1 2 market

Demand is the number of products customers are willing and able to buy at a given price.

A complementary good is a good that is consumed together with another good, such as cars and petrol.

A normal good is one for which demand increases as consumer income rises.

True. There is a negative correlation between the quantity of a product demanded by customers and its price.

When prices increase, the quantity demanded decreases.

Non-price factors affecting demand are factors other than price, such as changes in income or seasonality, that lead to a shift in the entire demand curve.

A substitute good is a replacement good, such as a different brand of car.

When prices decrease, the quantity demanded increases.

An inferior good is one for which demand decreases as consumer income rises.

False. An increase in spending on advertising is likely to shift the demand curve to the right.

Supply is the number of goods/services businesses are willing to sell at a given price in a specific time period.

False. There is a positive correlation between supply and price.

When prices increase, the quantity supplied increases.

Non-price factors affecting supply are factors other than price that cause a shift of the entire supply curve, such as new technology or government subsidies,

True. A change in any non-price factor that leads to less supply will shift the supply curve to the left.

An indirect tax is one that causes an increase in the costs of production, such as value-added tax (VAT).

When the price decreases, the quantity supplied decreases.

A subsidy is a form of financial assistance given to a business by the government, and it reduces the costs of production.

False. The introduction of automated production processes is likely to shift the supply curve to the right.

An external shock is an unexpected event that can change the quantity of a good or service supplied.

If the supply curve shifts to the left, the equilibrium price increases.

A market is any place that brings buyers and sellers together to trade at an agreed price.

Market equilibrium is the point where the quantity demanded equals the quantity supplied at a specific price.

True. At the equilibrium price, sellers will be satisfied with the quantity of sales.

True. At the equilibrium price, buyers are satisfied that the product provides benefits worth paying for.

If the selling price is set above the market equilibrium, supply will be greater than demand, and there will be a surplus.

If the demand curve shifts to the left, the equilibrium price decreases.

A rise in demand causes the demand curve to shift to the right, leading to a new equilibrium with a higher price and quantity.

A shortage occurs when demand exceeds supply at a given price.

An increase in supply causes the supply curve to shift to the right, leading to a new equilibrium with a lower price and higher quantity.

Price elasticity of demand is a measure of how responsive the change in quantity demanded is to a change in price.

True. The PED value is always negative because there is a negative correlation between price and demand.

If PED > -1, it is a price elastic good.

When the price of a price inelastic good increases, total revenue increases.

Price elastic demand means that demand is more responsive to a change in price.

Formula.

Price inelastic demand means that demand is less responsive to a change in price.

If PED is between 0 and -1, it is a price inelastic good.

When the price of a price elastic good increases, total revenue decreases.

True. Demand for luxury goods is likely to be price elastic.

Income elasticity of demand (YED) measures how responsive the change in quantity demanded is to a change in income.

Formula.

If the income elasticity of demand is greater than 1, it is a luxury good.

If income elasticity of demand is between 0 and 1, it is a necessity good.

If income elasticity of demand is less than 0, it is an inferior good.

A normal good is one for which demand increases as consumer income rises.

An inferior good is one for which demand decreases as consumer income rises e.g. people stop buying budget cereal when income rises.

False. Bread, milk, eggs, and potatoes are examples of normal goods.

During a recession, the demand for normal goods decreases as incomes fall e.g. people spend less on clothing as incomes fall.

During a recession, the demand for inferior goods increases as incomes fall e.g. people stop buying luxury cereals and switch to buying supermarket own brand cereals.