External Influences- Demand and Supply

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 a good/service that sellers are willing and able to sell at any given price

Question 3

define equilibrium?

Answer 3

the situation in a market where demand is equal to supply ie. both parties are happy to pay and supply

Question 4

explain the relationship between demand and price?

Answer 4

inverse relation

Question 5

what happens if a business ignores equilibrium and sells for a low price?

Answer 5

the business will face a shortage

Question 6

what happens if a business ignores equilibrium and sells for a very high price?

Answer 6

the business will face an excess

Question 7

explain the effects on price and quantity supply of excess in demand in the market?

Answer 7

prices increase (people willing to pay more)
quantity supplied will increase

Question 8

explain the effects on price and quantity demanded of excess supply in the market?

Answer 8

prices decrease (business need to sell all products)
higher demand with lower prices

Question 9

determinants of demand?

Answer 9

• income
• population
• price of substitutes/ complements
• trends
• wealth
• advertising
• demographic changes
• government actions
• price

Question 10

what happens to the demand curve if the price changes?

Answer 10

customers will move along the existing curve

Question 11

what happens to the demand curve if any other demand factors change? (NOT PRICE)

Answer 11

it will create a new curve, right shift for a positive change, left for a negative

Question 12

determinants of supply?

Answer 12

• price
• costs
• taxes
• subsidies
• price of other products

Question 13

what is the relationship between price and supply?

Answer 13

if price goes up supply does too (vice versa)

Question 14

define wealth?

Answer 14

accumulation of value of assets (not liquidised cash)

Question 15

define substitutes?

Answer 15

products acting or serving in place of another

Question 16

define complements?

Answer 16

products bought together with other products

Question 17

define taxes?

Answer 17

compulsory payment to the government by businesses and individuals

Question 18

define subsidies?

Answer 18

payment from government to encourage supply (grant not a loan)

Question 19

relationship between supply and taxes?

Answer 19

inverse relation

Question 20

relationship between supply and subsidies?

Answer 20

if subsidies goes up, supply goes up (vice versa)

Question 21

changes to equilibrium- what happens when then is a positive change in demand?

Answer 21

a price increase is needed because there may be a shortage, this is because more people can afford it.

Question 22

changes to equilibrium- what happens when costs go down?

Answer 22

businesses can afford to lower their prices, customer demand has not changed but they need to sell the units supplied so prices drop.

Question 23

define price elasticity?

Answer 23

price elasticity of demand shows how responsive demand is to a change in price

Question 24

define inelastic demand?

Answer 24

quality demanded is insensitive to a change in price

Question 25

what does the inelastic demand curve look like?

Answer 25

steeper

Question 26

define elastic demand?

Answer 26

quantity demanded is sensitive to a change in price

Question 27

what does the elastic demand curve look like?

Answer 27

flatter

Question 28

why are some products inelastic?

Answer 28

• there are no substitutes
• it is a necessity product

Question 29

why are some products elastic?

Answer 29

• there are plenty of substitutes
• it is a luxury product

Question 30

what factors make demand inelastic?

Answer 30

• number of substitutes available
• degree of necessity
• whether the good is subject to habitual consumption
• peak and off-peak demand

Question 31

what do suppliers need to do when there is an excess?

Answer 31

lower their prices to re-establish equilibrium

Question 32

what do suppliers need to do when there is an shortage?

Answer 32

raise their prices to re-establish equilibrium