Supply & damand chap14

Question 1

Where there are many alternatives, demand will be…

Answer 1

…elastic as consumers will be able to switch to substitutes if price rises.

Question 2

If a product has elastic demand and there is a rise in price. What would happen to the demand?

Answer 2

Large fall in demand and revenue would decrease.

Question 3

What is excess demand and what happens if there is excess demand?

Answer 3

• Excess demand = more demand than supply (consumers are prepared to buy more than what the firm is prepared to supply)
• price rises, which encourages businesses to supply more as they can make profit
• This pushes price up towards the equilibrium

Question 4

Excess supply means a business will have to…

Answer 4

… lower prices as they are not making profit

Question 5

Determinants of demand…

Answer 5

• Price
• Income
• Wealth
• Taste/ fashion
• Environmental/ ethical factors
• Government action
• The price of other goods

Question 6

Determinants of supply…

Answer 6

• Price
• Cost
• Taxes/substitutes
• Price of other products
• Competitors entering the market

Question 7

Consumers response to price changes…

Answer 7

• Increasing/decreasing demand so that they always buy the quantity they require
• They will not buy a product they think is too expensive

Question 8

What is subsidy?

Answer 8

A payment from the government to encourage a business to increase supply

Question 9

What moves a customer along an existing demand curve?

Answer 9

A change in price

Question 10

What moves the demand curve itself?

Answer 10

All determinants other than price

Question 11

State one factor that might make a demand for a product elastic. (1 mark)

Answer 11

• Potential substitutes
• Price levels
• The type of product it is
• Income levels

Question 12

What is the definition for elasticity of demand?

Answer 12

Price elasticity of demand is how much the effective desire/demand for something changes as its price changes.