Supply and demand

Question 1

What is meant by equilibrium?

Answer 1

• When quantity demanded equals the quantity supplied

- A stable point with no one to drive the price up nor down

Question 2

What will happen to the demand and supply if there is a fashion trend?

Answer 2

• There will be an increase in demand meaning the demand curve will shift to the right
• The shift in the demand curve will mean there is an increase in quantity demanded

Question 3

What will happen to the graph if there is an increase in cost of production?

Answer 3

The supply curve will shift to the left which will result in s movement along the demand curve and a new equilibrium

Question 4

What happens if the maximum market price is below the equilibrium?

Answer 4

• This shows that we have excess demand in the market

Question 5

How do you sell excess supply to reach equilibrium?

Answer 5

• Buyer would offer consumer a lower price marginally lower than point P1.
• This price undercutting would continue until all the firms willing to supply at the market price find a buyer

Question 6

What is excess demand?

Answer 6

• the difference between quantity supplied and quantity demanded
• It is when there are consumers in the market willing to pay the market price but they are unable to find suppliers

Question 7

How is a maximum market price below the equilibrium resolved?

Answer 7

• If one of the buyers willing to pay above market price would offer a price above p1 to secure the product
• Buyer bids up price reducing excess demand which also drives up price and therefor demand

Question 8

What happens if minimum price is set above the market price?

Answer 8

• Causes supply to exceed demand

Question 9

What happens if the maximum price is set above the market price?

Answer 9

• Doesn’t impact on the free market

Question 10

What happens if the min price is set below the market price?

Answer 10

won’t impact the market