Demand and Supply (Pack 3)

• What does "effective demand" mean?

  The willingness and ability of customers to purchase goods and services at different prices
• What causes a contraction in the demand curve?

  A rise in price and a fall in quantity demanded
• What is meant by utility?

  Measure of satisfaction from the consumption of a good or service
• What is diminishing marginal utility?

  Decreasing satisfaction with each additional unit
• What is disutility?

  Negative satisfaction from consumption
• What are the conditions of demand?

  Population, expectations of future price

  Advertising and branding

  Substitutes (Competitive demand)

  Income

  Fashion and tastes

  Interest rates (May make high price times affordable)

  Complementary goods (Jointly demanded)
• How does an increase in consumer income influence demand?

  It increases demand for normal goods
• What does a leftward shift in the demand curve indicate?

  A decrease in demand
• What does a rightward shift in the demand curve indicate?


  An increase in demand
• What is the formula for revenue?

  Revenue = Price × Quantity Sold
• How is the revenue rectangle represented on a demand and supply diagram?

  Area formed by price and quantity axes
• What causes a contraction in supply?

  A fall in price causes a fall in quantity supplied as there is less incentive to supply for the firm
• What causes an extension in supply?

  A rise in price causes an increase in quantity supplied as there is more incentive to supply for the firm
• What does a leftward shift in the supply curve indicate?

  A decrease in supply
• What does a rightward shift in the supply curve indicate?

  An increase in supply
• What are the conditions of supply?

  Productivity of labour

  Indirect tax

  Number of firms in the industry

  Technology

  Subsidies

  
  

  Weather

  Costs of production, raw materials, transport and capital goods
• The assumptions of consumer and firm behaviour

  • Consumers make rational decisions to try maximise their utility
  • Firms will allocate their resources to try maximise profits
• What causes an extension in the demand curve?

  A fall in price and a rise in quantity demanded