Demand, Supply & Market Equilibrium (Edexcel IGCSE Economics): Flashcards

False.

It is not effective demand unless the consumer is both willing and able to pay.

The non-price determinants of demand are the factors that change the demand for a good or service irrespective of its price.

A shift in demand is a movement of the entire demand curve left or right caused by a change in a non-price determinant of demand.

An increase in population size raises demand, shifting the demand curve right, as there is a direct relationship between population and demand.

Increased advertising raises demand as more consumers become aware of the product, shifting the demand curve right.

A rise in real income increases demand for a normal good, shifting the demand curve right.

A rise in the price of a substitute good increases demand for the other good, shifting its demand curve right.

A rise in the price of a complementary good decreases demand for its partner good, shifting its demand curve left.

True.

A change in a non-price determinant raises demand at every price, so quantity demanded rises even though price is unchanged.

True.

When the price of one complement rises, demand for its partner good falls, so the relationship is inverse.

True.

A change in the age distribution shifts demand, as different age groups demand different goods and services.

When a good becomes more fashionable, there is a direct relationship between taste and demand, so the demand curve shifts right.

When price changes with all else equal, there is a movement along the demand curve, resulting in a change to quantity demanded.

Supply is the amount of a good or service that a producer is willing and able to supply at a given price in a given time period.

The law of supply states that there is a positive relationship between quantity supplied and price, ceteris paribus.

A supply curve is a graphical representation of the price and quantity supplied by producers.

Profit-maximising producers supply more as prices rise in order to maximise their profits.

A movement along the supply curve is caused by a change in the good's own price, with all else held constant.

A rise in quantity supplied after a price increase is called an extension in quantity supplied.

A fall in quantity supplied after a price decrease is called a contraction in quantity supplied.

True.

A change in the good's own price changes the quantity supplied (a movement along the curve), not supply.

False.

When price falls, quantity supplied falls, because there is a positive relationship between price and quantity supplied.

Although the data would form a curve, economists draw the supply curve as a straight line to make analysis easier.

The non-price determinants of supply are the factors that change the supply of a good or service irrespective of its price.

A shift in supply is a movement of the entire supply curve left or right caused by a change in a non-price determinant of supply.

A supply shock is a sudden change in supply caused by a natural factor, such as a drought or flooding in agricultural markets.

A rise in the costs of production decreases supply, shifting the supply curve left.

New technology raises productivity and lowers production costs, so supply increases and the curve shifts right.

An increase in an indirect tax raises the cost of production, so supply decreases and the curve shifts left.

An increase in a producer subsidy lowers the cost of production, so supply increases and the curve shifts right.

The entry of new firms into a market increases supply, shifting the supply curve right.

False.

A change in the good's own price causes a movement along the supply curve, not a shift of the whole curve.

True.

A drought is a natural factor that causes a supply shock, shifting the supply curve left.

A decrease in the costs of production causes supply to increase, shifting the supply curve to the right.

Changes to producer subsidies directly impact the cost of production for the firm.

Market equilibrium occurs when demand equals supply; the price at this point is called the market clearing price.

A market is any place that brings buyers and sellers together to trade at an agreed price, and can be physical or virtual.

Buyers exercise consumer sovereignty by choosing whether or not to purchase a good at the offered price.

Disequilibrium occurs whenever there is excess demand or excess supply in a market — at any price above or below equilibrium.

Excess demand occurs when demand is greater than supply, creating a shortage.

Excess supply occurs when supply is greater than demand, creating a surplus.

False.

Excess demand arises when price is below equilibrium; excess supply arises when price is above equilibrium.

Sellers raise prices, causing a contraction in quantity demanded and an extension in quantity supplied until demand equals supply.

Sellers lower prices, causing an extension in quantity demanded and a contraction in quantity supplied until demand equals supply.

A demand and supply schedule shows the quantity demanded and quantity supplied at different price levels.

The market is in equilibrium at 800 units, where quantity demanded equals quantity supplied.

The excess demand is 2,500 motorcycles (4,000 − 1,500).

False.

Different markets clear at different speeds — retail clothing may take a few days, while the housing market can take months or years.

A dynamic market is a real-world market that is constantly changing, so its equilibrium can shift over minutes, weeks or months.

Excess demand is a shortage that exists when, at the current price, demand is greater than supply.

Excess supply is a surplus that exists when, at the current price, supply is greater than demand.

The increase in demand for desks raised both the equilibrium price and quantity to higher levels.

Suppliers raised prices, causing a contraction of demand and an extension of supply until a new equilibrium was reached.

The decrease in supply raised the equilibrium price and lowered the equilibrium quantity of plantains.

Rising inflation reduced consumers' real income, so fewer luxuries such as lobsters were demanded.

The fall in demand lowered both the equilibrium price and quantity of lobsters.

The subsidy increased supply, which lowered the equilibrium price and raised the equilibrium quantity of solar panels.

True.

When supply falls, demand exceeds supply at the original price, creating excess demand that pushes the price up.

False.

An increase in supply creates excess supply, so sellers lower prices and the equilibrium price falls.

When demand for lobsters fell, excess supply existed, so suppliers gradually reduced prices to clear it.

Hurricane Fiona destroyed Puerto Rico's plantain crop, an example of a supply shock.