CIE Economics AS-level: Price System and the Microeconomy

These flashcards cover key concepts from the CIE Economics AS-level lecture on Price System and the Microeconomy, focusing on demand and supply curves along with the factors influencing them.

What is effective demand?

The quantity that consumers are willing to buy at the current market price.

What is individual demand?

The demand of an individual or firm, measured by the quantity bought at a certain price at one point in time.

What is market demand?

The sum of all individual demands in a market.

How does price affect demand?

Generally, the lower the price, the more affordable the good, and consumer demand increases.

What happens to demand at a lower price, illustrated on the demand curve?

A larger quantity is demanded, known as an expansion of demand.

What does a shift from D1 to D2 represent on the demand curve?

An inward shift in demand, resulting in a lower quantity demanded at the same market price.

What factors can shift the demand curve?

Population, Income, Related goods, Advertising, Tastes and fashions, Expectations, Seasons (PIRATES).

How does population affect demand?

The larger the population, the higher the demand.

What are substitutes in terms of related goods?

Goods that can replace another good, such as two different brands of TV.

What is individual supply?

The supply that a producer is willing and able to sell at a given price in a given period of time.

Why are supply curves generally upward sloping?

If price increases, it is more profitable for firms to supply the good and high prices encourage new firms to enter the market.

What is an expansion of supply?

An increase in quantity supplied when price increases.

What does a shift from S1 to S2 indicate?

An outward shift in supply, resulting in a larger quantity supplied at the same market price.

What factors can shift the supply curve?

Productivity, Indirect taxes, Number of firms, Technology, Subsidies, Weather, Costs of production (PINTSWC).

How do indirect taxes affect supply?

They cause an inward shift in supply.

What is the effect of increased productivity on supply?

Higher productivity results in an outward shift in supply due to lower average costs.

How does weather affect supply?

Favorable weather conditions can increase supply, particularly for agricultural products.

What happens if costs of production rise?

There will be an inward shift in supply, leading to a decrease in supply.