demand and supply

• What is demand in economic terms?

  Demand is the amount of a product that consumers are willing and able to purchase at any given price.
• What does effective demand imply?

  Effective demand implies that demand is backed by money and an ability to buy.
• What does the law of demand state?

  The law of demand states that the higher the price, the lower the quantity demanded, and vice versa.
• What is the shape of the demand curve and why?

  The demand curve is downward sloping because consumers are willing to buy less as the price rises.
• What causes movements along the demand curve?

  Movements along the demand curve are caused by changes in price.
• What is supply in economic terms?

  Supply is the amount of a product which suppliers will offer to the market at a given price.
• How does price affect supply?


  As the price of an item goes up, suppliers will increase the quantity offered for sale to maximize profits.
• What happens to supply at low price levels?

  At low price levels, only the most efficient suppliers can make a profit, so supply is limited.
• What is the relationship between price and supply?

  The lower the price, the lower the quantity supplied; and the higher the price, the higher the quantity supplied.
• What causes movements along the supply curve?

  Movements along the supply curve are caused by changes in price.
• What is market equilibrium?


  Market equilibrium is where the demand curve and the supply curve intersect, matching quantity demanded and supplied.
• What can be derived from market equilibrium?

  From market equilibrium, we can derive market price and market quantity.
• Is market equilibrium fixed? Why or why not?

  No, market equilibrium is not fixed; it changes over time due to changes in demand and supply patterns.
• What factors can cause shifts in demand and supply curves?

  • Changes in consumer incomes
  • Changes in tastes and fashion
  • Changes in the price of other goods (complementary and substitute goods)
  • Successful advertising campaigns
  • Changes in population
  • Government legislation
• How can the demand curve shift outward?

  The demand curve can shift outward if more is demanded at each price level.
• What does an inward shift of the demand curve indicate?

  An inward shift indicates a decrease in demand, meaning less is demanded at each price level.
• How does an increase in consumer incomes affect the demand curve for normal goods?

  An increase in consumer incomes is likely to shift the demand curve to the right for most normal and luxury goods.
• What happens to the demand curve when tastes and fashion change?

  If goods become more fashionable, the demand curve shifts to the right; if they go out of fashion, it shifts to the left.
• What are complementary goods?

  Complementary goods are those used alongside another good, where an increase in demand for one increases demand for the other.
• How do substitute goods affect demand?

  A change in the price of substitute goods can shift the demand curve; for example, if train fares increase, demand for petrol may increase.
• What impact can advertising have on the demand curve?

  A successful advertising campaign can shift the demand curve to the right, while bad publicity can shift it to the left.
• How does population change affect demand?

  Changes in population, such as an ageing population, can increase demand for specific products like retirement homes.
• How can government legislation impact demand?

  Government legislation can increase demand for certain products, such as when child seats became compulsory in vehicles.
• What happens to equilibrium price when demand shifts outward?

  When demand shifts outward, the equilibrium price rises and quantity demanded and supplied expands.
• What happens to equilibrium price when demand shifts inward?

  When demand shifts inward, the equilibrium price falls and quantity demanded and supplied contracts.
• What can cause shifts in the supply curve?

  Supply can shift due to changes in costs, weather, introduction of new technology, and legislation.
• How do rising costs affect the supply curve?

  Rising costs will shift the supply curve inwards and to the left.
• How does weather impact agricultural supply?

  Good weather can increase agricultural output, shifting the supply curve outwards, while bad weather decreases output.
• What role does technology play in supply?

  Introduction of new technology can increase supply by shifting the supply curve outwards and to the right.
• How does legislation affect supply?

  Legislation can increase costs for businesses, shifting the supply curve inwards and to the left.
• What happens to equilibrium price when supply shifts outward?

  When supply shifts outward, the equilibrium price falls and quantity demanded and supplied increases.
• What happens to equilibrium price when supply shifts inward?

  When supply shifts inward, the equilibrium price rises and quantity demanded and supplied decreases.
• What does price elasticity of demand measure?

  Price elasticity of demand measures the responsiveness of demand to a change in price.
• Why is understanding price elasticity of demand important for business managers?

  It helps managers know the impact of changes in price on likely levels of demand.
• What does it mean if demand is price elastic?

  Price elastic demand means that a change in price causes a more than proportional change in the quantity demanded.
• What is the implication of price inelastic demand?

  Price inelastic demand means that a change in price causes a less than proportional change in the quantity demanded.
• When is demand likely to be inelastic?

  Demand is likely to be inelastic when competition is low, there are few substitutes, or the goods are necessities or addictive.
• What is the objective of businesses regarding price elasticity of demand?

  The objective is to make the price elasticity of demand more inelastic, giving them more control over pricing.
• How can businesses make demand for their goods more price inelastic?

  Businesses can encourage consumer loyalty, reduce competition, and increase brand value to make demand more inelastic.
• What is income elasticity of demand?

  Income elasticity of demand measures the responsiveness of demand to changes in income.