How Markets Work

Question 1

YED (3+)

Answer 1

Normal good = increase in income = increased demand = 0-1
Inferior good = increase in income = reduced demand = -
Luxury good = increase + increase = + 1

Question 2

PED (4+)

Answer 2

Always negative
1 = unitary
0-1 = inelastic
More than 1 = elastic

Question 3

PED formula

Answer 3

% change quantity demands/% change price

Question 4

Factors affecting PED (5)

Answer 4

No. Substitutes
Brand loyalty
Seasonal
Cost of product in relation to income
Necessity good

Question 5

YED formula

Answer 5

% change in quantity demanded / % change in income

Question 6

YED goods relation to elasticity (2)

Answer 6

Luxury = elastic
Normal = inelastic

Question 7

What is XED

Answer 7

Responsiveness of demand for good x following change in price of y

Question 8

XED formula

Answer 8

% change in QD for Good X / % change in Price of Good Y

Question 9

What is supply

Answer 9

Quantity of g/s that a producer is willing/able to produce at a given price/time

Question 10

Factors affecting supply (3)

Answer 10

Productivity
Employment levels
Weather - transport + growth of food

Question 11

PES - responsiveness of producer formula

Answer 11

% change in QS / % change Price

Question 12

PES is relation to elasticity (3)

Answer 12

0-1 = inelastic
1 = unitary
1+ = elastic

Question 13

Factors affecting PES (4)

Answer 13

Ability to stock
Capital + labour productivity
Time to produce
Spare capacity

Question 14

Price mechanism (3+)

Answer 14

Incentive - high prices increases supply = higher profits
Signalling - price increase signals producers demand is high = produce more
Rationing - price increase when demand high but supply limited

Question 15

What is consumer surplus

Answer 15

Diff between the total amount a consumer is willing and able to pay and the price they actually pay

Question 16

What’s a consumer surplus

Answer 16

Willing to pay more than market price

Question 17

Producer surplus definition

Answer 17

Diff between producers willing and able to supply at and price they actually supply at

Question 18

What is a producer surplus

Answer 18

Producer receives more than what they are willing = extra earnings

Question 19

Types of different tax

Answer 19

Direct = individual
Indirect = g/s

Question 20

Incidence of tax - what

Answer 20

Who pays the tax

Question 21

Tax incidence who and who

Answer 21

Bottom = producer pays

Question 22

What is a subsidy

Answer 22

Grant from gov given to producer/consumer to encourage production + consumption

Question 23

Why is subsidy a gain for P + C

Answer 23

Producer = extra revenue = lower cost of production
Consumer = pay less

Question 24

Who gets what subsidy

Answer 24

Consumer = bottom

Question 25

What are the functions of money (4)

Answer 25

Medium of exchange
Store of value
Unit of account
Standard of differed payment