Markets

Question 1

Demand

Answer 1

Amount of a good or service that consumers are both willing & able to buy at each possible price in a given period of time, ceteris paribus

Question 2

Law of demand

Answer 2

In a given time period, the quantity demanded of a product is inversely related to its price, ceteris paribus

Question 3

LDMU

Answer 3

Beyond a certain point of consumption, as more & more units of a good or service are consumed, the additional utility derived from each additional unit consumed will fall

Question 4

Individual demand

Answer 4

Demand of one consumer

Question 5

Non-price determinants of demand

Answer 5

Expectations of prices & income, ease of borrowing, government policies, income (inferior & normal goods YED), price of related goods (substitutes & complimentary goods XED, & derived demand, population size/composition, taste & preferences, seasonal factors (weather & festivals)

Question 6

Supply

Answer 6

Amount of a good or service that producers are both willing & able to sell at each possible price in a given period of time, ceteris paribus

Question 7

Law of supply

Answer 7

In a given time period, the quantity supplied of a product is directly related to its price, ceteris paribus

Question 8

Non-price determinants of supply

Answer 8

Weather or seasonal factors, expectations of producers, state of technology, price of related goods (joint or competitive supply), price & availability of factor inputs/fop, government policies (subsidies, taxes)

Question 9

Consumer surplus

Answer 9

Difference between the maximum amount consumers are willing & able to pay for a good or service & the amount actually paid for it

Question 10

Producer surplus

Answer 10

Difference between the amount producers actually receive for a good or service & the minimum amount they are willing & able to accept for it

Question 11

P

Question 12

PED

Answer 12

measures the degree of responsiveness of quantity demanded of a good to a change in its price, ceteris paribus

Question 13

|ped| = 0

Answer 13

Perfectly price inelastic

Question 14

|ped| < 0

Answer 14

Price inelastic

Question 15

|ped| > 1

Answer 15

Price elastic

Question 16

|ped| = 1

Answer 16

Unitary price elastic (curve)

Question 17

|ped| = infinity

Answer 17

Infinitely or perfectly price elastic, straight horizontal

Question 18

Determinants of PED

Answer 18

Time period, proportion of income spent, degree of necessity (habits), degree & availability of substitutes

Question 19

Total revenue

Answer 19

Total receipts or total earning received by producers from the sale of goods & services

Question 20

YED

Answer 20

Measures the degree of responsiveness of a demand for a good to a change in consumers’ income, ceteris paribus

Question 21

yed > 0

Answer 21

Normal goods, necessities & luxuries

Question 22

0<yed<1

Answer 22

Necessities

Question 23

XED > 0

Answer 23

Substitutes

Question 24

XED < 0

Answer 24

Complements

Question 25

XED = 0

Answer 25

Unrelated/independent

Question 26

|xed| > 1

Answer 26

Strong/close substitutes/complements

Question 27

|xed| < 1

Answer 27

Weak/not close substitutes/complements

Question 28

Determinants of XED

Answer 28

Perceptions of consumers (closeness of relationship/goods/services)

Question 29

PES

Answer 29

Measures the degree of responsiveness of quantity supplied of a commodity(good) to a change in its price, ceteris paribus

Question 30

PES = 0

Answer 30

Perfectly price inelastic

Question 31

PES < 1

Answer 31

Price inelastic

Question 32

PES > 1

Answer 32

Price elastic

Question 33

PES = 1

Answer 33

Unitary price elastic

Question 34

PES = infinity

Answer 34

Perfectly price elastic

Question 35

Determinants of PES

Answer 35

Time period/length of complexity of production process, availability of spare capacity & stocks, perishability of good, factor mobility/availability & substitutability of factor inputs

Question 36

Price floor

Answer 36

Effective price floor is a legally established minimum price above the market equilibrium price

Question 37

(Indirect) taxes

Answer 37

Tax on expenditure on goods & services but not paid directly by the consumers to the government, but indirectly via producers (e.g. gst)

Question 38

Subsidies

Answer 38

An amount of money given to the producers for each unit they sell