Price Determination In A Competitive Market

Question 1

What does demand mean ?

Answer 1

Demand is the quantity of a good or service that consumers are able and willing to by at a given price during a given period of time

Question 2

What does a demand curve show ?

Answer 2

A demand curve shows the inverse relationship between price and quantity demanded

Question 3

What causes the demand shifts (PIRATES) ?

Answer 3

• Population
• Income
  -Related goods
• Advertising
• Tastes And Fashion
• Expectation
• Seasons

Question 4

What is price elasticity of demand ?

Answer 4

PED = % change in demand / % change in price

Question 5

What is elastic demand ?

Answer 5

• PED>1. A percentage change in prices will cause a large % change in quantity demanded

Question 6

What is perfect elastic demand ?

Answer 6

Perfect elastic demand means that any change in price will cause the demand to fall to zero

Question 7

What is inelastic demand (0<PED<1)?

Answer 7

This is when the percentage change in price will cause an even small percentage change in quantity demanded

Question 8

What is perfectly inelastic demand (PED=0) ?

Answer 8

A change in price will have no effect on quantity demanded

Question 9

What does unit elasticity of demand ?

Answer 9

This is when the size of % change in price is equal to % change in quantity demanded

Question 10

Define income elasticity

Answer 10

Income elasticity shows how a demand of a good changes with changes in the real income

Question 11

What is the equation of YED ?

Answer 11

YED = % change in quantity demanded / % change in price

Question 12

What is the cross elasticity of demand ?

Answer 12

This the quantity demand of goods responds to a change in the price pf another good

Question 13

XED (+ve) = substitiutes

Question 14

XED (-ve) = complements

Question 15

Define total revenue

Answer 15

Total Revenue = Price Per Unit x Quantity demand

Question 16

In elastic demand what happens to price with relative to total revenue ?

Answer 16

• A reduction in price will increase a firms TR
• A increase in price will reduce the firms TR

Question 17

In inelastic demand what happens to price with relative to total revenue

Answer 17

• A reduction in price will increase firm TR
• A increase in price will increase the firms TR

Question 18

Define Supply

Answer 18

Supply is the amount of a good/service that a producer is willing and able to supply at a given time period

Question 19

There is +ve relationship between quantity supplied and price

Question 20

What is the factors of supply (PINTSWC)?

Answer 20

• Productivity
• Indirect Taxes
• No. of firms
• Technology
• Subsidies
• Weather
• Costs Of Production ( Increase in costs of production , increases supply )

Question 21

What is price elasticity of supply ?

Answer 21

PES = % change in supply / % change in price

Question 22

What are the factors influencing PES (Tim Saw Louise Hating Ben)?

Answer 22

• Time Scale
• Spare Capacity
• Level of stocks
• How suitable factors are
• Barriers to entry

Question 23

Define derived demand

Answer 23

Derived demand is when the demand of a good is linked to the demand for a related

Question 24

What is example of a derived demand ?

Answer 24

Demand of bricks is derived from building for new houses

Question 25

Define composite demand ?

Answer 25

This is when the good demanded has more than one use ex. milk

Question 26

Define joint demand

Answer 26

This is when goods that is brought together

Question 27

What is an example of derived demand

Answer 27

Digital cams and memory cards

Question 28

What is joint supply

Answer 28

Joint supply is the increasing the supply of one good causes an increase or decrease in the supply of other goods