2.1

Question 1

market

Answer 1

where people are willing and able to purchase a good, service or resource, carry out exchange with those who are willing and able to provide that same good

Question 2

markets can be

Answer 2

local, national and international

Question 3

markets can also be

Answer 3

product, factor, labour and financial markets

Question 4

product market

Answer 4

where goods and services are sold

Question 5

factor market

Answer 5

where resources are sold

Question 6

labour market

Answer 6

where people offer their services in exchange for a salary

Question 7

financial market

Answer 7

where foreign currencies, company shares or other financial contracts are traded

Question 8

competition

Answer 8

occurs when there is a large number of buyers and sellers acting independently; an individual seller has very little, or no market power to influence the price of a product

Question 9

the opposite of competition

Answer 9

market power

Question 10

market power =

Answer 10

monopoly power

Question 11

market power

Answer 11

the ability of a firm to raise and maintain prices above the level that would occur under competition

Question 12

demand

Answer 12

the quantity of a good or service that consumers are willing and able to purchase at various prices during a specific time period, ceteris paribus

Question 13

effective demand

Answer 13

the quantity of goods and services that consumers are actually buying at various prices, supported by their ability to pay

Question 14

demand curve

Answer 14

a graph showing how the quantity demanded of a commodity or service varies with changes in its price; shows effective demand

Question 15

individual demand

Answer 15

the demand of one person for a product

Question 16

draw a demand curve

Answer 16

…

Question 17

demand schedule

Answer 17

a table that shows the quality demanded of a good or service at different prices

Question 18

market demand

Answer 18

the sum of all the individual demands for a product at every price

Question 19

law of demand

Answer 19

the principle that as the price of a product decreases, the quantity demanded of it will increase, ceteris paribus

Question 20

price

Answer 20

a determinant of the quantity demanded of a product

Question 21

non-price determinants of demand

Answer 21

all factors affecting demand other than price; they cause the entire demand curve to shift

Question 22

normal goods

Answer 22

goods whose demand increases as people’s income increases (luxury products, brands)

Question 23

inferior goods

Answer 23

goods whose demand decreases as people’s income increases (lower quality products, less expensive)

Question 24

substitutes

Answer 24

goods that have similar characteristics and uses for consumers (different brands of the same good)

Question 25

close substitutes

Answer 25

goods that have very similar characteristics and uses to consumers so that they switch between them easily (coke and pepsi)

Question 26

remote substitutes

Answer 26

goods that have less similar characteristics and consumers switch less easily

Question 27

complementary goods =

Answer 27

complements

Question 28

complementary goods

Answer 28

goods that are consumed together (toothbrush and toothpaste)

Question 29

close complements

Answer 29

one good has little use without the other

Question 30

remote complements

Answer 30

sometimes consumed together, but don’t depend on each other

Question 31

unrelated goods

Answer 31

the change in price of one good doesn’t affect the other

Question 32

future expectations about future prices

Answer 32

if people expect an increase in price in the future, they buy more now

Question 33

expectations about the future of economy

Answer 33

high consumer and business confidence can increase demand for goods, services and resources in the economy

Question 34

positive feedback loop

Answer 34

a change in a system that leads to more and greater change away from the equilibrium, destabilizing the system

Question 35

market bubble

Answer 35

a situation where price of a product rises above the reasonable assessments of its value, often rapidly, followed by market crush

Question 36

market crush

Answer 36

prices rapidly decline

Question 37

demographic changes

Answer 37

changes to the size, structure and distribution of a group of people

Question 38

utility

Answer 38

the worth or value of a good or service; total satisfaction or benefit derived from consuming a good or service; we quantify it with utils

Question 39

marginal utility

Answer 39

the benefit from consuming one additional unit of a product or service in utils

Question 40

law of diminishing marginal utility

Answer 40

the principle that as additional units of a good or service are consumed, the marginal utility will decline (consumers get less and less satisfaction from each additional unit)

Question 41

total utility declines when

Answer 41

marginal utility is negative

Question 42

substitution effect

Answer 42

when consumers substitute relatively lower-priced goods when the prices of those goods decline, thereby consuming more of them; law of demand

Question 43

income effect

Answer 43

when the price of a product falls and if consumers’ incomes have not changed, we assume that consumers can buy more of that good; their real income has increased so they demand larger quantity of goods and services

Question 44

real income

Answer 44

the income of individuals or countries after adjusting the inflation (price changes)