Micro Demand And Supply

Question 1

What is individual demand?

Answer 1

Willingness + ability of an individual to buy a good or service for a certain price at a given point in time

Question 2

What is market demand?

Answer 2

Willingness + ability of all consumers in a market to buy a good or service for a given price at a given point in time

Question 3

What is latent demand?

Answer 3

Consumers are willing to buy something but don’t have the funds

Question 4

Explain the relationship between price and quantity demanded

Answer 4

When the price increases there is a contraction in the quantity demanded
When price decreases there is an expansion or extension in the quantity demanded

Question 5

What is joint demand?

Answer 5

Demand for goods that are interdependent (demanded together) e.g. printer and ink

Question 6

What is composite demand?

Answer 6

Demand for a good that has multiple uses e.g. milk can be used for butter, cream, cheese

Question 7

What is competitive demand?

Answer 7

Demand for goods that are in competition with each other (known as substitute goods) e.g. Coca Cola and Pepsi

Question 8

What factors lead to a shift of the demand curve?

Answer 8

Change in consumer income
Change in preferences
Change in price of substitute goods
Change in price of complementary goods
Population changes
Advertising

Question 9

Explain the difference between a movement along and a shift of the demand curve

Answer 9

Movement along the demand curve represents the impact of a change in price of quantity demanded
A shift of the demand curve means that at the same price, consumers are willing to buy less/ more

Question 10

Define demand

Answer 10

Willingness and ability of consumers and individuals to buy a good or service at a given price at a given point in time

Question 11

What is an opportunity cost?

Answer 11

Value of the next best alternative for gone

Question 12

What is a subsidy?

Answer 12

Giving money to a company so they can produce more

Question 13

What is market equilibrium?

Answer 13

A situation that occurs in a market when the price is such that the quantity that consumers wish to buy is exactly balanced by the quantity that firms wish to supply

Question 14

What is comparative static analysis?

Answer 14

Examines effect of equilibrium of a change in external conditions affecting a market (changes to equilibrium)

Question 15

What are interrelationships of markets?

Answer 15

Changes in one market are likely to affect other markets

Question 16

What is a normal good?

Answer 16

When consumers increase their demand for goods as their income increases (tend to base demand + supply on)

Question 17

What’s an inferior good?

Answer 17

When consumers decrease their demand for goods as their income rises e.g. bus travel

Question 18

What is speculative demand?

Answer 18

Potential buyers are interested not just in satisfaction they may got from consuming the product but also potential risk in market price leading to capital gains on profit

Question 19

What is ostentatious consumption?

Answer 19

Some goods are luxurious items where satisfaction comes from knowing both the price of the good and being able to flaunt consumption (demand curve upward sloping)

Question 20

What is a hidden good?

Answer 20

Special sort of inferior good consumption increasing as prices increases. As the price of a staple good goes up e.g. potatoes. Poor people would have little money left to buy other foods so would instead increase their e spending on staple item

Question 21

What is consumer surplus?

Answer 21

The difference between the price consumers are willing and able to pay and the price they actually pay

Question 22

What is producer surplus?

Answer 22

Difference between the price producers are willing and able to accept and the price they actually receive

Question 23

Mini paragraph to memorise about shifting curves

Answer 23

‘Factor’ causes and an (outward/inward) shift of the demand curve from (d to d1/d1 to d)
As a result price (increases/decrease) from (p to p1)
This causes a movement along the supply curve and supply (extends/ contracts)
As a result quantity traded (increases/ decreases) for (q to q1)

Question 24

What is a market?

Answer 24

Exchange of goods and services, producers and consumers interact

Question 25

What is a trade off?

Answer 25

A situation where making one choice means losing something else, usually forgoing a benefit or opportunity

Question 26

What is individual supply?

Answer 26

Willingness and ability of an individual firm to provide a specific quantity of a good or service to a market at a set price at a given point in time

Question 27

What is market supply?

Answer 27

Willingness and ability of all sellers within a market to provide a specific quantity of a good or service to a market at a set price at a given point in time

Question 28

What is the relationship between price and quantity supplied?

Answer 28

There is a positive relationship between price and quantity supplied
As the price of a good increase the quantity supplied increases
An increase in the price will cause an extension of the supply curve; a decrease in price will cause a contraction of a supply curve

Question 29

What is joint supply?

Answer 29

Where a firm produces more than one product together e.g. cows can be used for milk, beef

Question 30

What is competitive supply?

Answer 30

Where a firm can use its factors of production to produce alternative products E.G.farmer can produce carrots or potatoes

Question 31

What factors cause a supply curve to shift?

Answer 31

Changes in cost, technology, taxes and subsides, price of other goods, expected prices, number of firms in the market