity demanded, lower the price the higher the quantity demanded.

Question 7

Non-price factors of demand:

Answer 7

Any factor other than the price of the good or service that influences the demand for it. Change in non-price factors can increase or decrease the demand.

Question 8

Non-price factors of demand include:

Answer 8

Tastes and preferences (T).
Income (Y).
Number of potential buyers (N).
Price of related goods (Pg) - substitutes and complements.
The weather.
Expected price.
Income distribution.

Question 9

Change in income:

Answer 9

Income increases consumers normally buy more of a good, if income decreases, consumers buy less of a good.

Question 10

Increase in income leading to increase in demand:

Answer 10

The good in this scenrio is referred to as a normal good.

Question 11

Increase in income leading to decrease in demand:

Answer 11

The good in this scenario is referred to as a inferior good.

Question 12

Change in quantity demanded:

Answer 12

Price of a good decreases quantity demanded will increase ceteris paribus. Price of a good increases the quantity demanded decreases ceteris paribus.

Question 13

Changes in demand:

Answer 13

Change in non-price factors causes a change in the quantity demanded at each price.

Question 14

Change in price:

Answer 14

Causes change in quantity demanded respresented as a movement along the demand curve.

Question 15

Changes in non-price factors:

Answer 15

Causes a change in demand and is represented as a shift of the demand curve.

Question 16

Substitutes:

Answer 16

Good that can be used in the place of another good without reducing a consumer level of satisfaction.

Question 17

Complements:

Answer 17

Goods that are often used jointly.

Question 18

Change in price of substitutes:

Answer 18

Price decreases demand for the other good usually decreases.

Question 19

Change in price of complements:

Answer 19

Decrease in demand increases the quantity demanded of it as well as the complement thereof. Same can be said in reverse.

Question 20

Meaning of supply:

Answer 20

Quantities of a good or service that potential suppliers are willing and able to supply during a certain period.

Question 21

Factors that influence supply:

Answer 21

Price of a good (Px).
Price of inputs (Pc).
Price of alternative goods (Pg).
Technology needed (T).
Number of suppliers (N).
Weather.
Expected prices.

Question 22

Supply as an equation:

Answer 22

Qs = f(Px, Pc, T, Pg, N,….)

Question 23

Law of supply:

Answer 23

Higher the price of the good the higher the quantity supplied will be, lower the price of the good the lower the quantity supplied will be.

Question 24

Non-price factors of supply:

Answer 24

Price of inputs (cost of production).
Price of alternative goods.
Technology needed.
Expected prices.
Number of suppliers.

Question 25

Cost of production:

Answer 25

Price of raw materials.
Wages of employees.
Cost of electricity.
Cost of rent.
Interest paid on capital.
Profit made.

Question 26

Change in supply:

Answer 26

Change in price causes a change in quantity supplied and is represented as a movement along the supply curve.

Question 27

Change in quantity supplied:

Answer 27

Change in non-price factors causes a change in supply and is represented as a shift of the supply curve.

Question 28

Meaning of market equilibrium:

Answer 28

Indicates a position of rest. Bahaviour of both buyers and sellers is unchanging. Buyers are able to buy the quantity of a product the are planning to buy and suppliers can supply the quantity of a product they plan to supply.

Question 29

Adjustment to equilibrium:

Answer 29

Excess supply/ surplus.

Excess demand/ shortage.

Question 30

Excess supply/ surplus:

Answer 30

Buyers are still able to buy the quantity of the product, suppliers become frustrated because they cannot sell the quantity the plan. To get rid of the surplus the offer a lower price. Price will continue to decrease until equilibrium is reached.

Question 31

Excess demand/ shortage:

Answer 31

Suppliers can sell the quantity that they plan to sell, buyers will become frustrated will not be able to obtain quantity of the product they wish. Buyers will change behaviour start to offer to buy the product at a higher price. Price will continue to increase until equilibrium is met.

Question 32

Price determination explained by equations:

Answer 32

Linear equation.
Quantity demanded.
Law of demand.
Negative relationship in law of demand.
Linear equation for supply curve.
Equilibrium quantity equals quantity supplied.
Equation for demand curve.
Equation for supply curve.

Question 33

Linear equation:

Answer 33

y = a + bx
y = dependent variable
x = independent variable
a and b are the intercept and the slope

Question 34

Quantity demanded:

Answer 34

Qd = f( T, Y, Px, N, Pg,….)

Question 35

Law of demand:

Answer 35

Qd = f (Px) ceteris paribus

Question 36

Negative relationship in law of demand:

Answer 36

Qd = a - bP

Question 37

Linear equation for supply curve:

Answer 37

Qs = c + dP

Question 38

Equilibrium quantity equals quantity supplied:

Answer 38

Qd = Qs