External environment

Question 1

What is defined
the interaction of demand and supply for a particular item

Answer 1

market mechanism

Question 2

What is defined
a situation in which potential buyers and sellers of an item or good come together for the purpose of exchange

Answer 2

market

Question 3

what factors affect demand

Answer 3

price
Interrelated goods (substitutes and compliments)
Income levels (normal v inferior)
Fashion and expectation
Income distribution

Question 4

What factors affect supply

Answer 4

price
Price of other goods
Price of related goods (joint supply)
Cost of making the good
Changes in tech

Question 5

What is defined
the price of a good at which the volume demanded by consumers and the sieve are willing to supply are the same

Answer 5

equilibrium price

Question 6

government intervention - what happens if price set is higher than equilibrium price

Answer 6

nothing - no effect on market forces

Question 7

Government intervention - what happens if price set is lower than equilibrium price

Answer 7

Excess demand over supply

Question 8

What is defined
The extent of a change in demand and or supply given a change in price

Answer 8

elasticity

Question 9

Equation for PED

Answer 9

Proportional change in quantity/proportional change in price
where proportional change is change / original

Question 10

PED < 1

Answer 10

demand inelastic

Question 11

PED > 1

Answer 11

demand elastic

Question 12

PED = 1

Answer 12

unit elasticity

Question 13

PED = 0

Answer 13

Demand perfectly inelastic - vertical straight line

Question 14

PED = infinity

Answer 14

demand perfectly elastic - horizontal straight line

Question 15

PED = 1

Answer 15

Unit elasticity of demand, demand changes proportionately to change in price

Question 16

factors influencing PED

Answer 16

availability of substitutes
Time horizon
Competitors pricing
Luxuries and necessities
Percentage of income spent on a good
Habit forming goods

Question 17

What kind of good is described
non luxury targeting low income customers

Answer 17

Giffen goods - positive PED

Question 18

High quality status related goods where demand increases as price increases

Answer 18

Veblen goods - positive PED

Question 19

When demand for a good rises as income rises but then falls back as incomes pass a certain point what kind of good

Answer 19

inferior goods

Question 20

What is defined
indication of the responsiveness of demand to changes in household income

Answer 20

income elasticity of demand

Question 21

What is equation for income elasticity of demand

Answer 21

% change in quantity demanded/% change in household income

Question 22

If income elasticity > 1 the good is

Answer 22

luxury, demand income elastic

Question 23

If income elasticity between 0 and 1

Answer 23

normal goods/necessities - income inelasticy

Question 24

Income elasticity < 0

Answer 24

inferior goods, demand negatively income elastic

Question 25

What is defined a measure of the responsiveness of demand for one good to changes in the price of another good

Answer 25

Cross elasticity of demand

Question 26

Cross elasticity of demand equation

Answer 26

% change in quantity of A demanded/%change in price of B

Question 27

If X-elasticity >0 good are

Answer 27

substitutes

Question 28

If X - Elasticity < 0 goods are

Answer 28

complements

Question 29

If X-elasticity = 0 goods are

Answer 29

unrelated

Question 30

What is defined a measure of the responsiveness of a supply to a change in price

Answer 30

price elasticity of supply

Question 31

Equation for price elasticity of supply

Answer 31

% change in quantity supplied/% change in price

Question 32

What kind of market structure many small buyers and sellers - can't influence price no barriers to entry perfect information homogenous products no collusion

Answer 32

perfect competition

Question 33

What do these describe Suppliers are price takers all suppliers earn normal profits there is a single selling price

Answer 33

perfect competition

Question 34

What kind of market structure one dominant supplier many buyers barriers to entry

Answer 34

Monopoly

Question 35

what is described business can either set selling price or quantity monopolists earn greater than normal profits natural monopoly where something about market causes it to happen

Answer 35

monopoly

Question 36

What market structure is described many buyers and sellers some differentiation between products branding products achieves differentiator some customer loyalty few barriers to entry significant advertising

Answer 36

monopolistic competition

Question 37

What is described Increaes in prices cause loss of some customers Only normal profit earned in long run

Answer 37

monopolistic competition

Question 38

What market structure few large sellers many small buyers product differentiation mutual interdependency

Answer 38

Oligopoly

Question 39

what is described Business compete through non-price competitoin price cuts usually copied price increases are not always copied

Answer 39

oligopoly

Question 40

What market structure is two dominant suppliers who between them control prices temptation for two suppliers to act in collusion (illegal in most countries)

Answer 40

duopoly

Question 41

what is defined a situation in which a free market mechanism fails to produce the most efficient/optimum allocation of resources

Answer 41

market failure

Question 42

What arguments are put forward by advocates of the free market

Answer 42

efficient impersonal efficient allocation of economic resources - based on perfect competition

Question 43

Factors causing market failure

Answer 43

Market imperfection externalities public goods and benefits gained by third parties economies of scale

Question 44

four factors of production GDP

Answer 44

Land Labour Capital Entrepreneurship

Question 45

What is define income available to individuals after payment of personal taxes, it may be consumed or saved

Answer 45

Disposable income

Question 46

Six influences affecting total spending/consumption by households

Answer 46

Change in disposable income and marginal propensity to consume change in distribution of wealth government policy development of major new products interest rates price expectations

Question 47

What is defined the continual sequence of rapid growth in GDP followed by a slowdown in growth and then a fall. growth comes again, and when it has reached a peak, the cycle turns once more

Answer 47

business cycle/trade cycle

Question 48

Four main phases of the business cycle

Answer 48

recession depression recovery boom

Question 49

What phase of cycle Capacity and labour become fully utilised, causing bottlenecks in some industries as can’t meet increase in demand Further rises met by price rather than production increases Business profitable few firms facing losses Expectations about future optimistic and high level of investment expenditure

Answer 49

boom

Question 50

What phase of cycle consumer demand falls/confidence diminishes Investment projects already undertaken bein to look unprofitable Orders cut Inventory levels reduced Business failures occur as firms find themselves unable to sell goods Production, employment and prices fall

Answer 50

recession

Question 51

What is defined an increase in price levels generally and a decline in the purchasing power of money

Answer 51

inflation

Question 52

what is defined falling prices generally, normally associated with low rates of growth and reecession

Answer 52

deflation

Question 53

What kind of inflation Price rises from persistent excess of demand over supply in the economy as a whole. Supply cannot grow any further once full employment of factors of production is reached. Supply can’t go up, prices rise.

Answer 53

Demand pull

Question 54

What kind of inflation Increase in cost of production of goods and services from imported raw materials/wage increases then companies will put up prices

Answer 54

cost push

Question 55

Two main causes of demand pull inflation

Answer 55

fiscal - more gov spending, reduce in taxes credit - levels of credit increase, expenditure rise

Question 56

What is defined government policies on the money supply, monetary system, interest rates, exchange rates and availability of credit

Answer 56

monetary policy

Question 57

What is defined government policies on taxation, public borrowing and public spending

Answer 57

fiscal policy

Question 58

How do government affect overall demand

Answer 58

Monetary and fiscal policy

Question 59

the government rising interest rates is an example of what kind of policy

Answer 59

monetary policy

Question 60

What does supply side economics concern

Answer 60

The behaviour of the aggregate supply curve in connection with levels of prices, incomes and employmen

Question 61

What is defined any form of state interference with the operation of the free market. this could involve regulating demand, supply, price profit quantity quality entry exit information technology or any other aspect of production and consumption in the market

Answer 61

regulation

Question 62

What is defined systems or departments in businesses which ensure that people are aware of and take steps to comply with relevant laws and regulations

Answer 62

regulatory compliance

Question 63

Four responses to regulation

Answer 63

entrenchment o practice (non response) mere compliance (pass cost to customer) Full compliance (change product/services) innovation

Question 64

What are quotas

Answer 64

limits on output so output is set at the social optimum

Question 65

What is the benefit of anti monopoly enforcement

Answer 65

deters firms from engaging in collusion, price fixing and deceptive advertising

Question 66

Why is anti monopoly legislation undertaken

Answer 66

to promote competition and market regulation is undertaken to compensate for lack of competition

Question 67

Is restricting technical developments an offence under chapter 1 of competition act 1998

Answer 67

No - abuse of dominant position - Chapter 2