Supply And Demand

Question 1

What are the Determinants of Demand

Answer 1

Income
Advertising and Publicity
Fashion
Quality
Seasonal Changes
The Law
Expectations about Future prices
Price of compliments
Price of substitutes

Question 2

What are the Determinants of Suply

Answer 2

Cost of raw materials
Technology
Labour Productivity
Government Regulation
Wages
Tax/Subsidies
Firms entering/leaving the market
Expectations of future prices

Question 3

What are complimentary goods?

Answer 3

Complimentary goods are ones which go together. You don’t always need one to have the other

Question 4

What are substitute goods?

Answer 4

Substitute goods are good which do (roughly) the same thing so you buy one or the other.

Question 5

Definition of Demand

Answer 5

The amount of a good or service that consumers are willing and able to buy at a given price at a given time

Question 6

Definition of Supply

Answer 6

The amount of a good or service that producers are willing and able to sell at a given price at a given time

Question 7

Definition of Markets

Answer 7

A market is where consumers and producers meet to trade goods or services and establish equilibrium price and quantity

Question 8

Definition of Equilibrium

Answer 8

The price at which everyone who wants to buy a good can find one to buy and everyone who wants to sell can find a buyer

Question 9

Difference between product markets and factor markets

Answer 9

Factor markets are any markets for the factors of production

Product markets are markets for finished goods

Question 10

Definition of PED

Answer 10

The responsiveness of quantity demanded to a change in price.

Question 11

Definition of PES

Answer 11

The responsiveness of quantity supplied to a change in price

Question 12

What is Elastic Demand?

Answer 12

Elastic demand is where a change in price results in a greater change in quantity demanded
E.g. CDs, Jewellery, Luxury Items

Question 13

What is Inelastic Demand?

Answer 13

Inelastic demand is where a change in price results in a smaller change in quantity demanded
E.g. Food, alcohol, necessities and addictive goods

Question 14

Describe the slope of a demand curve for elastic and Inelastic demand

Answer 14

Elastic will have a shallow descending line

Inelastic will have a steep descending line

Question 15

Formula for PED

Answer 15

PED = % change in quantity demanded / % change in price

Question 16

What might determine if a good is elastic or Inelastic in demand?

Answer 16

How much you need the good?

How many substitutes there are?

Whether it is an addictive or habitual good?

How quickly can you change your consumption?

How much of your income it takes up?

Question 17

What is Elastic Supply?

Answer 17

If the supply of a good is elastic that means that when the price increases, businesses will be willing able to sell a lot more.

Question 18

What is Inelastic Supply?

Answer 18

If the supply of a good is Inelastic that means that when the price increases, businesses will only be willing able to sell a little bit more.

Question 19

Describe the slope of a supply curve for elastic and Inelastic supply

Answer 19

Elastic will have a shallow ascending line

Inelastic will have a steep ascending line

Question 20

Formula for PES

Answer 20

PES = % change in quantity supplied / % change in price

Question 21

PES will always be ……

Answer 21

Positive

Question 22

PED will always be ……

Answer 22

Negative

Question 23

If PES or PED = 1 or -1

Answer 23

Then it is unit elastic

Question 24

Line of PED and PES

Answer 24

PED | PES

• infinity to - 1 | -1 to 1 | 1 to infinity
  Elastic. Inelastic. Elastic.