Chapter 7-12

Question 1

Define Demand

Answer 1

the quanitity of a good or service that consumers are willing and able to buy at any given price.

Question 2

Define quantity demanded

Answer 2

the amount consumers are willing and able to buy at A given price

Question 3

What is the relationship between demand and price

Answer 3

inversely related

Question 4

A movement along the demand curve is caused by what

Answer 4

Change in price

Question 5

Shifts of the demand curve are caused by what?

Answer 5

anything other than price

Question 6

Causes of changes in Demand (6)

Answer 6

Change in price of a substitute

Change in price of a complement

A change in income

Change in tastes, fashion, or advertising

Change in demographic

Advertising campaigns

Question 7

Define supply

Answer 7

The quantity that suppliers are willing and able to sell at any given price

Question 8

What is the relationship between price and supply

Answer 8

direct relationship

Question 9

What is a movement along the supply curve caused by

Answer 9

changes in price of the good

Question 10

What is a shift o fthe supply curve caused by

Answer 10

changes in anything other than price that affect supply

Question 11

Causes of changes in supply (5)

Answer 11

Changes in costs

subsidies

taxes

weather, disaster and war

discovery/depletion of resources

Question 12

What affects the changes in the cost (2)

Answer 12

Changes in the cost of FoP

Changes in producivity

Question 13

Define Equilibrium price

Answer 13

price where quantity demand and quantity supply are equal

Question 14

Define surplus

Answer 14

when quantity supplied is greater than quanitity demanded

Question 15

Define shortage

Answer 15

when quantity demanded is greater than quanitity supplied

Question 16

Define disequilibrium

Answer 16

when demand is not equal to supply

Question 17

What happens when there is a surplus?

Answer 17

producer lower price —> increase in demand and decrease in supply —> reach equilibrium

Question 18

What happens when there is a shortage?

Answer 18

Producer increase price —-> decrease in demand and increase in supply —-> reach equilibrium

Question 19

Define PED

Answer 19

A measure of responsiveness of quantitiy demanded to a change in price

Question 20

Define elastic demand

Answer 20

when quantitiy demanded changes by a greater percentage than the percentage change in price.

Question 21

Define inelastic demand

Answer 21

When quantitiy demanded changes by a smaller percentage than the percentage change in price

Question 22

Equation for PED

Answer 22

% change in QD/ % change in price

Question 23

What is it if PED > 1

Answer 23

elastic

Question 24

What is it if 0 < PED < 1

Answer 24

inelastic

Question 25

Determinants of PED (7)

Answer 25

Availability and closeness of substitutes Proportion of income spent on the product Luxury/necessity Addiction/habits Degree of brand loyalty Ease and cost of swtiching to a substitute How narrowly/broadly defined the marker is

Question 26

what are the 3 types of unique PED curves

Answer 26

Perfecly price inelastic Perfecly elastic demand Unitary elastic

Question 27

Equation for profit

Answer 27

profit = Revenue - cost

Question 28

Define revenue

Answer 28

the money a firm makes from sales

Question 29

Define PES

Answer 29

The responsiveness of supply to a change in price

Question 30

Equation for PES

Answer 30

% change in QS/ % change in price

Question 31

Define elastic supply

Answer 31

When the quantity supplied changes by a greater percentage than the percentage change in price

Question 32

Define inelastic supply

Answer 32

When the quantitiy supplied changes by a smaller percentage than the change in price

Question 33

What is it if 0 < PES < 1

Answer 33

Inelastic

Question 34

What is it if PES > 1

Answer 34

elastic

Question 35

Determinant of PES

Answer 35

Time taken to produce it THe cost of changing supply whether the good can be stored or not

Question 36

3 extreme versions of PES

Answer 36

perfecly elastic supply perfecly ineslatic supply unitary supply

Question 37

Applications of PES for decision making

Answer 37

Consumers want supply being elastic Producers want supply being elastic Government may be succesful giving subsidy if supply elastic