Micro : Competitive Market

Question 1

Market definition

Answer 1

A place where buyers and sellers come together to determine prices

Question 2

Movement along the demand/supply curve is caused by

Answer 2

Changes in price

Question 3

Demand definition

Answer 3

The quantity of goods or service that consumers are willing and able to buy at a given price and time

Question 4

Substitute goods definition

Answer 4

Goods which are alternative to each other (beef and lamb) More substitutes a good has makes it more elastic

Question 5

Complementary goods definition

Answer 5

Goods that are often used together causing then to be in joint demand

Question 6

Derived demand definition

Answer 6

Demand for a good which is a factor of production in making another good or service

Question 7

Composite demand

Answer 7

When a good or service has more than one use (Wheat, used for bread and biofuels )

Question 8

Price elasticity of demand definition

Answer 8

How the quantity demanded of a good responds to a change in price

Question 9

Price elasticity of demand formula

Answer 9

Percentage change in quantity demanded
——————————————-
Percentage change in price

Question 10

PED value is usually

Answer 10

Negative as demand falls as price increases

Question 11

PED greater than one means the demand for the good is

Answer 11

Elastic as change in price leads to greater change in quantity demanded

Question 12

PED less than one means the demand for the good is

Answer 12

Inelastic as change in price will lead to a small change in quantity demanded

Question 13

Income elasticity of demand formula

Answer 13

Percentage change in quantity demanded
———————————————
Percentage change in income

Question 14

YED definition

Answer 14

the responsiveness of demand for a good to a change in the income of consumers.

Question 15

XED definition

Answer 15

How the quantity demanded of a good responds to the change in price of another good

Question 16

Cross elasticity of demand formula

Answer 16

Percentage change in quantity demanded of good A
——————————————-
Percentage change in price of good B

Question 17

Factors affecting PED

Answer 17

Substitues
Type of good/service
Percentage of income spent
Time

Question 18

Demand for essential items are price

Answer 18

Inelastc

Question 19

Demand for non-essential items are price

Answer 19

Elastic

Question 20

Normal good definition

Answer 20

As income rises demand increases (Goods that have a positive YED)

Question 21

Luxury Goods

Answer 21

YED > 1

Question 22

Inferior good definition

Answer 22

As income rises demand falls (negative YED)

Question 23

Positive XED shows that

Answer 23

The goods are substitutes as a fall in the price of one substitute decreases demand for the other substitute

Question 24

Negative XED shows that

Answer 24

Theses good are complementary as an increase in price will lead to a reduction in demand

Question 25

XED of zero shows that

Answer 25

These goods are unrelated

Question 26

Supply definition

Answer 26

The quantity of a good/service that producers supply at a given price or time

Question 27

Factors shifting supply

Answer 27

Changes to cost of production Improvement in technology Changes in productivity during production

Question 28

Joint supply definition

Answer 28

Production of one good/service involves the production of another

Question 29

Price elasticity of supply definition

Answer 29

How quantity supplied of a good responds to a change in price

Question 30

PES formula

Answer 30

Percentage change in quantity supplied ——————————————— Percentage change in price

Question 31

If PES is bigger than 1 the supply of the good is

Answer 31

Elastic

Question 32

If PES is less than 1 the supply of the good is

Answer 32

Inelastic

Question 33

If there is excess demand/supply the market will be in

Answer 33

Disequilibrium

Question 34

Commodity definition

Answer 34

A good which can be swapped out with any other good of the same type with a noticeable difference

Question 35

Price mechanism definition

Answer 35

Decision of consumers and businesses to determine the allocation of resources

Question 36

What are 3 main functions of price mechanisms

Answer 36

Signalling function Incentive function Rationing function

Question 37

What is the signalling function

Answer 37

Prices rise and fall to reflect scarcities and surpluses

Question 38

What is the ration function

Answer 38

Prices are higher when there is a ration of scarce resources when demand is bigger than supply

Question 39

Increase in income will shift demand to the

Answer 39

Right

Question 40

Decrease in income will shift demand to the

Answer 40

Left

Question 41

Rising price of substitutes will shift demand to the

Answer 41

Right

Question 42

Falling price of substitutes will shift demand to the

Answer 42

Left

Question 43

Change in taste will shift demand or supply

Answer 43

Demand

Question 44

Expected fall in price will shift demand to the

Answer 44

Left

Question 45

A rise in the price of complement will shift demand to the

Answer 45

Left

Question 46

A fall in the price of complements will shift demand to the

Answer 46

Left

Question 47

Necessities tend to be more price

Answer 47

Inelastic

Question 48

Goods that with substitutes tend to be price

Answer 48

Elastic

Question 49

Determinants of price elasticity

Answer 49

Availablity of close substitutes Percentage of income spent Nature of the product

Question 50

Determinants of price elasticity of supply

Answer 50

Time taken to expand supply Size of spare capacity Available stocks Easy to switch production

Question 51

What is the incentive function

Answer 51

Prices rise and producers increase supply as there is an incentive to increase profit