U3 AOS1 Microeconomics + The effects of changes in non-price demand and supply factors on market equilibrium and the allocation of resources

Question 1

The Law of Demand

Answer 1

states that there is an inverse relationship between prices and the quantity demanded.

Question 2

The income effect

Answer 2

states that as prices rise for a particular product, consumers will have to spend a greater proportion of their income to purchase the product, making them less willing to purchase the good as its price rises, leading to a contraction in the quantity demanded of that good.

Question 3

The substitution effect

Answer 3

states that as prices rise for a particular product, consumers are more likely to purchase a cheaper substitute thus leading to a contraction in the quantity demanded for that good.

Question 4

demand curve

Answer 4

shows the relationship between various possible prices for a product and the quantity that consumers in the market would be willing and able to buy at each of these prices.

Question 5

disposable income

Answer 5

is the total amount of money that consumers have to spend on goods and services.

Question 6

Discretionary income

Answer 6

is the disposable income earned minus the expenditure on necessities.

Question 7

substitute

Answer 7

is a viable good or service that may be used in place of the product in question

Question 8

Complementary products

Answer 8

are products that are generally used together with another products but are sold separately (e.g. bread and butter)

Question 9

Consumer confidence or consumer sentiment

Answer 9

is the measure of households’ general expectations about the future state of the economy

Question 10

The Law of Supply.

Answer 10

states that there is a positive relationship between the price and the quantity supplied

Question 11

equilibrium price

Answer 11

is the price where the quantity demanded is equal to the quantity supplied.

Question 12

shortage

Answer 12

when the quantity demanded exceeds the quantity supplied

Question 13

Surplus

Answer 13

when the quantity supplied exceeds the quantity demanded

Question 14

demand

Answer 14

refers to the quantity of a good or service that consumers are willing to purchase at any given price.

Question 15

demand–supply diagrams

Answer 15

illustrate the behaviour of buyers and sellers of a particular good or service in a market, and how prices are determined at equilibrium.

Question 16

supply

Answer 16

refers to the quantity of a particular good or service that sellers are willing to make available at any given price. This can be shown by a supply curve or line.