Pack 3

Question 1

Explain the assumptions behind consumer and firm behaviour

Answer 1

Consumers aim to maximise utility and firms aim to maximise profit.

Question 2

Explain what is meant by effective demand and give an example

Answer 2

Effective demand refers to the willingness and ability of consumers to purchase goods at different prices.

For example, if a firm has too much supply they have to decrease the price which leads to an increase in effective demand.

Question 3

Explain what is meant by a contraction and extension on a demand curve

Answer 3

When the price decreases there is an extension in the demand curve so you draw an arrow down along the demand curve. However, when the price increases there is a contraction in the demand curve so you draw an arrow up along the demand curve.

Question 4

Explain, using an example, what is meant by utility, diminishing marginal utility and disutility

Answer 4

Utility is used to describe the satisfaction or enjoyment derived from the consumption of a good or service.
-If you were in a desert and found a bottle of cold water to drink, you would be maximising utility.

Diminishing marginal utility is that as successive units of a good are consumed, the utility gained from each unit will fall.
-If you are thirsty and drink a cold glass of water you will be satisfied with it but if you drink more glasses of water they wont be as satisfying as the first glass.

Disutility is when diminishing marginal utility causes the marginal utility to become negative.

Question 5

State the six factors which influence demand

Answer 5

PITpopACE

Question 6

Choose 3 factors of demand and explain how they influence demand

Answer 6

Advertising and branding:
If popular celebs promote a brand then people that look up to them will be more likely to purchase from that brand which influences demand.

Price of substitutes:
If a PS5 is more expensive than an XBOX then people will be more likely to buy the XBOX as they have the same function which influences demand for the XBOX.

Income:
If people have a higher income they will be more likely to buy what they desire which influences demand.

Question 7

Explain which factors can cause a shift left and a shift right in the demand curve

Answer 7

Shift left:
If prices of substitutes are cheaper then the demand curve for the firm will shift left as consumers will be more likely to buy the cheaper substitute.

Shift right:
If the businesses products are advertised then more people will be likely to buy them causing a shift right in the demand curve.

Question 8

What is the formula for revenue

Answer 8

Revenue =
price of products x quantity sold

Question 9

Explain what factors cause a shift left and cause a shift right in the supply curve

Answer 9

Increase in labour productivity:
If a business owner provides training for their employees, they will be making more product while on the same wage so the firm makes more profit which causes a shift to the right.

Cost of raw materials:
If the costs of raw materials increase then the business will have to increase prices in order to make profit so some people might stop buying their products which causes a shift left.

Question 10

Four conditions that influence supply

Answer 10

C.O.S.T