Econs - 2.3, 2.4, 2.5, 2.6

Question 1

market

Answer 1

• the market for a good or service consists of all those producers willing and able to supply it and all those consumers willing and able to demand it

Question 2

demand

Answer 2

• willingness and ability of a consumers to buy a product at a given price level

Question 3

demand - price rising (graph)

Answer 3

price rising = quantity demanded decreases

Question 4

demand - price falls (graph)

Answer 4

price falls = quantity demanded increases (extends)

Question 5

direction of slope - demand

Answer 5

slope downwards

Question 6

factors affecting demand

Answer 6

• habits, fashions and tastes
• income
• price of substitutes / complements
• advertising
• government policies
• weather
• population

Question 7

price ONLY influences ______
other factors influences _______

Answer 7

• price only influences movement along the demand / supply curve
• other factors influence the shift of the demand / supply curve

Question 8

increase in demand

Answer 8

• shifts outwards

causes
- rise in price for compliments
- fall in price of substitutes
- increased advertising
- rise in population

Question 9

decrease in demand

Answer 9

• curve shifts inwards

causes
- fall in price of substitutes
- rise in price of a complement
- reduction in advertising
- fall in population

Question 10

normal good

Answer 10

• goods for which demand goes up when income increases and for which demand goes down when income is lower

eg. wants

Question 11

inferior good

Answer 11

• goods that consumers buy less of to replace when income increases

eg. homecooked = restaurant

Question 12

supply

Answer 12

• willingness and ability of firms to produce a product at a given price level

Question 13

supply - price rises (graph)

Answer 13

price rises = quantity supplied increases (extends)

Question 14

supply - price falls (graph)

Answer 14

price falls = quantity supplied decreases (contracts)

Question 15

factors affecting supply of a product

Answer 15

• time
• weather
• opportunity cost
• subsidies (money from the government to reduce production costs)
• production costs
• discovery / depletion of resources

Question 16

rise in supply

Answer 16

• shifts outwards

causes
- decrease in cost of production
- increase in the supply of resources
- other products become less profitable (opportunity cost)
- subsides

Question 17

decrease in supply

Answer 17

• curve shifts inwards

causes
- rise in cost of production
- fall in the supply of resources
- other products become more profitable
- withdraw in subsides
- technical failures

Question 18

market equilibrium

Answer 18

• quantity demanded and supplied of a product is equal

Question 18

market disequilibrium

Answer 18

• quantity demanded is not matched with the quantity supplied

Question 19

excess supply

Answer 19

• surplus
• price needs to fall
• persuade consumers to buy more
• persuade producers to contract their supply

Question 20

excess demand

Answer 20

• shortages
• price needs to rise
• persuade consumers to reduce demand
• persuade producers to supply more

Question 21

higher demand - graph

Answer 21

higher demand => higher equibilirum price => higher equibilirum quantity

Question 22

higher supply - graph

Answer 22

higher supply => lower equilibrium price => higher equilibrium quantity

Question 23

lower demand - graph

Answer 23

lower demand => lower prices => lower quantity

Question 24

lower supply - graph

Answer 24

lower supply => higher price => lower quantity

Question 25

relative magnitudes

Answer 25

The relative magnitudes of change in supply and demand determine the outcome of market equilibrium.