UNIT 2: SUPPLY AND DEMAND

Question 1

demand

Answer 1

the ability, willingness and desire to purchase something

Question 2

law of demand

Answer 2

quantity demanded varies inversely with price

Question 3

Reasons for change in quantity demand

Answer 3

1. income effect
2. substitution effect
3. diminishing marginal utility

Question 4

Reasons for change in demand

Answer 4

1. change in consumer tastes and preferences
2. change in consumer income (normal vs inferior goods)
   3.change in consumer expectations
3. change in number of buyers
4. change in price of related goods (complements vs substitutes)

Question 5

Law of supply

Answer 5

quantity supplied varies directly with price

Question 6

Reasons for change in supply

Answer 6

1. Change in price of inputs
2. Change in productivity
   3 Change in technology
3. Change in taxes/subsidies
4. Change in number of producers
5. Change in producer expectations
6. Change in the price of related goods

Question 7

Consumer surplus

Answer 7

The difference between what people would have paid and what they did pay, limited by the amount actually bought and sold market

Question 8

Producer surplus

Answer 8

The difference between what producers would have sold and what they did sell, limited by the amount actually bought and sold market