9708 · 2.1
Demand and supply curves flashcards
Revision flashcards for Cambridge 9708 Demand and supply curves (syllabus 2.1). Flip, recall, then mark a real past-paper question.
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What is the 'ceteris paribus' assumption in the context of demand and supply?
It is a Latin phrase meaning 'all other things being equal'. When analysing the effect of a price change on quantity demanded or supplied, we assume that all other non-price factors (like income or production costs) remain constant.
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What is the difference between a 'change in quantity demanded' and a 'change in demand'?
A 'change in quantity demanded' is a movement along the demand curve caused by a change in the good's own price. A 'change in demand' is a shift of the entire curve (left or right) caused by a change in a non-price determinant (e.g., income, tastes).
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Define market equilibrium.
A state of balance where quantity demanded equals quantity supplied. At this point, the market clears, and there is no tendency for the price or quantity to change unless an external factor changes.
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What is a 'shortage' and what causes it?
A shortage, or excess demand, is a situation where quantity demanded exceeds quantity supplied. It is caused by the market price being set below the equilibrium price, leading to upward pressure on the price.
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List three non-price determinants that would cause the supply curve for cars to shift to the left.
1. An increase in the cost of production (e.g., higher steel prices or wages for car workers). 2. A new indirect tax placed on car manufacturers by the government. 3. A disruption in technology or a natural disaster affecting production facilities.
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What is a 'surplus' and what causes it?
A surplus, or excess supply, is a situation where quantity supplied exceeds quantity demanded. It is caused by the market price being set above the equilibrium price, leading to downward pressure on the price.
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What are the two effects that explain why the demand curve is downward sloping?
The **income effect** (a lower price increases consumers' real purchasing power, allowing them to buy more) and the **substitution effect** (a lower price makes the good relatively cheaper than its substitutes, encouraging consumers to switch to it).
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State the Law of Supply.
The Law of Supply states that, ceteris paribus, there is a direct or positive relationship between the price of a good and the quantity supplied. As the price rises, the quantity supplied increases.