3584660
| Question | Answer |
| Definition of demand. | Demand is the quantity of a good or service that consumers are willing and able to buy at a given price, at a particular time. |
| Why do demand curves slope downwards? | The higher the price charged for a good, the lower the quantity demanded. |
| What is the goal of 'typical' consumers? | Consumers aim to pay the lowest price possible for goods and services. |
| What happens to the demand curve if the price of the good changes? | There will be movement along the demand curve. |
| What are the factors that causes the demand curve to shift? | -Substitute goods -Complementary goods -Changes in tastes -Changes in the size of markets -Changes in the age distribution of the population -Expectations of changes in market prices or in income |
| What are substitute goods? | Substitute goods are alternatives to each other. |
| Why do substitute goods shift the demand curve? | An increase in the price of coke will decrease the demand for it as people will buy the substitute pepsi instead because its cheaper, increasing the demand for pepsi. |
| What are complementary goods? | Goods that are often used together. |
| Why do complementary goods shift the demand curve? | If the price of peanut butter increases, demand will for it will decrease. Peanut butter is often used with jelly, so since less people are buying peanut butter, demand for jelly will also decrease. |
| Why do changes in tastes shift the demand curve? | The more desirable people find a good, the more they will demand it. (eg; fashion, health considerations, advertising) |
| Why does the size of the market shift the demand curve? | As size of markets increase, demand for most products will tend to rise. |
| Why does the age distribution of the population affect the pattern of demand? | When the average age is rising, demand for false teeth increases and demand for chewing gum drops decreases. |
| Why do expectations of changes in market prices or income shift the demand curve? | If consumers expect price to rise in the future now, demand would increase as they are likely to buy more of it now before the prices go up. |
| Definition of supply. | Supply is the quantity of a good or service that producers supply to the market at a given price, at a particular time. |
| Why do supply curves slope upwards? | The higher the price charged for a good, the higher the quantity supplied. |
| What is the incentive of suppliers? | Producers and sellers aim to maximise their profits. |
| What do changes in price do to the supply curve? | There will be movement along the supply curve. |
| What are the factors that cause the supply curve to shift? | -Cost of production -Changes to technology -Changes in productivity -Changes in government policy -Changes in the price of a good that is jointly supplied -Changes in the price of a good in competitive supply -Changes in the size of the market -Changes in expectations |
| Why does cost production shift the supply curve? | If cost production increases, it will cost more to make a product thus firm will be willing to offer less and supply decreases. |
| Why do changes in technology shift the supply curve? | It allows companies to make more products whilst maintaining the same production cost so suppliers are willing to offer more and supply increases. |
| Why do changes in productivity shift the supply curve? | Labour output per worker increases thus more is produced by the worker despite having the same wage therefore suppliers are willing to offer more and supply increases. |
| Why do changes in government policy shift the supply curve? | If an indirect tax is implemented, the cost of production increases thus suppliers are willing to produce less and supply decreases. |
| Give an example of why changes in the price of a good that is jointly supplied shift the supply curve? | If price of mutton increases, farmer will have an incentive to produce more, so supply for mutton increases but also the supply of wool because both are produced together. |
| Give an example of why changes in the price of a good in competitive supply shift the supply curve? | A farmer has one plot of land where he grows both oranges and apples. If the price of oranges increases, he will have an incentive to grow more oranges instead of apples, so supply of oranges increase whilst supply of apples decrease. |
| Why do changes in the size of the market shift the supply curve? | As more firms join, more products are made thus supply increases. |
| Why do changes in expectations shift the supply curve? | If there is an expectation that the price will be higher in the future, it may cause supply of a good to decrease now. (They're gonna stop making it because by the time they can sell it, price would have decreased and they wont get a high profit) |
| Definition of equilibrium price. | A price is an equilibrium price if quantity demanded is equal to quantity supplied, so there is neither excess demand nor excess supply. |
| Factors that affect equilibrium. | -demand -supply |
| What does an increase in demand do to the equilibrium? | It increases both equilibrium price and quantity. |
| What does a decrease in demand do to the equilibrium? | It decreases both equilibrium price and quantity. |
| What does an increase in supply do to the equilibrium? | It increases equilibrium quantity but decreases price. |
| What does a decrease in supply do to the equilibrium? | It decreases equilibrium quantity but increases price. |
| What happens to equilibrium price if there's excess demand? | Price increases. |
| What happens to equilibrium price if there's excess supply? | Price decreases. |
| Using the price mechanism, what happens if demand increases resulting in excess demand? | Price increases thus theres an extension of supply (producers want to produce more) along the original supply curve and a contraction in demand (consumers want to buy less) along the new demand curve. |
| Using the price mechanism, what happens if demand decreases resulting in excess supply? | Price decreases thus theres a contraction of supply (producers want to produce less) along the original supply curve and an extension of demand (consumers want to buy less) along the new demand curve. |
Want to create your own Flashcards for free with GoConqr? Learn more.