Demand And Supply

Question 1

What is the objective of economic policy?

Answer 1

The maximisation if the output of the economy’s product

Question 2

On the PPF how what should determine at which production should take place?

Answer 2

The free market

Question 3

What is micro-economics?

Answer 3

The study of the reaction of individuals and firms to condominium stimuli

Question 4

What is effective demand?

Answer 4

A want high the consumer has the resources to satisfy

Question 5

What causes a movement along the demand curve?

Answer 5

A change in price of the product

Question 6

What causes a shift in demand?

Answer 6

A change in anything other than the price of the product! E.g
The price of substitute and complementary goods, tastes, incomes and other factors such as advertising and marketing

Question 7

What is an inferior good?

Answer 7

One which demand decreases as income increases

Question 8

Economics is the study of what?

Answer 8

The allocation of scarce resources

Question 9

What causes a shift in supply?

Answer 9

A change in the costs of production

Question 10

Demand is a function of what?

Answer 10

Price 
Prices of other goods
Tastes 
Incomes
Other factors e.g. Advertising

Question 11

What is elasticity?

Answer 11

A concept to explain the degree of sensitivity demand exhibits in respect of theses factors!

Question 12

What is the formula for elasticity?

Answer 12

% ^ in qd/ % ^ in demand factor

Question 13

What is price elasticity of demand (PED)

Answer 13

It reflects the sensitivity of demand with regard to changes in the price of the good

Question 14

What is the formula for PED?

Answer 14

% ^ in qd/% ^ in p

Question 15

What is the relationship between price and demand?

Answer 15

It is inverse

Question 16

What does the size of the value indicate with regard PED

Answer 16

The degree of responsiveness

Question 17

What is elastic demand?

Answer 17

When elasticity is greater than -1

Question 18

What is perfect elasticity?

Answer 18

A horizontal demand curve where price is unaffected by demand

Question 19

What does it mean if PED is elastic?

Answer 19

Demand is more than proportionately responsive to changes in price

Question 20

What is in elastic demand?

Answer 20

When elasticity is between -1 and 0

Question 21

What does it mean if PED is inelastic

Answer 21

Demand is less than proportionately responsive to changes in prices

Question 22

What is perfect elasticity?

Answer 22

It will be shown by a vertical demand curve where demand remains the same regardless of the price

Question 23

What is unit elasticity?

Answer 23

Where elasticity is -1 and is where a fall in price will cause a proportional increase in demand

Question 24

How is the calculation for PED done?

Answer 24

The percentage change of both quantity and price is done by dividing the change by the starting price or quantity value

Question 25

Where is a demand curve inelastic and elastic?

Answer 25

The top of the demand curve is elastic as a small % ^ in price will lead to a greater than proportional % ^ in demand. The bottom is inelastic as a large % ^ in price will lead to a less than proportional % ^ in demand

Question 26

What does XED measure?

Answer 26

The relationship between quantity demanded of one good and a change in the price of another good

Question 27

What does it meant if XED is positive?

Answer 27

The QD of the good is rising as the price of that other food is itself rising. This suggests that the two goods are substitutes

Question 28

What does it mean if XED is negative?

Answer 28

The QD of the good will decrease as the price of the other good increases. Meaning these goods are complementary

Question 29

What does it mean if YED is positive?

Answer 29

As income increases quantity demanded increases indicating that the good is a normal good!

Question 30

What does it mean if YED is negative?

Answer 30

As income increase QD decreases indicating it is an inferior good

Question 31

What is a Giffen good?

Answer 31

Staples of diet - where as income decreases consumption will increase reflecting the fact that as incomes are contracted, the consumer has to retreat to the staples in order to keep themselves alive! Not all inferior goods are Giffen goods

Question 32

What is the formula for PES?

Answer 32

% ^ in QS/% ^ in p

Question 33

What does PES measure?

Answer 33

The sensitivity of quantity supplied to changing prices

Question 34

What difference is important about PED and PES?

Answer 34

The answers for demand will be negative whilst the answers for supply will be positive

Question 35

What is the formula for YED?

Answer 35

% ^ in QD/% ^ in Y