Supply and Demand

Question 1

Define competitive market

Answer 1

A market with many buyers and sellers of the same good/service who can’t influence the price

Question 2

What does the quantity demanded show?

Answer 2

The amount buyers are willing/are able to purchase at a certain price

Question 3

What is the difference between the change in demand and the change in quantity demanded?

Answer 3

Change in demand - the price has stayed the same

Change in quantity demanded - the price has changed

Question 4

Give 4 demand shifters

Answer 4

• Changes in the prices of related goods and services
• Changes in income
• Changes in tastes/expectations
• Changes in the no. of consumers

Question 5

Define substitutes

Answer 5

When the rise in price of one good causes consumers to purchase an alternative good in its place (the alternative good then too rises in price)

Question 6

Define complements

Answer 6

When the decrease in the price of one good leads to an increase in the demand for the other. Goods are often bought together (e.g. Price of petrol decreased, increase in the purchase of cars)

Question 7

How does income affect normal and inferior goods?

Answer 7

• Normal good - demand increases when income increases

- Inferior good - demand decreases when income increases

Question 8

How is the market demand curve calculated?

Answer 8

The two individual demand curves have to be added to one another

Question 9

Give 4 supply shifters

Answer 9

• Input prices - if the minimum wage rises the price of the good will rise to compensate
• The prices of related goods or services
• Technology
• Expectations