EI - Demand and Supply and Market Forces (External Influences)

Question 1

Define Demand.

Answer 1

The amount of a good / service that customers are willing and able to buy at any given price

Question 2

Define Supply.

Answer 2

The amount of the good / service that sellers are willing and able to sell at any given price

Question 3

What is a Market?

Answer 3

Any situation where buyers and sellers are in contact in order to establish a price

Question 4

On a Demand and Supply diagram what is on the y axis?

Answer 4

Price

Question 5

On a Supply and Demand graph what is on the x axis?

Answer 5

Quantity Demanded

Question 6

In Equilibrium Demand is […….] to Supply

Answer 6

Equal

Question 7

In equilibrium there is no […….] stock

Answer 7

Unsold

Question 8

If demand is high what will firms do?

Answer 8

• Firms will decide to increase prices of the product

- Companies also want to maximise profit so they will increase supply

Question 9

What happens if there is excess supply in a market?

Answer 9

The price of the goods will decrease in order to increase demand and reach equilibrium

Question 10

How does price affect the demand curve?

Answer 10

Price causes movements along the Demand curve not shifts

Question 11

Define equilibrium?

Answer 11

The situation in a market when demand is equal to supply

Question 12

What are the factors that effect demand?

Answer 12

• Price
• Income
• Wealth
• Advertising
• Tastes and Fashion
• Demographics
• Government Intervention
• Price or other goods

Question 13

Factors that affect demand - how does price influence demand?

Answer 13

• Higher the price the lower the Quantity Demanded, vice Versa
• Remember it’s a movement along the Demand curve not a shift!!

Question 14

Factors that affect demand - How does Income influence demand?

Answer 14

• Increase in income leads to an increase in demand for most goods (normal goods)
• However some goods such as inferior goods, their demand goes down as income rises

Question 15

Factors that affect demand - How does Wealth influence demand?

Answer 15

• Wealth is not the same as income
• When an asset you own rises in value you feel richer even though your income has not increased.
• They feel more confident about spending more

Question 16

Factors that affect demand - How does Advertising influence demand?

Answer 16

• Puts The product into the public eye, in order to become more well known
• Successful promotion campaigns shifts the demand curve to the right.

Question 17

Factors that affect demand - How does Tastes and Fashion influence demand?

Answer 17

• Brand is seen more valuable than the actual product
• Consumers regard these products as essential for their lifestyle
• More people desire the product so the demand curve shifts to the right

Question 18

Factors that affect demand - How doe Demographics influence Demand?

Answer 18

• Larger population means more spending
• Shifts in the age structure of the population, business need to be aware of because young people buy different things to older people
• A change in the gender ratio business need to be aware of because men buy different products to women

Question 19

Factors that affect demand - How does Government action influence Demand?

Answer 19

• Campaigns ran by the government - eg. Live a healthier lifestyle
• These campaigns alter patterns of consumption
• This would make the Demand curve for firms selling healthier goods shift to the right

Question 20

Factors that affect demand - How does the price of other goods influence demand?

Answer 20

• Substitutes
- Can be used instead of another because it performs the same sort of function
- In order to work have to be close substitutes, could be long term or short term price change
- An Increase In price of good A reduced the demand for Good A, Good B is a substitute of Good A meaning that Good A’s price rise causes the demand for Good B to increase
• Compliments
- Are products that are joint in demand, when one is bought so is the other
- If there is an increase in demand for DVD’s there will also be an increase in demand for DVD Players because DVD Players are a compliment of DVD’s
- Fall In the price of DVD Players moves consumers along the existing demand curve, moves along the curve
- Therefore for DVD’s the Demand curve shifts!

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Question 21

Define a Compliment.

Answer 21

A product that is used, and is therefore bought in conjunction with another

Question 22

Define a Substitute.

Answer 22

An alternative product that serves the same function.

Question 23

Factors that influence Supply.

Answer 23

• Price
• Costs
• Tax
• Subsidies
• Price of Other Goods

Question 24

What is meant by Price?

Answer 24

The amount that a customer is willing and able to pay

Question 25

Factors that influence supply - Price.

Answer 25

- When prices are low business supply less because it is less profitable to do so - When prices are high business supply more - Opposite to the demand and price relationship

Question 26

Who do costs affect?

Answer 26

Costs affect the business not the consumer

Question 27

Factors that influence supply - Costs

Answer 27

- Fall In Costs will cause Supply to rise - When Costs go up supply will go down - If the rate of interest goes down firms costs of borrowing will fall so it will have more money available, it can supply more. - Positive changes send the supply curve to the right - Negative Changes shift the curve to the left

Question 28

Factors that influence supply - Tax

Answer 28

- Government puts a tax on product in order to raise revenue or to discourage the use of a product as it may be harmful (indirect tax) - Tax increases costs and shifts supply curve to the left

Question 29

When do we know if a consumer has been charged an indirect tax?

Answer 29

When the tax is only paid if a consumer actually buys the product

Question 30

Factors that influence supply - Subsidy.

Answer 30

- Government does this to encourage the supply of certain products, because it believes they are beneficial. - Has the opposite affect of tax

Question 31

What is a Subsidy?

Answer 31

A payment from the government to encourage a business to increase supply

Question 32

Factors that influence supply - Price of other products.

Answer 32

- Can be known as competitive supply - Fall In the price of one good makes business stop supplying that good and move to another good which is more profitable

Question 33

A rise in disposable income will shift the demand curve to the [........]

Answer 33

Right

Question 34

What is Price Elasticity of Demand?

Answer 34

Shows how responsive Demand is to a change in price

Question 35

What is meant by elasticity?

Answer 35

Where the change in demand that results from a price change is greater than the change in price that caused it.

Question 36

What is meant by Inelastic?

Answer 36

Where the change in demand ray results from a price change is less than the change in price that caused it.

Question 37

Demand and Supply curves that are sloping 45 degrees are quite Elastic/Inelastic?

Answer 37

Elastic

Question 38

If the supply or demand curve is quite steep does this mean the curve is Elastic or Inelastic?

Answer 38

Inelastic

Question 39

[.........] Demand curve are said to be elastic

Answer 39

Flatter

Question 40

If demand for a product is price inelastic it means that...

Answer 40

When price rises the quantity demanded falls but not by a proportional amount.

Question 41

What can a business do if demand for their products is price inelastic?

Answer 41

Can put the price of its products up, because there will no be a large fall in demand.

Question 42

What makes a product demand Inelastic?

Answer 42

If a business has few substitutes for its product because consumers cannot switch to another product

Question 43

What makes a product elastic?

Answer 43

Where there are many alternatives because consumer are able to switch to a substitute if prices rise.

Question 44

If there is a shortage what will producers do?

Answer 44

Suppliers will edge the price up to meet equilibrium.

Question 45

For a substitute good what will an Increase of Price for Good A have on demand for Good B?

Answer 45

Will cause demand for Good B to increase and demand for Good A to decrease

Question 46

What makes demand elastic or inelastic?

Answer 46

- If a Business has few substitutes for its products then the price of the product rises, demand is inelastic as consumers cannot switch to another product - Where there are many alternatives, demand will be elastic as consumers will be able to switch to a substitute if prices rise. - Cost of buying the product in proportion to consumers income