Chap 2.2

Question 1

whats demand

Answer 1

consumer must be willing and able to purchase the
commodity, which they desire. Their desire should be backed by his/her purchasing power.

Question 2

whats the law of demand

Answer 2

states that,
price of a commodity and its quantity demanded are inversely related

Question 3

what are the 2 factors of demand for a good

Answer 3

price factors and non price factors

Question 4

what are non price factors

Answer 4

i. Price of the product
ii. Taste or preference of consumers
iii. Income of the consumers
iv. Price of related goods
v. Consumers expectation of income and price
vi. Number of buyers in the market

Question 5

what things determine demand

Answer 5

• taste/ preference
• income demand
• cross demand
• consumer expectation of income and price
• number of buyer in the market

Question 6

what cause movement in demand curve (quantity demand)

Answer 6

a fall or raise in price leads to a raise or fall in quantity demand

Question 7

whats an extension of demand

Answer 7

downward movement along the demand curve

Question 8

whats a contraction of demand

Answer 8

Upward movement along the demand curve

Question 9

what causes a shift in demand curve (demand)

Answer 9

it occurs due to other factors rather than the price of a given commodity

Question 10

what indicates increase in demand

Answer 10

Rightward shift in the demand curve

Question 11

what indicates a decrease in demand

Answer 11

Leftward shift in demand curve

Question 12

whats elasticity

Answer 12

its a measure of responsiveness of a dependent variable to
changes in an independent variable.

Question 13

whats elasticity of demand

Answer 13

refers to the degree of responsiveness of
quantity demanded of a good to a change in its price, or change in
income, or change in prices of related goods

Question 14

what are the 3 kinds of demand elasticity

Answer 14

price, income and cross

Question 15

what does price elasticity mean

Answer 15

Means the degree of responsiveness of demand to change in price

Question 16

what are the 2 ways to measure price elasticity in demand

Answer 16

point and arc elasticity

Question 17

perfectly inelastic

Answer 17

change in price doesnt affect demand at all

Question 18

inelastic

Answer 18

change in demand is less than change in price

Question 19

unit elastic

Answer 19

chnages in demand and price are equal

Question 20

elastic

Answer 20

change in demand in more than prices

Question 21

perfectly inelastic

Answer 21

demand changes infinitely

Question 22

what determines the price of elasticity of demand

Answer 22

• availability of subs
• time
• the proportion of income consumers spend for a product
• ## importance of the commodity in the consumers budget

Question 23

whats an income elasticity of demand

Answer 23

is a measure of the responsiveness of quantity demanded to changes in income assuming all other things, including price, constant.

Question 24

whats corss price of elasticity of demand

Answer 24

Its the responsiveness of quantity demanded for one commodity to
the changes in the prices of other commodities,

Question 25

whats the cross–price elasticity of demand for substitute goods

Answer 25

positive

Question 26

whats the cross–price elasticity of demand for complementary goods

Answer 26

negative

Question 27

whats the cross–price elasticity of demand for unrelated goods

Answer 27

zero

Question 28

whats supply

Answer 28

indicates various quantities of a product that sellers are willing and able to provide at different prices in a given period of time, other things remaining unchanged.

Question 29

whats the law of supply

Answer 29

as price of a product increase, quantity supplied of the product increases. there is a positive relationship between price and quantity supplied.

Question 30

what is supply determined by

Answer 30

 price of inputs ( cost of inputs)  technology  prices of related goods  seller’ expectation of price of the product  taxes & subsidies  number of sellers in the market  weather, etc.

Question 31

whats elasticity of supply

Answer 31

It is the degree of responsiveness of the supply to change in price.

Question 32

The supply is elastic when...

Answer 32

when a small change on price leads to great change in supply.

Question 33

supply is inelastic or less elastic when...

Answer 33

when a great change in price induces only a slight change in supply.

Question 34

supply is unitary elastic

Answer 34

when a change in price induces a change in supply in the same amount

Question 35

the supply is perfectly inelastic when...

Answer 35

a change in price does not induces a change in supply

Question 37

the supply is perfectly elastic when...

Answer 37

a change in supply does not induces a change in price

Question 38

what are determinants of price elasticity supply

Answer 38

- how costs behave as output is varied -time involved -excess capacity and unsold stocks

Question 39

whats market equilibrium

Answer 39

Market equilibrium occurs when market demand equals market supply

Question 40

what happens when demand changes and supply remains constant

Answer 40

Supply being given, an increase in demand increase both the equilibrium price and the quantity and vice versa.

Question 41

what happens when supply changes and demand remains constant

Answer 41

Demand being given, an increase in supply increase the equilibrium quantity and decrease equilibrium price and vice versa.

Question 42

what happens if theres a combined increase in demand and supply

Answer 42

the quantity of the product will increase definitely. then the price remains the same.

Question 43

combined decrease in demand and supply

Answer 43

the quantity decreases, But the change in price will depend upon the relative fall in demand and supply.

Question 44

whats a maximum price fixation

Answer 44

its fixing the maximum price because there was an increase in demand which lead to a rise in prices

Question 45

whats a minimum price fixation

Answer 45

its fixing a minimum price because demand has been less than supply