Extra things to know

Question 1

what is resource scarcity ?

Answer 1

This is the notion that all resources are scarce because of the limitless wants and uses of the resources.

Question 2

what are the most important changes that occur which cause conyractions and extensions ?

Answer 2

1. prices of other goods and services - substitutions
2. complementing goods
3. preferences or tastes of consumers

Question 3

If discussing the impact of price decreases and price increases …

Answer 3

A price decrease results in a contraction in the quantity supplied
A price increase results in an extension in the quantity supplied

Question 4

What happens to the supply curve when there is a decrease or increase in the production costs ?

Answer 4

1. a decrease in demand at all possible prices - the supply curve shifts to the left
2. an increase in demand at all possible prices - the supply curve shifts to the right

Question 5

what factors influence the supply curve of a good `/

Answer 5

1. the price
2. input costs
3. technology

Question 6

What is a clear market ?

Answer 6

A market in which the quantity demanded equals the quantity supplied

Question 7

What are firms encouraged to do if there is excess supply ?

Answer 7

Firms may reduce prices to try and balance demand and supply

Question 8

What are firms encouraged to do if there is excess demand ?

Answer 8

There is a tendency for a price increase until demand and supply are harmonised

Question 9

What are the determinants of price elasticity of demand ?

Answer 9

1. availability of substitutes
2. time
3. the proportion of income spent on. a good or service

Question 10

Explain the availability of substitutes theory ?

Answer 10

goods and services that have CLOSE substitutes tend to have a relatively price elastic demand structure.
Manufacturers dont want to raise the cost of their products incase customers go to their competitors for the substitute.
Producers wish to develop brand loyalty which establishes the superiority of a particular good or service over it’s rival products.
goods that have FEW CLOSE substitutes e.g. oil are relatively inelastic. Think of perfectly inelastic goods.

Question 11

Explain the proportion of income spent on a good / service ?

Answer 11

When only a small portion of income is spent on a good, purchasers are thought to be relatively indifferent to price changes in terms of their demand for it. Demand in such cases will be more inelastic. E.g. Cadbury’s freddo
Cadbury’s are able to perform a 150% price increase simply because 25p still isn’t much

Question 12

Explain time ?

Answer 12

Demand patterns