Firms in the Marketplace - Demand & Supply

Question 1

What is demand?

Answer 1

It is the quantity that buyers wish to to purchase at a given price

Question 2

What is the law of demand?

Answer 2

The law of demand states that there is an invers relationship between the price of a good and the quantity demanded of a good.

It is a downward sloping curve.

Question 3

What is a change in quantity demanded?

Answer 3

Movement along the demand curve caused by a change in the price of the product itself.
Expansion/Contraction

Question 4

What is a change in demand?

Answer 4

A shift in the demand curve due to a change in demand caused by factors other than the price
Shift left - demand decrease
Shift right - demand increase

Question 5

What are the factors that cause a shift in demand?

Answer 5

Change of taste
Change in price of related goods
Change in income
Change in consumer’s expectations (future income/inflation)
Chane in population

Question 6

What is the impact of substitutes on demand?

Answer 6

If price of product A increases demand for product B increases

Question 7

What is the impact of complements on demand?

Answer 7

If price of A increases demand for product B decreases

Question 8

What is the impact of a rise in income to demand for goods?

Answer 8

Demand for inferior goods fall
Demand for normal good rises

Question 9

What are inferior goods?

Answer 9

Goods which will be consumed less when income increases

Question 10

What are normal goods?

Answer 10

Goods you wish to buy more when income increases

Question 11

What is supply?

Answer 11

Supply is the quantity of goods that a seller is prepared to sell at any given price over a period of time.

Question 12

What is the law of supply?

Answer 12

There is a positive relationship between the price of a good and the quantity supplied.
It is an upward sloping curve

Question 13

What is a change in quantity supplied?

Answer 13

It is when there is a movement along the supply curve due to a change in price
Expansion/Contraction

Question 14

What is a change in supply?

Answer 14

A shift in the supply curve due to factors other than the price
Shift left - supply decrease
Shift right - supply increase

Question 15

What are the factor that could cause a shift in the supply curve?

Answer 15

The technology available
Change in cost of labor, machinery, land, raw materials
Change in price of related goods used in production
Change in suppliers expectation
Number of suppliers
Government policies

Question 16

What is market equilibrium?

Answer 16

When quantity demanded equals quantity supplied

Question 17

What is a consumer surplus?

Answer 17

It reflects the amount of utility or gain customers receive when they buy products and services

It is the difference between how much buyers are prepared to pay for a good and what they actually pay.

Question 18

What is a producer surplus?

Answer 18

It is the amount of benefit a business receives when they sell a product or service

It is the difference between the market price which the firm receives and the price they are willing to supply