DMU, shifts and conditions of supply and demand

Question 1

Ceteris Paribus =

Answer 1

all things equal

Question 2

Explain Diminishing Marginal Utility

Answer 2

Diminishing Marginal Utility – the idea that satisfaction received from each extra unit consumed falls

Question 3

Explain supply

Answer 3

Supply – the quantity of the good firms are willing and able to offer for sale at any given price over a period of time

Question 4

Explain demand

Answer 4

Demand – the quantity of the good people are willing and able to buy at any given price over a period of time

Question 5

Law of supply=

Answer 5

higher price = higher supply

Question 6

Law of demand =

Answer 6

inverse relationship between the price of a product and demand

Question 7

Conditions of demand (shifts) PIRATES

Answer 7

Population (larger pop higher demand), Income (more income more demand), Related goods (substitutes or complements), Advertising (incr consumer loyalty incr demand), Tastes and preferences, Expectations (shares), Seasons (tourism, food, ice-cream)

Question 8

Conditions of supply (movement)

Answer 8

decrease in price extension of demand, increase in price contraction of quantity demanded

Question 9

Explain why the demand curve slopes downwards

Answer 9

The demand curve slopes downwards because as supply increases, consumption of a product will increase. This increase in consumption causes marginal utility to diminish which in turn causes a decrease in demand for a product and thus a decrease in the demand curve as the supply curve increases

Question 10

The engel curve shows that

Answer 10

the poorer the household the larger the proportion of its budget dedicated to nourishment

Question 11

Define derived demand

Answer 11

demand for one good is linked to the demand for a related good (bricks and houses)

Question 12

Joint demand

Answer 12

when goods are bought together such as camera and memory card

Question 13

Composite demand

Answer 13

when the good demanded has more than one use (milk (more cheese less butter))

Question 14

Conditions of supply (shifts) PINTSWC

Answer 14

Productivity (higher outward shift as average costs for firm fall), Indirect tax (inward shift), Number of firms (larger supply as more firms), Technology (outward shift), Subsidies (outward), Weather, Cost of production (labour costs, capital, fuel, tax, materials, rent inward shift)

Question 15

Conditions of supply (movement)

Answer 15

A decrease in price causes a contraction of supply; an increase in price causes a extension of supply

Question 16

Joint supply

Answer 16

increasing the supply of one good causes increase or decrease in supply of another good i.e. lamb/wool, beef/leather

Question 17

Why is supply upwards sloping

Answer 17

Supply is upwards sloping because if price increases it is more profitable for firms to supply the good so supply increases

Question 18

•A movement outwards along a curve =

Answer 18

Extension

Question 19

•A movement inwards along a curve =

Answer 19

Contraction

Question 20

•A movement of the whole curve outwards

Answer 20

increase

Question 21

A movement of the whole curve inwards =

Answer 21

decrease

Question 22

Micro axis’

Answer 22

p and q

Question 23

Normal goods

Answer 23

Demand increases when income increases

Question 24

Inferior goods

Answer 24

Demand decreases when consumer income increases

Question 25

Notional demand

Answer 25

the desire of people for a good even if they do not have adequate funds to purchase it

Question 26

Effective demand

Answer 26

ability to pay as well as desire to buy a good or service

Question 27

Derived demand

Answer 27

demand that arises or is defined indirectly for some other demand or underlying behaviour