Lecture 03 # Demand & Supply Analysis

Question 1

What is Market?

Answer 1

The market refers to the interaction between buyers and sellers where goods, services, or resources are exchanged.

Question 2

Classification of Market?

Answer 2

Market can be classified on the basis of,
1. Area/Location.
2. Time.
3. Nature Of Business.
4. Regulations.
5. Volume Of Business.
6. Competition.

Question 3

The most important type of market that we discuss in this chapter is?

Answer 3

The most important type of market is Competition-wise such as:
1. Perfect
2. Monopoly
3. Oligopoly
4. Monopolistic
5. Duopoly

Question 4

Describe Perfect Competition in market.

Answer 4

1. Perfect Competition: This is when there are many buyers and sellers offering identical products.
   Example: Fruits and vegetables at a farmer’s market.

Question 5

Describe Monopoly Competition in market.

Answer 5

2. Monopoly: In a monopoly, there is only one seller in the market, with no close substitutes.
   Example: Local utility company (K.E) that provides electricity.

Question 6

Describe Oligopoly Competition in market.

Answer 6

3. Oligopoly: In an oligopoly, a few large sellers dominate the market.
   Example: Smartphone industry, where a few major companies compete for customers.

Question 7

Describe Monopolistic Competition in market.

Answer 7

4. Monopolistic Competition: This is when there are many sellers offering similar but slightly differentiated products.
   Example: Fast-food industry, with different chains offering similar types of food.

Question 8

Describe Duopoly Competition in market.

Answer 8

Duopoly Competition: A market with two firms where each firm’s actions impact the other’s market outcomes.
Example: Coke and Pepsi in the soft drink industry,

Question 9

What is Demand?

Answer 9

Demand: A schedule or curve showing the quantities consumers are willing to buy at various prices, like how many pizzas people will purchase at different prices each week.

Question 10

Describe Market Demand Curve.

Answer 10

Market Demand is the total quantity of a good or service all consumers in the economy are willing to buy at a given price. It is the sum of all individual demands.

Question 11

Describe Individual / Consumer Demand Curve.

Answer 11

Individual demand for a good or service is the quantity that the consumer in the market is willing to demand per time period at a given price.

Question 12

When expansion takes place by changes in quantity demanded?

Answer 12

In demand curve, when there is a downward movement occurs, expansion takes place, this expansion is called “Change in Quantity Demanded”.

Question 13

When expansion takes place by shift in demand?

Answer 13

When rightward shift in demand curve occurs, expansion also takes place, but this is called “Shift in Demand Curve”.

Question 14

When contraction takes place by changes in quantity demanded?

Answer 14

In demand curve, when there is an upward movement occurs, contraction takes place, this contraction is called “Change in Quantity Demanded”

Question 15

When contraction takes place by shift in demand?

Answer 15

When leftward shift in demand curve occurs, contraction also takes place, but this is called “Shift in Demand Curve”.

Question 16

Factors Affecting Demand / Determinants of Demand?

Answer 16

1. Taste & Preference
2. Income of Buyer
3. Price of Own Good
4. Population
5. Expectations of Future Prices
6. Related Good’s Price
7. Season / Weather
8. Income Distribution
9. Gender
10. Age
    Note:
    Demand is affected by TIPPERSIGA

Question 17

What is Law of Demand?

Answer 17

Law of Demand: As price rises, quantity demanded falls, and as price falls, quantity demanded rises, assuming other factors remain constant.

Question 18

The relationship between price and quantity demanded is?

Answer 18

Inverse or negative.

Question 19

Why There Is Inverse Relation Between Price & Quantity Demanded?

Answer 19

1. The law of demand is consistent with common sense.
2. Due to the Substitution effect.
3. Due to the Income effect.
4. Due to the Law of Diminishing Marginal Utility.
5. Due to the Law of Equi-Marginal Utility.
6. Due to the Number of Consumer.
7. Purchasing Power Effect.

Question 20

Exceptions To The Law Of Demand?

Answer 20

1. Conspicuous Goods (Status Symbol)
2. Conspicuous Necessities (Luxury Necessities)
3. Giffen Goods (Luxury Goods)
4. Future Expectations About Price
5. Essential Necessities (Life Saving Drugs)
6. Speculative Goods (Investment Goods like 7. Gold, Bonds, Shares, Debentures)
7. Taste and Fashion.
8. New Substitute Discovered.
9. Price Of The Substitute.
10. Climate or Weather Condition.
11. Change In Population.
12. Inferior / Superior Goods.

Question 21

Assumptions of Law of Demand?

Answer 21

Assumptions of Law of Demand:

1. Ceteris Paribus: All other factors remain constant.
2. Rational Behavior: Consumers seek to maximize satisfaction.
3. Diminishing Marginal Utility: Satisfaction decreases with more consumption.
4. No Income Effect: Income changes don’t affect consumption.
5. No Substitution Effect: No close substitutes available.

Question 22

What is Supply?

Answer 22

Supply: A schedule or curve showing the quantities producers are willing to sell at various prices, like how many smartphones Apple will offer at different prices.

Question 23

Market Supply vs. Individual Supply:?

Answer 23

Market supply is derived from individual supply in exactly the same way that market demand is derived by individual demand.
It is the sum of quantities supplied by all producers at each price, created by horizontally adding individual supply curves.

Question 24

When expansion takes place by changes in quantity supplied?

Answer 24

In supply curve, when there is an upward movement occurs, expansion takes place, this expansion is called “Change in Quantity Supplied”.

Question 25

When expansion takes place by shift in supply?

Answer 25

When rightward shift in supply curve occurs, expansion also takes place, but this is called “Shift in Supply Curve”.

Question 26

When contraction takes place by changes in quantity supplied?

Answer 26

In supply curve, when there is a downward movement occurs, contraction takes place, this contraction is called “Change in Quantity Supplied”.

Question 27

When contraction takes place by shift in supply?

Answer 27

When leftward shift in supply curve occurs, contraction also takes place, but this is called “Shift in Supply Curve”.

Question 28

Factors Affecting Supply / Determinants of Supply?

Answer 28

1. Technology.
2. Input Prices (Direct Cost).
3. Price Of Own Good.
4. Price Of Related Goods.
5. Expectations Of Future Prices.
6. Raw Material.
7. Special Influence.
8. Available Inventory of Finished Goods.
9. Government Policy (Tax+ Supply-, Subsidies+ Supply+).
   Note:
   Supply is affected by TIPPERSAG.

Question 29

What is Law of Supply?

Answer 29

LAW OF SUPPLY: As price rises, its quantity supplied rises, and as price falls its quantity supplied falls, while keeping other factors remain constant.

Question 30

This relationship between price and quantity supplied is?

Answer 30

Direct or positive.

Question 31

Assumptions of Law of Supply?

Answer 31

• Technology remains constant.
• Resource prices stay unchanged.
• Number of firms is fixed.
• No government intervention.
• Expectations of producers remain constant.

Question 32

What is equilibrium price?

Answer 32

The amount that buyers want to buy is just equal to the amount that sellers want to sell. The intersection point of demand and supply.

Question 33

The equilibrium price is also known as?

Answer 33

Market-clearing Price.