External Influences- Demand and Supply Flashcards
define demand?
the amount of a good/ service that customers are willing and able to buy at any given price
define supply?
the amount of a good/service that sellers are willing and able to sell at any given price
define equilibrium?
the situation in a market where demand is equal to supply ie. both parties are happy to pay and supply
explain the relationship between demand and price?
inverse relation
what happens if a business ignores equilibrium and sells for a low price?
the business will face a shortage
what happens if a business ignores equilibrium and sells for a very high price?
the business will face an excess
explain the effects on price and quantity supply of excess in demand in the market?
prices increase (people willing to pay more)
quantity supplied will increase
explain the effects on price and quantity demanded of excess supply in the market?
prices decrease (business need to sell all products)
higher demand with lower prices
determinants of demand?
- income
- population
- price of substitutes/ complements
- trends
- wealth
- advertising
- demographic changes
- government actions
- price
what happens to the demand curve if the price changes?
customers will move along the existing curve
what happens to the demand curve if any other demand factors change? (NOT PRICE)
it will create a new curve, right shift for a positive change, left for a negative
determinants of supply?
- price
- costs
- taxes
- subsidies
- price of other products
what is the relationship between price and supply?
if price goes up supply does too (vice versa)
define wealth?
accumulation of value of assets (not liquidised cash)
define substitutes?
products acting or serving in place of another
define complements?
products bought together with other products
define taxes?
compulsory payment to the government by businesses and individuals
define subsidies?
payment from government to encourage supply (grant not a loan)
relationship between supply and taxes?
inverse relation
relationship between supply and subsidies?
if subsidies goes up, supply goes up (vice versa)
changes to equilibrium- what happens when then is a positive change in demand?
a price increase is needed because there may be a shortage, this is because more people can afford it.
changes to equilibrium- what happens when costs go down?
businesses can afford to lower their prices, customer demand has not changed but they need to sell the units supplied so prices drop.
define price elasticity?
price elasticity of demand shows how responsive demand is to a change in price
define inelastic demand?
quality demanded is insensitive to a change in price
