Unit 1 - Demand, Supply and Markets

Question 1

What is demand?

Answer 1

Demand is the quantity of a good or service that consumers are willing to buy at a given price in a given time period.

Question 2

What is effective demand?

Answer 2

the actual quantity of a good or service that consumers are willing and able to buy at a particular price in a certain period of time.

Question 3

Know how to draw demand curves from demand schedules.

Answer 3

Use notes and jotter.

Question 4

Why is the demand curve downward sloping?

Answer 4

-The law of diminishing marginal utility
-The substitution effect
-The income effect

Question 5

What is the substitution effect?

Answer 5

The substitution effect is when a consumer consumes more of another product because of a price rise.
The substitution effect is the decrease in sales for a product that can be attributed to consumers switching to cheaper alternatives when its price rise

Question 6

What is utility?

Answer 6

Utility is the satisfaction that someone gains from consuming a good or service.

Question 7

What is total utility?

Answer 7

This is the total satisfaction you get from consuming a certain number of units of a good or service.

Question 8

What is marginal utility?

Answer 8

Marginal utility is the extra satisfaction gained from consuming consecutive units of a good or service.

Question 9

What is diminishing marginal utility?

Answer 9

Diminishing Marginal utility is the diminishing satisfaction gained from consuming consecutive units of a good or service. (the more of an item that you use or consume, the less satisfaction you get from each additional unit consumed or used.)

Question 10

Be able to draw/use demand diagrams to explain how changes in the determinants of demand affect price and quantity demanded

Answer 10

Look at notes and at jotter.

Question 11

What is a substitute good or service?

Answer 11

goods and services that are similar. For example, if the price of one chocolate rose then the demand for another brand, that has not risen in price will increase.

Question 12

What is a complementary good or service?

Answer 12

one that goes along with another good or service. For example, strawberries and cream, if the price of strawberries fell then the demand for cream would increase.

Question 13

What does it mean if the demand curve shifts outwards?

Answer 13

this means that at all prices consumers demand more of a good or a service. (Shift right)

Question 14

What does it mean if the demand curve shifts inwards?

Answer 14

this means that at all prices consumers demand less of a good or a service (Shift left)

Question 15

What does the income effect describe?

Answer 15

how changes to consumers real income level can affect their purchasing patterns.

Question 16

Why does the income effect occur?

Answer 16

because as the price of a good rises, it means the consumers income buys them less units of any product. This means that their purchasing power, the amount that their money buys them, has fallen. This again explains why as price rises, quantity demanded falls.

Question 17

If the price of a good decreases then people will buy more, this is shown by a movement along the demand curve. What is this referred to by?

Answer 17

an extension in demand
PRICE NEVER CAUSES A SHIFT, ONLY A MOVEMENT

Question 18

If the price of a good increases then people will buy less, this is shown by a movement along the demand curve. What is this referred to by?

Answer 18

a contraction in demand
PRICE NEVER CAUSES A SHIFT, ONLY A MOVEMENT

Question 19

What are some factors that shift the demand curve?(9)

Answer 19

Population, Advertising, The price of subsitute goods and services, incomes, fashion and trends, interest rates, the price of complementary goods and services, the weather, expectations

Question 20

What is supply?

Answer 20

The amount of goods or services that producers are willing and able to sell at a given price. THIS IS NOT OUTPUT

Question 21

Be able to draw supply curves from supply schedules

Answer 21

Look at jotter and notes.

Question 22

Describe the relationship between supply and price.

Answer 22

A positive correlation between supply and price exists.

Question 23

Why does the supply curve slope upwards?

Answer 23

-The profit motive, when the market price rises following an increase in their output.
-New entrants coming into the market, higher prices may create an incentive for other businesses to enter the market leading to an increase in total supply.
-Production and costs, when output expands, a firms production costs tend to rise, therefore a higher price is needed to cover these extra costs of production.

Question 24

What does it cause if the supply curve shifts outwards?

Answer 24

it causes an increase in supply at all prices

Question 25

What does it cause if the supply curve shifts inwards?

Answer 25

it causes a decrease in supply at all prices

Question 26

What is productivity?

Answer 26

the amount produced per unit input in a period of time.

Question 27

What are some determinants of supply?

Answer 27

Costs of production, changes in production technology, tax, subsidy, weather/climate conditions.

Question 28

Be able to draw supply diagrams to explain how changes in the determinants of supply affect price and quantity supplied

Answer 28

Look at notes and jotter.

Question 29

What is a market?

Answer 29

a market is where buyers and sellers of a good or service come together to exchange their good or service for an agreed price.

Question 30

What are some different types of market?

Answer 30

technology, food, clothes, jewellery etc etc

Question 31

Be able to draw a demand and supply diagram to describe how equilibrium price and quantity are set

Answer 31

Look at notes and jotter.

Question 32

Be able draw a demand and supply diagram to describe how shortage and surplus situations (excess demand and excess supply) are returned to equilibrium, ie market clearing

Answer 32

Look at notes and jotter.

Question 33

Be able to draw a demand and supply diagram to describe how changes in the determinants of demand and/or supply affect equilibrium price and quantity

Answer 33

Look at notes and jotter.