Theme 1 economics 2.1

• What is meant by demand?

  Quantity consumers are willing to buy
• How does individual demand reflect consumer value?

  It reflects the value placed on a product
• What term do economists use for the value derived from consumption?

  Utility
• What is effective demand?

  Desire to buy backed by ability to pay
• What is derived demand?

  Demand for a factor of production
• How is the demand for steel linked to other markets?

  Linked to demand for cars and buildings
• What is a good example of a product with derived demand?

  Zinc
• What are some end uses of zinc?

  Used in cars, buildings, and toys
• What is the primary use of wood in the UK?

  Construction
• What percentage of wood demand in the UK is for construction?

  60%
• How does the demand for labor function in factor markets?

  Demand for labor is derived from production needs
• How does an increase in air travel demand affect pilot demand?

  It leads to a rise in demand for pilots
• What is the relationship described by the Law of Demand?

  Inverse relationship between price and demand

  
• What happens to demand when prices fall?

  There is an expansion of demand

  
• What occurs when prices rise according to the Law of Demand?

  There will be a contraction of demand
• What does the ceteris paribus assumption allow economists to do?

  Isolate the effect of one variable
• What happens when production costs decrease?

  More can be supplied at each price
• How can lower production costs affect consumer prices?

  May result in lower prices for consumers
• What happens if production costs increase?

  Businesses cannot supply as much at the same price
• How does a fall in the exchange rate affect supply?

  It leads to a decrease in supply

  
• What is the effect of changes in production technology?

  Can lead to increases in supply and lower prices
• How do indirect taxes affect production costs?

  They cause an increase in production costs
• What is the effect of subsidies on supply costs?

  They lead to a fall in supply costs

  
• How do regulations impact production costs?

  They increase production costs
• What does a supply curve show?

  Relationship between price and quantity supplied

  
• What happens when the supply curve shifts to the right?

  There is an increase in supply

  
• What does an inward shift of the supply curve indicate?

  There is a decrease in supply

  
• What should you understand about shifts in the supply curve?

  Key factors can cause shifts in supply
• What is the definition of supply?

  Quantity a producer is willing to supply
• What does the law of supply state?

  As price rises, supply expands
• What are the key factors that can shift the supply curve?

  • Changes in production costs
  • Changes in technology
  • Government taxes, subsidies, and regulations

  
• What is the relationship between price and quantity supplied according to the law of supply?

  • As price increases, quantity supplied increases
  • As price decreases, quantity supplied decreases

  
• What is the significance of the ceteris paribus assumption in economics?

  • It isolates the effect of one variable
  • Assumes all other factors are constant
• What does a rightward shift in the supply curve indicate?

  More is provided for sale at each price

  
• What occurs when the supply curve moves inwards from S1 to S3?

  There is a decrease in supply

  
• What does a decrease in supply mean?

  Less will be supplied at each price

  
• What should you understand regarding shifts in the supply curve?

  Key factors that can cause shifts
• What does the law of supply state?

  Price rises, businesses expand supply
• What does a supply curve illustrate?

  Relationship between price and quantity supplied

  
• What is not necessarily the amount sold?

  Supply is not the amount sold