Econimcs Revision

Question 1

Name the three functions of the price mechanism

Answer 1

Rationing function
Signalling function
Incentive function

Question 2

What is the price mechanism?

Answer 2

Where the price reflects the forces of supply and demand. Resources move to where they are shortest in supply, relative to demand and move away from places of low demand.

Question 3

What is the rationing function?

Answer 3

If resources are scarce, demand exceeds supply and price rises. This rise discourages demand.

Question 4

What is the signaling function?

Answer 4

Price changes sends contrast if messages to consumers and producers. Rising prices give the signal for consumers to lower demand and for producers to higher demand or enter the market.

Question 5

What is the incentive function?

Answer 5

Incentive motivate the producer or consumer to buy or make more. Higher prices cause producers to make more to get a higher profit, while lower prices cause consumers to buy more.

Question 6

What is TU?

Answer 6

Total utility

Question 7

What is MU?

Answer 7

Marginal utility

Question 8

What does the demand curve show?

Answer 8

The amount of people willing to buy at a certain price

Question 9

Factors for a shift in demand curve

Answer 9

Change in price of substitute or complimentary good
Income
Advertising
Population

Question 10

Factors for a shift on supply curve

Answer 10

Government: tax or subsidy
Fashion
Bad weather
Raw materials
Technology

Question 11

Define price electricity of demand

Answer 11

The responsive of demand to a change in price

Question 12

What is the formula for price electricity of demand?

Answer 12

% change in quantity demanded / % change in price

Question 13

How do you work out % change?

Answer 13

Find difference between new and original number / by original number and x 100

Question 14

What if the price elasticity calculation gives you a number greater than 1?

Answer 14

The good is elastic

Question 15

What if the price elasticity calculation gives you a number less than 1?

Answer 15

The price is in elastic

Question 16

What if the price elasticity calculation gives you a number = to 1?

Answer 16

It is unit elastic

Question 17

Name the determinants for elasticity of demand

Answer 17

Time period
Number of closeness of substitutes
Proportion of income taken up by the product
Luxury or necessity
Habit forming

Question 18

What is the price elasticity of supply

Answer 18

The responsiveness to supply of a change in its price

Question 19

Give the formula for price elasticity of supply

Answer 19

% change in quantity supplies / % change in price

Question 20

What are the determinants of elasticity of supply?

Answer 20

Land-availability of raw materials
Labour
Capital
Enterprise - skills
Time
Spare capacity
Spare stock and components

Question 21

What is income elasticity of demand

Answer 21

The responsiveness to demand in a change in income

Question 22

What is a normal good

Answer 22

Demand rise as income rises

Question 23

What is an inferior good

Answer 23

Demand rises and income falls

Question 24

What if the good is 2+ in the income elasticity of demand calculation

Answer 24

It is a luxury

Question 25

What is cross elasticity

Answer 25

The responsiveness of demand of one goods to changes in price of a related food.

Question 26

What is the formula for cross elasticity of demand

Answer 26

% change in quantity demanded of good a / % change in price of good b

Question 27

What are the uses if cross elasticity of demand

Answer 27

Firms will see how price impacts demand
Shows how price impacts complimentary products
Measures how big the substitute is e.g. little rise in price causes big increase in substitute sales

Question 28

What is an absolute advantage?

Answer 28

Being able to produce more of something than another country

Question 29

What is a competitive advantage

Answer 29

Being able to produce something at. A much lower opportunity cost than another country