micro- supply and demand

Question 1

what is demand?

Answer 1

the quantity of a product that consumers are willing and able to buy at various prices over a period of time

Question 2

what is the law of demand?

Answer 2

there is a negative relationship between price and quantity demanded. As price of a product increases, quantity demanded decreases.

SHOWN BY A DEMAND CURVE- look at notes

Question 3

How can a demand curve move?

Answer 3

movement along curve- determined by price.
Contraction- price increases, extention, price decreases.

Shifts in demand curve are due to changes in non-price determinants resulting in changes in demand?

Question 4

what are non- price determinants of demand?

Answer 4

• income
• future price expectations
• number of consumers
• taste and preferences
• price of related goods

Question 5

How does income determine demand?

Answer 5

• changes may affect demand for products differently depending on the type of good
  NORMAL GOOD= increase in demand as consumer income increases e.g. food items, clothing
  INFERIOR GOOD= decrease in demand as consumer income rises e.g. second hand clothes shop to new clothes in high street shops.

Question 6

How does future price expectation determine demand?

Answer 6

• expecttion for price of good to rise in the future may result in consumers purchasing the good now at a lower price, resulting in an increase in demand- same for other way.
• can be derived from events e.g. seasonal sales, budget changes, release of new technology.

Question 7

How does number of consumers determine demand?

Answer 7

• number of consumers has a positive relationship with demand- more people, therefore more demanded

Question 8

How do tastes and preferences determine demand?

Answer 8

• social and cultural changes like trends affect which products are more in demand
• e.g. drive towards sustainability would result in an increase in demand for electric cars over petrol cars

Question 9

How does the price of related goods determine demand?

Answer 9

• change in demand from a change in the price of an associated good
• SUBSTITUTES- replace each other to some degree- as price for substitute increases, quantity demanded of original increases
• COMPLIMENTS- goods bought in conjunction with other goods- when price of complimentary good increases, demand for good decreases

SEE NOTES FOR DIAGRAMS

Question 10

what is the income effect? HL

Answer 10

• as the price of a good decreases, consumer purchacing power increases- are more able to afford the product.
• greater purchacing power= more demanded
• income goes further

Question 11

what is the substitution effect?

Answer 11

• if price of a substitute decreases, some consumers may switch from the original good- willingness and ability of customers to purchase the substitute increases due to lower price.

Question 12

what is diminishing marginal utility?

Answer 12

as each additional unity of the same good and/or service, the enjoyment and satisfaction gained decreases, therefore the willingness and ability to purchase each additional unit decreases.

Question 13

What is a market?

Answer 13

• any arrangement that allows buyers anda sellers to exchange goods and services- can occur physically or virtually.
• must contain buyers and sellers, goods and services, medium of exchange, information of prices/quality

Question 14

what is the function of a market?

Answer 14

• allocation of resources
• price determination
• information dissemination- provide info about availability, cost etc
• facilitation of trade- exchange, specialisation, division of labour

Question 15

market structures

Answer 15

• perfect competition- many small firms, homogenous products, no barriers of entry
• monopolistic competition- many firms, differentiated products, some barriers
• oligopoly- few firms dominate, significant barriers
• monopoly- one firm controls the market