T1: LS9 & LS10 - Supply & Price Determination

Question 1

Define supply

Answer 1

Supply: refers to the total quantity of goods and services which producers are willing and able to produce at a price level over a period of time.

Question 2

What is the law of supply

Answer 2

The law of supply states that as the price of G&S increase, there is an increase in their supply. This increase in supply then decreases prices

Question 3

What causes extensions in supply?

Answer 3

An increase in price causes an extension in supply.

Question 4

What causes contractions in supply?

Answer 4

As the price of a G&S decrease, this causes a contraction in supply.

Question 5

What are the two assumptions of supply diagrams

Answer 5

• firms are motivated to increase supplies as they aim to maximise on their profits.
• as the output of supply produced increases, the cost per unit of production decreases.

Question 6

What are the different factors that cause shifts in supply

Answer 6

P - productivity
I - indirect tax
N - number of firms
T - tech
S - subsidies
W - weather
C - costs

Question 7

Define revenue for firms

Answer 7

Revenue: the total income that a firm or government receive which excludes any costs.

Question 8

Total revenue formulae

Answer 8

Total revenue: price x quantity sold

Question 9

Define excess demand

Answer 9

Excess demand: refers to a very high amount of demand which exceeds supply resulting in graphically, this being the area below the equilibrium point.

Question 10

Define excess supply

Answer 10

Excess supply: refers to a very high amount of supply which exceeds the amount required to satisfy demand. This graphically, is the area above the equilibrium price point.

Question 11

Equilibrium price definition

Answer 11

Equilibrium price: the point on a Demand-Supply graph where the quantity of goods supplied is equal to the quantity of goods demanded within an economy
- This is represented by the intersection of S and D lines on a Supply-demand graph

Question 12

What is the idea of market forces on excess supply and demand

Answer 12

Market forces will act to reduce and eliminate excess supply and demand

Question 13

How will excess supply be eliminated by market forces

Answer 13

• contraction in supply
• extension or increase in demand

Question 14

How will excess demand by reduced or eliminated

Answer 14

• decrease in demand over time
• increase in supply

Question 15

Define price determination

Answer 15

This refers to the interaction of buyers and sellers and demand and supply within a market to set prices.