supply and demand

Question 1

effective demand (sometimes this is just referred to as ‘demand’) is:

Answer 1

the quantity of a product that consumers want and are able to buy at a given price, at a particular time

Question 2

supply is the:

Answer 2

quantity of a product that suppliers are willing and able to supply to a market at a given price, at a particular time

Question 3

a supply and demand diagram plots the:

Answer 3

quantity (Q) of a product in supply or demand, against a range of different prices (P) of the product. it’s made up of two curves - one for demand and one for supply

Question 4

the demand curve (D) usually:

Answer 4

slopes downwards. it shows that as the price of a product increases, the demand decreases. this is because, at a higher price, fewer buyers will be able or willing to buy the product so demand is lower

Question 5

the supply curve (S) shows the:

Answer 5

relationship between price and quantity supplied

Question 6

producers and sellers aim to:

Answer 6

maximise their profits. other things being equal, the higher the price for the product, the higher the profit

Question 6

supply curves usually:

Answer 6

slope upwards. this means that the higher the price charged for a product, the higher the quantity supplied

Question 7

higher profit provides:

Answer 7

an incentive to expand production and increase supply, which explains why the quantity of a product supplied increases as price increases

Question 8

increasing supply increases:

Answer 8

costs

Question 9

firms will only produce more if the:

Answer 9

price increases by more than the costs

Question 10

when the quantity that buyers demand is the same as the quantity the sellers wish to supply, an:

Answer 10

equilibrium price and quantity is achieved. this is sometimes referred to as the market clearing price

Question 11

the equilibrium price (Pe) and equilibrium quantity (Qe) is where:

Answer 11

the two curves meet

Question 12

if the price of the product was increased, this would:

Answer 12

causes a movement to the right along its supply curve, and a movement to the left along its demand curve

Question 13

this would mean the quantity demanded (Qd) would be:

Answer 13

less than the quantity supplied (Qs), and so there would be excess supply and therefore a surplus in the market

Question 14

if the price of a product was decreased, this would result in a:

Answer 14

movement to the left along its supply curve, and a movement to the right along its demand curve

Question 15

this would mean there would be:

Answer 15

more demand than supply, and so there would be excess demand and therefore a shortage in the market

Question 16

factors that cause a shift in the demand curve rather than a movement along the curve:

Answer 16

• substitutes
• complementary products
• consumer income
• fashion, consumer tastes and consumer preferences
• advertising and branding
• demographics
• seasonal changes
• external shocks

Question 17

substitutes:

Answer 17

the demand for a particular brand or product type can be affected by a price change of a substitute. for example, if the cost of margarine increased by a huge amount, then demand for butter would rise

Question 18

complementary products:

Answer 18

these are products which are used together, e.g. printers and ink cartridges. so if the price of printers were to increase, the demand for printers might fall, and so the demand for ink cartridges would fall too

Question 19

consumer income:

Answer 19

a higher income can lead to an increase in demand for more expensive products, whereas a fall in income can increase the demand for cheaper goods and services

Question 20

fashion, consumer tastes and consumer preferences:

Answer 20

demand for a product relies on what consumers want. for example, warnings about the dangers of eating too much sugar could lead to a change in consumer diets - this could lead to a fall in demand for sugary drinks and an increase in demand for healthier drinks

Question 21

advertising and branding:

Answer 21

this aims to increase demand for a product, or encourage existing consumers to be loyal to the product brand and repeatedly buy the product, even when faced with a good substitute, to stop demand falling

Question 22

demographics:

Answer 22

changes in population can lead to changes in demand. for example, advances in healthcare mean that, on average, people are living longer. this has led to an increase in demand for goods and services for the older generation

Question 23

seasonal changes:

Answer 23

demand for goods and services can change throughout the year. for example, a long, cold winter often leads to an increase in demand for gas used in central heating. a hot summer is likely to lead to an increase in demand for fans and air conditioning units

Question 24

external shocks:

Answer 24

these include the threat of war, diseases and extreme weather. for example, a risk of flooding may lead to an increase in demand for sandbags as people try to protect their homes

Question 25

factors that cause a shift in the supply curve:

Answer 25

• costs of production
• indirect taxes
• subsidies
• new technology
• weather conditions
• external shocks

Question 26

costs of production:

Answer 26

if the cost of production for a product increases then the profit made from selling the product at a given price decreases, so there’ll be a fall in supply

Question 27

indirect taxes:

Answer 27

these are taxes on a good or service, like VAT. the government can influence supply by changing taxation. if tax on a good or service increases, then this effectively increases the costs for the producer and they are likely to reduce their supply

Question 28

subsidies:

Answer 28

a subsidy is money given to a business by the government to help it with costs and encourage it to produce more of a particular product. for example, the EU began a scheme in 1962 to provide farmers with subsidies to help them with any large costs and to secure the supply of food

Question 29

new technology:

Answer 29

this can lead to more efficient production techniques and therefore cost savings. lower costs would mean that a firm would be willing and able to increase the supply of its good or service

Question 30

weather conditions:

Answer 30

a severe change in weather can affect the supply of goods and services, especially in agriculture where the weather affects harvests. bad weather such as too little rain can cause crops to die early and therefore supply will be lower. however, good weather like a warm spring and summer can lead to good growth and an abundance of certain fruit and vegetables, so supply is increased

Question 31

external shocks:

Answer 31

this includes shocks such as war, which can affect supply. if a nation finds itself at war then the supply of certain products from the country can decrease, as the country focuses its efforts and factories on producing supplies for its armed forces instead

Question 32

changes in the market can cause:

Answer 32

demand or supply to change

Question 33

these changes in supply or demand cause:

Answer 33

supply curves or demand curves to shift - the curve moves to the left or to the right

Question 34

a shift in either curve will change the:

Answer 34

equilibrium price and quantity

Question 35

an increase in customer demand shifts the:

Answer 35

demand curve to the right from D1 to D2

Question 36

however, at a price of P1 there is a shortage in the market. the price needs to:

Answer 36

rise to clear the market of excess demand

Question 37

a new:

Answer 37

equilibrium quantity (Q2) is reached at a higher price than before (P2)

Question 38

a fall in customer demand shifts the:

Answer 38

demand curve to the left from D1 to D2

Question 39

however, at a price of P1 there’s a surplus in the market. the price needs to:

Answer 39

fall to clear the market of excess supply

Question 40

a new:

Answer 40

equilibrium quantity (Q2) is reached at a lower price than before (P2)

Question 41

an increase in supply shifts the:

Answer 41

supply curve to the right from S1 to S2

Question 42

at a price of P1 there’s a surplus in the market. the price needs to:

Answer 42

fall to clear the market of excess supply

Question 43

a new:

Answer 43

equilibrium quantity (Q2) is reached at a lower price than before (P2)

Question 44

a decrease in supply shifts the:

Answer 44

supply curve to the left from S1 to S2

Question 45

at a price of P1, there is a shortage in the market - the price needs to:

Answer 45

rise to clear the excess demand

Question 46

a new:

Answer 46

equilibrium quantity (Q2) is reached at a higher price than before (P2)