Supply and Demand

Question 1

Law of demand

Answer 1

Price up, demand down Price down, demand up

Question 2

Describe the demand curve

Answer 2

Downwards sloping and shows inverse relationship between price and quantity demanded

Question 3

Diminishing law of marginal utility

Answer 3

As an extra unit of good is consumed, the benefit from consuming the good falls (MU falls) hence consumers are willing to pay less for it.

Question 4

Demand

Answer 4

The quantity of a good or service the consumer is willing and able to buy at a given price during a given time period

Question 5

Movement along demand curve

Answer 5

Price does not shift the demand curve but moves it along.

• Contraction of demand- Price up, demand down
• Expansion of demand- Price down, demand up

Question 6

Factors that shift the demand curve

Answer 6

1.Population 2.Income 2.Related goods (substitutes or complements) 4.Advertising 5.Tastes/fashion 6.Expectations 7.Seasonality (weather)

Question 7

Demand

Population

Answer 7

The larger the populaton, the higher the demand

Question 8

Demand

Income

Answer 8

More disposbale income means consumers can afford more goods, so demand increases

Question 9

Demand

Related goods

Answer 9

Substitiutes- If price of sub falls, the price of the orignal goods will also fall because consumers switch to the cheapest option.

Complements- If price of strawberries increase, the demand for cream will decrease because fewer will be buying strawberries hence fewer people will be buying cream

Question 10

Demand

Advertising

Answer 10

Increases consumer loyalty to the good and increases demand

Question 11

Demand

Tastes and Fashion

Answer 11

Taste changes depending on consumer

e.g. Demand for books may fall if consmers prefer to read books on the kindle

Question 12

Demand

Expectations

Answer 12

If future price increases.

e.g. A commodity like gold may be brought due to speculative reasons, if you think the price might go up in the future you are more likely to buy more of it now

Question 13

Demand

Seasonality

Answer 13

Demand changes accorinding to the season.

e.g. In the summer, the demand for sun cream and ice cream increase

Question 14

Which direction does P.I.R.A.T.E.S shift the demand curve?

Answer 14

To the right

Question 15

What causes a fall in demand?

Answer 15

• Lower disposable income= consumers have less money to spend, so demand decreases.
• Decline in the popularity of a good= consumers dislike the product so demand decreases

Question 17

Supply

Answer 17

The quantity of a good or service that a producer is willing and able to supply at a given price during a given period of time.

Question 18

Law of supply

Answer 18

Price up, supply up

Price down, suply down

Question 19

Movement along the curve

Answer 19

• Price does not shift the supply curve
• Contraction of supply- Price decreases, quantity supplied decreases
• Expansion of supply- Price increases, quantity supplied increases

Question 20

Factors that shift the supply curve

Answer 20

1. Productivity
2. Indirect Tax
3. Number of firms
4. Techonolgy
5. Subsidies
6. Weather
7. Cost of production

Question 21

Supply

Productivity

Answer 21

Higher productivity means average cost of the firm falls

Question 22

Supply

Indirect Tax

Answer 22

Increases the cost of production, it is imposed on producers by the government on goods such as cigarrettes.

Question 23

Supply

Nmber of firms

Answer 23

The more firms there are, the more supply

Question 24

Supply

Technology

Answer 24

More advanced technology reduces the firms cost

Question 25

Supply

Subsidies

Answer 25

Increase in government subsidy reduces the cost of good

Question 26

Supply

Weather

Answer 26

Good weather increases agriculture so increases supply

Question 27

Supply

Cost of production

Answer 27

If cost of production falls, the firm can supply more.