1.2 How Markets Work

Question 1

Demand definition

Answer 1

Ability + willingness to buy a good at a given price and a given time period

Question 2

Factors to shift demand (PASIFIC)

Answer 2

Population, Advertising, Substitutes, Income, Fashion & Trends, Interest rates, Compliments

Question 3

PED (Q before you P)

Answer 3

The responsiveness of D to a change in the price of a good

Question 4

Value for elastic PED

Answer 4

-1 to infinity

Question 5

Value for inelastic PED

Answer 5

0 to 1

Question 6

Factors affecting PED (PANTA)

Answer 6

Price in proportion to total income, Availability of substitutes, Necessity, Time period, Addictiveness

Question 7

Significance of PED and Tax

Answer 7

More elastic the D curve, the lower the incidence of tax on the consumer (and vice versa)

Question 8

Significance of PED and Subsidies

Answer 8

Subsidy = affects costs. Elastic D means that consumer sees a small fall in price whilst producer gains a lot in extra rev

Question 9

Income Elasticity of Demand (YED)

Answer 9

The responsiveness of D to a change in income

Question 10

YED for an inferior good

Answer 10

less than 0

Question 11

YED for a normal good

Answer 11

greater than 0

Question 12

Cross Elasticity of Demand (XED)

Answer 12

The responsiveness of D for one product (A) to a change in price of another product (B)

Question 13

XED for a substitute

Answer 13

greater than 0

Question 14

XED for a complementary good

Answer 14

less than 0

Question 15

Supply

Answer 15

The willingness + ability to provide a good at a particular price at a particular time period

Question 16

Factors to shift supply (PINTSWC)

Answer 16

Productivity, Indirect tax, Number of firms, Tech, Subsidies, Weather, Cost of production

Question 17

PES

Answer 17

The responsiveness of a S to a change in the price of a good

Question 18

Factors affecting PES (PSSST)

Answer 18

Production log, Stocks, Spare capacity, Substitutability of FOPs, Time