1.2 How Markets Work

Question 1

YED Normal goods

Answer 1

• Positive values
• When income rises. demand rises
• E.g. Heinz beans

Question 2

YED Inferior goods

Answer 2

• Negative values
• When income rises, demand falls
• E.g. non-branded beans

Question 3

XED Substitute goods

Answer 3

• Positive values
• The rise in price for good A leads to an increase in demand for good B

Question 4

XED Complimentary goods

Answer 4

• Negative values
• The rise in price for good A leads to a decrease in the demand for good B.

Question 5

PES in the long-run

Answer 5

Will become more elastic due to increased time and incentive for suppliers to be more responsive.

Question 6

Direct tax

Answer 6

• Levied on the person who pays it
• e.g. income tax, corporation tax

Question 7

Indirect tax

Answer 7

• Levied on goods and services
• e.g. VAT, excise duties

Question 8

Incidence

Answer 8

How much tax paid by consumers and producers