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Demand and Supply in Product Markets

Factors influencing demand and supply in product markets: Product market

  • 3 things to know
  • AS Units 1 and 2

Overview

Recall questions on A product market, The objectives of economic agents and The importance of marginal utility in the derivation of demand curves.

What you need to know

Answer each one before you reveal it.

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Key term

What is a product market?

Key term

What is the primary objective that consumers are assumed to pursue in economic theory?

Key term

Define marginal utility.

Questions from this subtopic

Each one with the model answer underneath.

  1. 1

    What is a product market?

    Model answer

    A market where finished goods and services are bought and sold between producers and consumers.

  2. 2

    What is the primary objective assumed for firms in economic analysis?

    Model answer

    To maximise profits.

  3. 3

    What is the primary objective that consumers are assumed to pursue in economic theory?

    Model answer

    Consumers are assumed to seek to maximise satisfaction or utility.

  4. 4

    Why do economists assume that consumers aim to maximise utility when making purchasing decisions?

    Model answer

    This assumption provides a rational basis for predicting consumer behaviour, as it implies consumers will allocate their limited income to purchase goods and services that give them the greatest total satisfaction.

  5. 5

    What behavioural assumption is made about both firms and consumers in standard economic analysis?

    Model answer

    They are assumed to behave rationally.

  6. 6

    Define marginal utility.

    Model answer

    The additional satisfaction gained from consuming one more unit of a good or service.

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AThe demand curve shifts to the left.
BExcess supply exists at the original price.
CPrice falls until a new equilibrium is reached.

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