2281 · 2.4
Supply flashcards
Revision flashcards for Cambridge 2281 Supply (syllabus 2.4). 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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State the Law of Supply.
Ceteris paribus, as the price of a good or service rises, the quantity supplied will also rise. This is because producers are more willing and able to sell at higher prices due to the potential for greater profit.
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How do you mathematically find the equilibrium price (P*) given demand and supply equations?
Set the quantity demanded (Qd) equation equal to the quantity supplied (Qs) equation (Qd = Qs) and solve for the price (P).