L2 How Markets Work

Question 1

What are markets defined as?

Answer 1

Where buyers and sellers interact

Question 2

Define demand
Who determines demand

Answer 2

The amount or quantity of stuff customers want to or are willing to buy

Determined by customers

Question 3

Define supply
Who determines supply

Answer 3

The amount of stuff customers are able to buy. And are willing to buy

Determined by supplier

Question 4

What are competitive markets ?

Answer 4

• multiple buyers and sellers
• buyers can enter and exit as they wish
• identical products

Question 5

The Law of demand states _________ decreases as _______ increases.

Answer 5

Supply decreases as price increase and the same vice versa

Question 6

What is the function of a demand curve?

Answer 6

Relationship between the price of the goods and the quantity demanded.

Question 7

Describe one difference between market demand and individual demand

Answer 7

Market demand = the sum of all individuals demand for a specific product o service

Question 8

________ ___________ is the reason of movement along the demand curve

Answer 8

Change in price

Question 9

What causes a shift in demand?

Answer 9

Any other factor apart from price causes a shift in demand
eg income changes and changes in taste or fashion

Question 10

What is the ceteris paribus assumption

Answer 10

“All else is equal”
It is examined that if 1 changes everything else remains the same.

Question 11

What is then relationship between consumer income and inferior and normal goods

Answer 11

An increase in income causes normal goods will increase eg holidays
- demand curve moves out
Inferior goods eg budget hotels decrease
- demand curve moves inwards

Question 12

What is the difference between substitute and compliment

Answer 12

Substitute - when the fall in price for 1 good causes a reduction in demand for another good

Complement - when the increase in demand for one good causes an increase in demand for another product

Question 13

Name two examples of causes of shift in demand

Answer 13

Taste and preference changes
Publicity and pr eg ronaldo shaving away Coca Cola bottle and picks up a waiter bottle
Expected future demand - eg in one week the petrol will be cheaper than it is now

Question 14

What is the law of supply?

Answer 14

Quantity increases as price increases

Question 15

What is a supply schedule?

Answer 15

Relationship between the price of a good and the quantity supplied

Question 16

Why is the supply curve positively sloped?

Answer 16

As the price of the good goes up, producing the good becomes more profitable

Question 17

What is market supply vs individual supply

Answer 17

Sum of all individual suppliers demand in a particular market.

Question 18

What causes a shift in supply curve?

Answer 18

Costs of production
Technology
- rise in technology make production more effective

Number of suppliers
- Moore supplier = more products

Question 19

Equilibrium price vs equilibrium Quantity

Answer 19

Price - the price that balances quantity supplied and quantity demanded

Quantity - quantity supplied and demanded at equilibrium price

Question 20

what is market equilibrium

Answer 20

Position where there is no tendency to change.

Question 21

What causes market disequilibrium

Answer 21

Excess supply - quantity supplied is greater than quantity demanded
Excess demand - firm could not meet customer demand (shortage)

Question 22

How would you analyse a change in equilibrium

Answer 22

1. Did the event shift the demand or supply curve
2. Was the shift to the left o right
3. Use diagram to see how the change affect the equilibrium price or quantity

Question 23

Statement
when quantity demanded is greater than the supply it is called a _________

Answer 23

Shortage

Question 24

Statement
When quantities supplied in greater than demand it is called _________

Answer 24

Surplus