Theory of Demand and Supply

Question 1

‘E’ factor of DD

Answer 1

Expectations of Future Prices

Consumers will choose to buy more if prices are expected to rise to not bear higher costs in the future.

Question 2

‘G’ factor of DD

Answer 2

Government Policies

Some policies can be used to increase demand (Eg. Personal income tax rebates to increase purchasing power).

Question 3

‘Y’ factor of DD

Answer 3

Changes in consumer income
An increase in Y would lead to a rise in purchasing power.

Question 4

‘P’ factor of DD

Answer 4

Prices of related goods
Substitutes: Change in DD in the same direction as the change in P of the substitute good

Complements: Change in DD in the opposite direction as the change in P of the complement good.

Derived Demand: Change in DD of the good in the same direction as the change in DD of the good in derived demand.

Question 5

‘T’ factor of DD

Answer 5

Tastes and preferences
The more preferred a good is due to modern trends, et cetera, the higher the DD for it.

Question 6

‘O’ factor of DD

Answer 6

Others: Seasonal changes, changes in interest rates, etc.

Question 7

‘W’ factor of SS

Answer 7

Weather conditions
Overly hot weather conditions may kill crops and cattle and reduce SS

Question 8

‘E’ factor of SS

Answer 8

Expectation of future prices
If future P is expected to rise, producers may choose to withhold their stocks for greater profitability in the future.

Question 9

‘T’ factor of SS

Answer 9

State of Technology
Cutting-edge technology in the manufacturing or production sectors can help streamline production, increasing SS.

Question 10

‘P’ factor of SS

Answer 10

Price of related goods

Competitive Supply: A rise in supply of one will reduce the supply of another.

Joint Supply: A rise in supply of one will reduce the supply of another

Question 11

‘I’ factor of SS

Answer 11

Price of factor inputs
A rise in price of factor inputs will reduce the supply of a good

Question 12

‘G’ factor of SS

Answer 12

Government policies

Reduction in value-added tax/sales taxes can increase the supply of goods as less extra costs are passed on to producers, reducing COP.

Question 13

‘S’ factor of SS

Answer 13

Number of suppliers
An increase in the number of suppliers will increase the SS of a good

Profitability drives an increase in venture into a specific industry or sector.

Question 14

Name the 3 effects of shortages

Answer 14

• Black Market
• Panic Buying/Rationing
• Queuing