Supply and Demand Principles

Question 1

What is demand? 4 points

Answer 1

Demand is the consumers desire to purchase a product. They must:
*Want it.
*Be able to afford it.
*Plan to buy it.

Question 2

What is quantity demanded? 2 points

Answer 2

The amount the a consumer plans to buy during a certain period at a given price.

Quantity demanded is not the same as quantity bought.

Question 3

What is money price?

Answer 3

Money price is the amount of money that it takes to buy a good or service.

Question 4

What is opportunity cost?

Answer 4

The loss of other alternatives when one option is chosen.

Question 5

What is the relative price?

Answer 5

The price of one good or services compared with another.

Question 6

What is marginal cost? 2 points

Answer 6

The change in total production costs that comes from producing one additional unit.

marginal cost = change in production costs / change in quantity

Question 7

What is marginal revenue? 2 points

Answer 7

Marginal revenue is the additional revenue per unit gained from selling multiple units.

marginal revenue = increase in total revenue / increase in quantity

Question 8

What is self-interest?

Answer 8

To seek your own personal gain.

Question 9

What is a demand curve? 3 points

Answer 9

The demand curve is a graphic representation of the relationship between the price of a good or service and the quantity demanded. Price is on the vertical axis and quantity demanded is on the horizontal. The demand curve which expresses the law of demand will move down from left to right as the price increases the demand decreases.

Question 10

What factors affect demand? 7 points

Answer 10

1. Change in expectations eg. threat of petrol shortage.
2. Change in income, normal goods eg. people buy more luxury cars if income increases.
3. Change in income, inferior goods eg. people will buy less frozen food if income increases.
4. Change in price of related goods, substitutes in consumption eg. CDs vs digital downloads.
5. Change in price of related goods, complements in consumption eg. cinema and popcorn.
6. Change in preferences eg. fashion.
7. Change in number of consumers.

Question 11

What is elastic demand?

Answer 11

Where the change in quantity demanded is large due to a change in price eg. luxury items.

Question 12

What is inelastic demand?

Answer 12

Where quantity demanded remains constant despite price changes eg. prescriptions.

Question 13

What is the supply curve? 3 points

Answer 13

The supply curve is a graphic representation of the relationship between the cost of a good or service and the quantity supplied for a given period. The cost appears on the vertical axis and the supply quantity on the horizontal axis. The supply curve expresses the law of supply which is: as the cost of a good increases, the quantity of goods supplied also increases.

Question 14

What factors affect supply? 6 points

Answer 14

1. Change in expectations.
2. Change in the price of related goods, substitutes in production.
3. Change in the price of related goods, complements in production.
4. Change in input prices.
5. Change in productivity.
6. Change in number of sellers.

Question 15

What is movement?

Answer 15

A change in both price and quantity resulting in a change along the existing supply or demand curve.

Question 16

What is a shift?

Answer 16

A change in quantity demanded or supplied but the price remains constant causing the curve to change to a new position.

Question 17

What is equilibrium?

Answer 17

When quantity supplied = quantity demanded

Question 18

What is shortage?

Answer 18

Where quantity demanded is more than quantity supplied.

Question 19

What is Surplus?

Answer 19

Where quantity supplied exceeds the quantity demanded.

Question 20

What is it called when a change in both price and quantity results in a change along the existing supply or demand curve?

Answer 20

Movement.

Question 21

What is it called when there is a change in quantity demanded or supplied but the price remains constant causing the curve to change to a new position?

Answer 21

Shift.

Question 22

What is it called when quantity supplied = quantity demanded?

Answer 22

Equilibrium.

Question 23

What is it called when quantity demanded is more than quantity supplied?

Answer 23

Shortage.

Question 24

What is it called when quantity supplied exceeds the quantity demanded?

Answer 24

Surplus.

Question 25

What are the construction industry supply-side factors? 8 points (2 + 6)

Answer 25

Scarcity of resources: 1. Land. 2. Natural resources (wood, clay, stone). 3. Building products (industrial mass produced items). 4. Labour. 5. Investment. 6. Credit. Market regulation/ competition which can effect capacity to produce a product at a price acceptable to the buyer.

Question 26

What are the construction industry demand side factors? 4 points

Answer 26

Need for: 1. Housing. 2. Industrial and commercial buildings. 3. Infrastructure and public buildings. 4. Repairs and maintenance.

Question 27

Who creates demand in the construction industry? 5 points

Answer 27

1. Users and potential users for the building / facilities. 2. Buyer prepared to own the building / facility. 3. Investor prepared to provide finance for design / construction and operation. 4. Developer prepared to initiate development process. 5. Conditions are favourable for the development to take place.

Question 28

What is the nature of construction demand? 5 points

Answer 28

1. New projects to meet unsatisfied need; hospitals or railways. 2. New investment to expand existing provisions; increase in factory to meet demand. 3. Replacement of existing building that have reach the end of their useful life. 4. Alterations to an existing building to change its use; converting warehouses to houses. 5. Repair and maintenance; keeping facilities in order.

Question 29

What changes the demand in construction? 10 points

Answer 29

1. Restrictions on new land. 2. Demographic shift. 3. Interest rates. 4. Income. 5. Taxation. 6. Growth in consumption of goods. 7. Business growth. 8. Global economic factors. 9. Private sector investment. 10. Government investment.

Question 30

What is unitary elastic demand? 3 points

Answer 30

When the price changes, the quantity changes proportionally meaning consumers spend the same total amount on the product before and after the change eg. someone who budgets £20 for petrol weekly would be purchasing different amounts of petrol each time but spends the same amount as the price per litre fluctuates.