2281 · 2.3
Demand flashcards
Revision flashcards for Cambridge 2281 Demand (syllabus 2.3). 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 is the difference between a substitute good and a complement good?
A substitute is a good that can be used in place of another (e.g., tea and coffee). An increase in the price of one leads to an increase in demand for the other. A complement is a good used together with another (e.g., printers and ink cartridges). An increase in the price of one leads to a decrease in demand for the other.
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What is the 'income effect'?
The income effect is one reason for the downward-sloping demand curve. When the price of a good falls, a consumer's real income (purchasing power) increases. With this increased purchasing power, they can afford to buy more of the good, leading to a higher quantity demanded.