Units 2.2, 2.3, 2.4, 2.5 Demand, Supply and Market Equilibrium

Question 1

Demand

Answer 1

A consumer’s willingness and desire to purchase goods and services at a specific price.

Question 2

Individual demand

Answer 2

One consumer’s willingness and ability to purchase a product or service at a given price.

Question 3

Market demand

Answer 3

The sum of all consumers’ willingness and ability to purchase a product or service at a given set of prices.

Question 4

The demand curve

Answer 4

The relationship betweent the price of a product and the quantity demanded by the market.

Question 5

Prices changes and the demand curve

Answer 5

When prices change, there is a movement along the demand curve.

Question 6

Contraction of demand

Answer 6

When there is an increase in price, there is a decrease in the quantity demanded.

Question 7

Extension of demand

Answer 7

When there is a fall in price, there is an increase in the quantity demanded.

Question 8

Joint demand

Answer 8

Where products complement each other. They products in demand together e.g. cars and petrol

Question 9

Competitive demand

Answer 9

When consumers demand one or another good- they are in competition with each other. They are substitutes. e.g. Samsung phones and Apple phones.

Question 10

Composite demand

Answer 10

When a product is demanded for multiple uses e.g. milk or oil

Question 11

Shift in the demand curve

Answer 11

When the demand curve shifts left or right do there is a change in the quantity demanded at every price.

Question 12

Increase in demand…. the demand curve shifts

Answer 12

Right

Question 13

Decrease in demand….the demand curve shifts

Answer 13

Left

Question 14

Factors which can cause a shift in the demand curve…

Answer 14

Changes in income, taxes, price of complementary or substitute goods, tastes and fashions, advertising and marketing, size of population etc.

Question 15

Supply

Answer 15

Ability and willingness of a firm to sell products at a given price.

Question 16

Individual supply

Answer 16

One business’s willingness and ability to sell a product at a given price.

Question 17

Market supply

Answer 17

Sum of all businesses’ willingness and ability to sell a product at a given set of prices.

Question 18

Supply curve

Answer 18

Relationship between the price of a product and the quantity supplied by the business.

Question 19

Joint supply

Answer 19

When products are produced together e.g. one product is a by-product of another.

Question 20

Competitive supply

Answer 20

When a producer has alternate uses for the factors of production and so decides what to produce.

Question 21

Movements along the supply curve

Answer 21

When the supply of a good changes according to the price.

Question 22

Extension of supply

Answer 22

There is an increase in price so the quantity supplied increases

Question 23

Contraction of supply

Answer 23

When the price falls the quantity supplied decreases.

Question 24

When the supply curve shifts

Answer 24

The supply to the market changes at all prices.

Question 25

An increase in supply

Answer 25

The whole supply curve shifts outwards or moves to the right.

Question 26

A decrease in supply

Answer 26

The whole supply curve shifts inwards or moves left.

Question 27

Factors that affect the supply

Answer 27

These a linked to the factors of production, other products supplied and government policies.

Question 28

Short run

Answer 28

In the short run, at least one of the factors of production are fixed.

Question 29

Long run

Answer 29

All the factors of production can change.

Question 30

How do factors of production affect supply?

Answer 30

Cost of labour, cost of capital, cost of land, technology.

Question 31

How does taxation affect supply?

Answer 31

If taxes on businesses increase, supply will decrease as there is less incetive to supply goods or services. This is an inward shift of the supply curve.

Question 32

How do subsidies affect supply?

Answer 32

If the government pays firms to supply goods, this will increase supply and the supply curve will shift outwards.

Question 33

Price of jointly supplied products increases, what will happen to supply?

Answer 33

Supply of both goods will increase as the firm supplies more of both goods.

Question 34

Price of competitively supplied products increases..

Answer 34

A firm may switch to the higer priced item as it may receive greater profits.

Question 35

Market equilibrium

Answer 35

Point at which the quantity supplied is equal to the quantity demanded of a particular product. This is where the price is agreed.

Question 36

Market disequilibrium

Answer 36

A situation where there is excess demand or excess supply.

Question 37

Excess supply

Answer 37

A situation where the price is too high and there are unsold products on the market.

Question 38

Excess demand

Answer 38

A situation where the price is too low meaning there are unsatsifed consumers in the market.

Question 39

Price mechanism

Answer 39

The price plays three roles in the market- signalling, incentivising and rationing.

Question 40

Incentivising

Answer 40

The price gives an incentive to producers to increase or descrease output as they think about their profits.

Question 41

Rationing

Answer 41

The price means agents alter their behaviours in the market to change their demand or supply.

Question 42

Allocative efficiency

Answer 42

The free market is allocatively efficient because the price= the cost of producing the last product supplied to the market. This is where consumers are all receiving what they are demanding.

Question 43

Productive efficiency

Answer 43

The free market incentivises firms to produce at their lowest average costs.

Question 44

Consumer surplus

Answer 44

Difference between the price consumers are willing to pay and the market price. If they were willing to pay above the market price- there is consumer surplus.

Question 45

Producer surplus

Answer 45

Difference between the market price and price producers were willing to supply the market at. If producers were willing to supply at lower than the market price, there is producer surplus.