Theme 1 - Demand And Supply

Question 1

What is demand?

Answer 1

The quantity of a good or service that consumers are willing and able to buy at any possible price in a given time period.

Question 2

What is the market demand curve?

Answer 2

Total quantity of all sales made at different prices in other words, it is the adding together of everyone’s individual demand curves who would buy that product.

Question 3

What is a market?

Answer 3

Any place where buyers and sellers meet to exchange goods and services.

Question 4

What is a sub market?

Answer 4

Section of a market, like a market within a market.

Question 5

What is the law of demand?

Answer 5

States that there is an inverse relationship between quantity and the price of a good or service. There is always a higher quantity demanded at a lower price.

Question 6

What is the snob effect?

Answer 6

May cause the demand curve to slope upwards, as some people may value certain goods simply because they are more expensive, so they higher the price the more they demand the good.

Question 7

What is a Veblen good?

Answer 7

A good for which demand increases as the price increases because of its exclusive nature and appeal as a status symbol.

Question 8

What is consumer surplus?

Answer 8

The value that consumers gain from consuming a good or service over and above the price level paid.

Question 9

Determinants of demand:

HINT - PITA POP ;)

Answer 9

P: price of other goods
I: income changes
T: tastes, fashions
A: advertising and branding
POP: population changes.

Question 10

What is a normal good?

Answer 10

One where the untitled demanded increases in response to an increase in income.

Question 11

What is an inferior good?

Answer 11

One where the quantity demanded decreases in response to an increase in consumer income.

Question 12

What is a giffen good?

Answer 12

A good for which the demand increases and the price increases and falls when the demand falls, this type of good has an upward sloping demand curve.

Question 13

What is a substitute good?

Answer 13

Goods whereby the consumers regard them as alternatives, so that the demand for one good is likely to rise if the price if the other one rises.

Question 14

What is a complement good?

Answer 14

Goods whereby people consume them jointly, so that an increase in the price of one will decrease the demand for another.

Question 15

What is derived demand?

Answer 15

Demand for a factor of production or a good which derives not from the factor or the good itself, but from the good it produces.
e.g. farmland.

Question 16

What is joint demand?

Answer 16

Demand for goods which are interdependent, such that they are demanded together.
e.g. car and fuel.

Question 17

What is composite demand?

Answer 17

Demand for a good that has multiple uses.

Question 18

What is competitive demand?

Answer 18

Demand for a good that are in competition with each other.

Question 19

What is a firm?

Answer 19

An organisation that brings together factors of production in order to produce output

Question 20

What are the various forms that an organisation can take?

Answer 20

Sole proprietor: a small business where the owner of the firm also runs the firm.
Partnership: a firm in which profits are shared between the partners in the business.
Privately owned business: a firm owned by shareholders but the shares are not traded on the stock market.
Publicly owned business: a firm owned by shareholders but the shares are traded on the stock market.

Question 21

What is a competitive market?

Answer 21

A market in which individual firms cannot influence the price of the good or services they are selling because of the competition from other firms.

Question 22

What does the supply curve show?

Answer 22

Shows the amount an individual firm would be willing to supply at any given price.

Question 23

What are the influences on supply?

HINT: GETPC ;)

Answer 23

G: government policies
E: expectations for the future
T: technology
P: price of related goods
C: cost of production

Question 24

Where will the supply curve shift due to an INCREASE in the cost of production?

Answer 24

Left as firms will be less willing to supply goods and services

Question 25

Where will the supply curve shift due to a DECREASE in cost of production?

Answer 25

Right as firms are willing to supply more.

Question 26

Which way will the demand curve shift due to improvement in technology?

Answer 26

Right as firms are able to supply more.

Question 27

Which way will the supply curve shift due to a decline in technology?

Answer 27

Left as firms are not able to supply as much as before.

Question 28

What is indirect tax?

Answer 28

A tax levied on the expenditure of goods and services, this is on the supply side.

Question 29

What is a subsidy?

Answer 29

A grant given by the government to encourage the production of a good or service.

Question 30

What is competitive supply?

Answer 30

A situation in which a firm can use its factors of production to produce alternative products.

Question 31

What is joint supply?

Answer 31

Where a firm produces more than one product together.

Question 32

What is composite supply?

Answer 32

Where a product by a firm serves more than one market.

Question 33

What is producer surplus?

Answer 33

The difference between the price received by firms for a good or service and the price at which they would have been willing to supply that good or service at.

Question 34

What is meant by marginal unit sold and marginal cost?

Answer 34

Marginal unit sold: the next unit of output sold.

Marginal cost: the cost of producing an extra unit of output.

Question 35

What is market equilibrium?

Answer 35

A situation that occurs in a market when the price is such that the quantity demanded is exactly balanced by the quantity that firms wish to supply.

Question 36

What is comparative static analysis?

Answer 36

Examines the effect on equilibrium of a change in the external conditions affecting the market.