Market

Question 1

what is demand

Answer 1

the quantity of a good or service that consumers are willing and able to buy at a given price in a given time period

Question 2

what’s effective demand

Answer 2

when a desire to buy a product is backed up by an ability to pay

Question 3

what’s the law of demand

Answer 3

-there’s an inverse relationship between price of a hood and demand
-as price falls we see and expansion of demand
-as price rises we will see a contraction of demand

Question 4

what’s the ceteris paribus assumption

Answer 4

many factors affect demand, when drawing a demand curve, economists assume all factors are held constant except one- price of product itself

Question 5

what does the demand curve show

Answer 5

the relationship between price of item and quantity demanded over a period of time

Question 6

what are the two reasons prices fall

Answer 6

1.the income effect- when the price of an item falls because the consumer can maintain the same consumption for less expenditure resulting in an increase in income
2.the substitution effect- when the price of a good falls because the product is now cheaper than an alternative item and some customers switch their spending from the alternative hood or service

Question 7

changing prices if a complement

Answer 7

-two complements are in joint demand
-an increase in price of one product would cause a fall of quantity in the other

Question 8

how does income of consumers effect the demand curve

Answer 8

-most things we buy are normal goods, when income increases our ability to purchase goods and services increase
-causes an outward shift in demand curve
-when income falls there will be a decrease in demand except for inferior goods

Question 9

what are the effects of advertising and marketing

Answer 9

-heavy spending on advertising and marketing can help bring changes in consumer tastes and fashions
-increase in advertising= outward curve in demand

Question 10

what’s market demand

Answer 10

-the sum of the individual demand for a product from each consumer in the market
-if more people enter the market and they have the ability to pay for items on sale, then demand on each price level will rise

Question 11

what is supply

Answer 11

the quantity of a good or service that a producer is willing and able to supply onto the market at a given price in a given time

Question 12

what is the basic law of supply

Answer 12

as the price of a product rises, businesses expand supply to the market

Question 13

what are the causes of changes in supply

Answer 13

-cost of production
-external shocks
-new technology
-taxation and subsidies

Question 14

what does a lower unit cost mean

Answer 14

means business can supply more at each price

Question 15

what does a higher unit cost cause

Answer 15

cause an inward shift of supply

Question 16

what are subsidies

Answer 16

-any form of government support offered to producers and occasionally consumers

Question 17

what are the factors that cause demand curve to shift

Answer 17

PASIFIC
P-population
A-advertising
S-substitutes
I-income
F-fashion and trends
I-interest rates
C-complements

Question 18

what are the factors that cause supply curve to shift

Answer 18

PINTS-WC
P-productivity
I-indirect taxes
N-number of new entrants
T-technology
S-subsidies
W-weather
C-costs of production

Question 19

what is equalibrium

Answer 19

a state of equality or a state of balance between market demand and supply

Question 20

what is disequilibrium

Answer 20

prices where demand and supply are out of balance

Question 21

what will change the equilibrium price and quantity in the market

Answer 21

changes in conditions of demand and supply

Question 22

what is elasticity in business?

Answer 22

The responsiveness of the quantity demanded to change in price

Question 23

what is the equation for price elasticity of demand?

Answer 23

PED=% change in quantity demanded➗% change in price

Question 24

how do you know if the relationship is elastic?

Answer 24

If the answer is between minus one, and infinity the relationship is elastic where percentage change in demand is greater than percentage change in price

Question 25

How do you know if relationship is in elastic?

Answer 25

if answers between zero, and minus one, the relationship is in elastic where percentage change in demand is less than percentage change in price

Question 26

What is price elasticity of demand?

Answer 26

Measure the extent to which the quantity of a product demanded is affected by change in price

Question 27

What is unitary price elasticity

Answer 27

when the value of PED is exactly one and change in demand= change in price

Question 28

why does elasticity of demand matter?

Answer 28

-If PED>1 (elastic) The change in price will cause a larger change in demand.
-Which causes the overall revenue to increase with a price, cut and overall revenue at full with a price increase
-Opposite in the case of PED<1 (inelastic)

Question 29

what are five factors influencing PED

Answer 29

1. brand strength(products with strong brand loyalty and reputation tend to be priced in elastic)
2. Necessity(the more necessary product, the more demand tends to be inelastic)
3. Habit. (tend to be price in elastic)
4. Availability of substitute(demand for products that have lots of alternatives tend to be price elastic)
5. Time(in the short short run price. Changes tend to have less impact on demand than over long periods.)

Question 30

Income elasticity of demand equation

Answer 30

IED = % change in quantity demanded➗% change in income

Question 31

what is income elasticity of demand?

Answer 31

It measures the extent to which the quantity of a product demanded is affected by change in income

Question 32

What are characterised as a luxuries IED?

Answer 32

when income elasticity is more than one and as income grow proportionately, more is spent on luxuries like expensive holidays

Question 33

what are characterised as necessities in IED?

Answer 33

When income elasticity is less than 1 and more than 0
-As income grows, proportionally less is spent on necessities like staple groceries

Question 34

what happens to income and demand of inferior goods

Answer 34

As income rises, demand falls

Question 35

What are limitations of IED?

Answer 35

-is difficult to get reliable data
-Other factors affected demand, like customer taste
-Many markets subject to rapid technological change, which makes previous data less reliable
-Competitors rule, react pricing decisions can’t be taken in isolation