Supply and Demand

Flashcards about demand and supply in economics, based on lecture notes.

What happens to demand when confidence increases?

Demand increases.

What is demand?

The consumer's incentive or ability to buy a product or service.

How does increased price affect demand?

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How does decreased price affect demand?

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When does market equilibrium occur?

When demand equals supply.

What happens to price when demand is higher than supply?

Price increases.

What shifts the entire demand curve?

Factors other than price.

What causes movement along the demand curve?

A change in price.

What happens to demand if price increases?

Demand decreases.

Factors that influence demand include?

Consumer preferences, income, prices of related goods, consumer expectations, and number of buyers.

What happens to demand when consumer income increases?

Demand increases.

What factors can shift the supply curve?

Subsidies, taxation, and technology improvements.

What are market clearing conditions?

When market price meets demand.

What is allocative efficiency?

Producing the optimal quantity of some good and when those benefits exceed the cost of producing one more.

What determines new equilibrium price?

Interaction of demand and supply.

What types of demand are there?

Derived demand refers to when one good impacts another.

What is derived demand?

Demand for one good is linked to the demand for another related good.

What happens to demand when consumer income decreases?

Demand decreases.

What happens to demand when confidence increases? Provide an example.

Demand increases. For example, if consumers are confident about the economy, they are more likely to make large purchases.

What is demand?

The consumer's incentive or ability to buy a product or service.

How does increased price affect demand? Give a real world example.

Increases in price decrease demand. For example, if the price of gasoline increases, people may drive less.

How does decreased price affect demand? Give a real world example

Decreased price increases demand. For example, if a store has a sale on a popular item, more people will want to buy it.

When does market equilibrium occur?

When demand equals supply.

What happens to price when demand is higher than supply?

Price increases.

What shifts the entire demand curve?

Factors other than price.

What causes movement along the demand curve?

A change in price.

What happens to demand if price increases?

Demand decreases.

Factors that influence demand include?

Consumer preferences, income

How does consumer confidence impact long-term investment decisions? Provide an example.

Increased consumer confidence typically leads to increased investment as people are more willing to take risks. For example, during economic booms, individuals might invest more in stocks or real estate, expecting higher returns.

Define demand and discuss its role in a market economy.

Demand is the consumer's desire and ability to buy products or services. In a market economy, it acts as a crucial signal, guiding resource allocation and production decisions.

Explain how changes in the price of a complementary good can affect the demand for a product. Provide a real-world example.

An increase in the price of a complementary good (a product often used with another) can decrease the demand for the related product. For instance, if printer ink prices rise sharply, the demand for printers might decrease as consumers find the overall cost of printing too high.

Discuss the limitations of using price decreases as a sole strategy to increase demand. Provide a theoretical scenario.

Relying solely on price decreases may not always boost demand sustainably. In a scenario where consumers perceive lower prices as indicative of lower quality, demand might not increase significantly or could even decrease.

Under what circumstances might market equilibrium be unstable? Provide examples of external factors that could disrupt equilibrium.

Market equilibrium can be unstable when affected by external shocks such as sudden technological changes, unexpected regulatory changes (laws), or significant shifts in consumer tastes. These can cause rapid shifts in supply and demand, leading to new equilibrium points.

What are the potential consequences of persistent excess demand in a market? How might this affect consumers and producers?

Persistent excess demand can lead to increased prices, shortages, and rationing. Consumers may face higher costs and limited availability, while producers might benefit from increased profits but also face pressure to increase production.

How can businesses use an understanding of factors that shift the demand curve to their advantage? Provide examples.

Businesses can use this knowledge to strategically influence demand through marketing, product development, and pricing strategies. For example, they might launch an advertising campaign to shift consumer preferences or innovate to meet changing needs.

Analyze how movement along the demand curve differs from a shift of the entire curve. Provide scenarios to illustrate each.

Movement along the demand curve occurs solely due to price changes, whereas a shift of the entire curve is caused by other factors like income or preferences. For example, a sale on TVs leads to movement along the curve, while a news report about the health benefits of organic food shifts the entire demand curve for organic products.

Discuss the ethical considerations involved in influencing demand through advertising and marketing. Provide a real world example.

There are ethical considerations to think about. For example, companies should avoid deceptive or misleading messaging, and must be transparent about product limitations. Selling cigarettes may be considered unethical because the company is selling a product that is known to cause harm to consumers.

How do changes in consumer income affect the demand for luxury goods versus essential goods? Give examples.

An increase in consumer income typically leads to a more significant increase in demand for luxury goods compared to essential goods. For example, demand for designer clothing might rise sharply with increased income, while demand for basic food staples increases only slightly.