Supply And Demand Flashcards
What does the demand curve show?
The number of units that consumers will buy at different prices
Why does the demand curve slope downwards?
As the price of a good decreases, consumers will be willing to buy more units of the good
Example:
£20 = 400 units sold
£10 = 800 units sold
What does the supply curve show?
The number of units that will be supplied at different prices
Why does the supply curve slope upwards?
The supply curve slopes upwards because at higher prices, there is a greater incentive for a supplier to supply more goods as it generates higher revenue per unit.
Example:
£30 = 300 goods supplied
£50 = 500 goods supplied
How do Supply and Demand work together?
In a free market, the price of a good and the number of units sold is dictated at the point where supply and demand meet. This is known as the market equilibrium and even if the market is currently not in equilibrium, it will eventually reach equilibrium.
What causes movement along the demand curve?
A change in price
What causes a shift in the demand curve?
A change in any factor other than price.
These factors include (changes in the price of substitutes, changes in consumer trends, the consumer’s income, the number of consumers in the market)
What causes a shift in the supply curve?
Factors such as changes in labour costs, price of raw materials, technological progress, government taxation and subsidies
The government decides to tax the production of alcohol, how this affect the supply of alcohol and the price of alcohol?
The tax will increase the costs of production, this will cause a shift to the left with the supply curve. This will change the market equilibrium, causing an increase in price and a decrease in the number of units sold
How do certain shifts in supply and demand affect the market equilibrium?
Supply Shifts Right = Increase in Number Of Units Sold, Decrease In The Price
Supply Shifts Left = Decrease in Number Of Units Sold, Increase In The Price
Demand Shifts Right = Increase in the Number Of Units Sold, Increase In The Price
Demand Shifts Left = Decrease in the Number Of Units Sold, Decrease In The Price
If the price of Pepsi increases, how will this impact the demand for Coke?
The demand for Coke will increase as the price of a substitute good has risen
If the price of Tennis Rackets increases, how this impact the demand for tennis balls?
The demand for tennis balls will decrease and the price of a complimentary good has increased
What is derived demand?
When an increase in the demand of a good is forced due to necessity.
E.g increase in the number of cars = increase in derived demand for petrol
What does Price Elasticity Of Demand Show?
How responsive Demand is to a change in Price
What factors determine P.E.D?
- Time Period
- Number and closeness of substitutes
- The proportion of income taken up by the product
- Luxury or Necessity
- Habit Forming
