4.1.3 Price Determination In Acompetitive Market

Question 1

What is demand?

Answer 1

The quantity of a good or service that consumers are able and willing to buy at a given price during a given period of time

Question 2

Which way is expansion of demand?

Answer 2

Q1 to Q2

Question 3

Which way is contraction of demand?

Answer 3

Q1 to Q3

Question 4

What does demand increasing look like on a graph?

Answer 4

Demand shifting outwards from D1 to D3

Question 5

What factors shift the demand curve?

Answer 5

Population
Income (disposable income & wealth)
Related good (substitutes & compliments)
Advertising
Tastes & fashion
Expectations (future price changes)
Seasons

Question 6

What is price elasticity of demand?

Answer 6

The responsiveness of demand to a change in price

Question 7

PED formula

Answer 7

Question 8

What numerical value is PED if a good is elastic?
What does the graph look like?

Answer 8

PED > 1

Question 9

What numerical value is PED if a good is inelastic?
What does the graph look like?

Answer 9

PED<1

Question 10

What does unitary elastic mean?

Answer 10

Change in demand = change in price

Question 11

What does elastic mean?

Answer 11

Responsive to a change

Question 12

What numerical value is PED if a good is unitary elastic?
What does the graph look like?

Answer 12

PED = 1

Question 13

What numerical value is PED if a good is PERFECTLY inelastic?
What does the graph look like?

Answer 13

PED = 0

Question 14

What numerical value is PED if a good is PERFECTLY elastic?
What does the graph look like?

Answer 14

PED = infinity

Question 15

If PED = -1.33 is the good elastic or Inelastic?

Answer 15

As the value is greater than 1
Regardless of whether it is positive or negative
Bread is relatively price inelastic

Question 16

What factors influence e PED?

Answer 16

• Necccessity
• Substitutes
• Addictive or habitual consumption
• Proportion of income spent on the good
• Durability of the good

Question 17

What curve do taxes shift?

Answer 17

The supply curve

Question 18

Who would have a larger burden from tax if the product was inelastic?

Answer 18

Consumer

Question 19

Who would have a larger burden from tax if the product was elastic?

Answer 19

Producer

Question 20

diagram of a subsidy

Answer 20

Supply shifts outwards
Price reduces for both consumer and producer

Question 21

What’s the formula for total revenue?

Answer 21

TR = P x Q

Question 22

What is YED (income elasticity of demand)?

Answer 22

The responsiveness of demand to a change in income

Question 23

What is the formula for YED?

Answer 23

Y is income

Question 24

What are inferior goods?

Answer 24

Goods which fall in demand as income increases
(Eg. Consumers switch to branded goods when income rises)

Question 25

What is the YED for inferior goods?

Answer 25

YED <0

Question 26

What are normal goods?

Answer 26

Goods where demand increases as income increases

Question 27

What is the YED for normal goods?

Answer 27

YED>0

Question 28

What is a luxury good?

Answer 28

A good where an increase in income causes an even bigger increase in demand

Question 29

What’s is the YED for for luxury goods?

Answer 29

YED>1

Question 30

What is cross elasticity of demand?

Answer 30

The responsiveness of demand of one good to a change in price of another good

Question 31

What is the formula for XED?

Answer 31

Question 32

What is the relationship between complimentary goods and XED?

Answer 32

NEGATIVE XED If one good becomes more expensive, the quantity demanded for both goods will fall

Question 33

What does a graph for strong complements XED look like?

Answer 33

A small fall in the price of good X leads to a large quantity demanded of Y

Question 34

What does a graph for weak complements XED look like?

Answer 34

A large fall in the price of good X leads to only a small increase in quantity demanded of Y

Question 35

What is the relationship between substitute goods and XED?

Answer 35

POSITIVE XED If the price of one good increases consumers might switch to another good

Question 36

What does a graph for strong substitutes XED look like?

Answer 36

A small increase in the price of good X leads to a large increase in QD of Y

Question 37

What does a graph for weak substitutes XED look like?

Answer 37

A large increase in the price of good X leads to a smaller increase in the QD of Y

Question 38

What is the XED for unrelated goods?

Answer 38

0

Question 39

What is supply?

Answer 39

The quantity of a good ore service that a producer is able and willing to supply at a given price during a given period of time

Question 40

Why do supply curves slope upwards?

Answer 40

If price increases, it’s more profitable for firms to supply the good High prices encourage new firms to enter the market because it seems more profitable so supply increases

Question 41

Why do changes in price cause expansion and contraction of the supply curve?

Answer 41

Profit motive : firms are driven by the desire to make large profits

Question 42

How do you show an increase in supply on a graph?

Answer 42

Outward shift from S1 to S2

Question 43

What factors shift the supply curve?

Answer 43

PINT SWC Productivity Indirect taxes Number of firms Technology Subsidies Weather Costs of production

Question 44

What is PES?

Answer 44

The responsiveness of supply to a change in price

Question 45

PES equation

Answer 45

Question 46

What is the PES for elastic goods?

Answer 46

PES > 1

Question 47

What is the PES for inelastic goods?

Answer 47

PES<1

Question 48

Graph for elastic PES

Answer 48

Question 49

Graph for in elastic PES

Answer 49

Question 50

What does the graph fro perfectly inelastic PES look like?

Answer 50

PES = 0

Question 51

What does the graph for a perfectly elastic PES look like?

Answer 51

Question 52

What’s factors influence PES?

Answer 52

Time scale Spare capacity Level of stocks Howsubstiture factors are Barriers to enter the market

Question 53

What is equilibrium?

Answer 53

When supply meets demand

Question 54

What is disequilibrium?

Answer 54

When demand is grater than supply

Question 55

What is excess supply?

Answer 55

When price is above the equilibrium price

Question 56

What does derived demand mean?

Answer 56

When the demand for one good is linked to the demand for another good

Question 57

What does composite demand mean?

Answer 57

The good demanded has more than one use

Question 58

What is joint demand?

Answer 58

When goods are bought together

Question 59

What is joint supply?

Answer 59

When increasing the supply of one good causes an increase or decreases in the supply of another good Eg. lamb and wool