Section 2: Competitive Markets

Question 1

What are markets?

Answer 1

Where goods and services and brought and sold

Question 2

What are sub-markets?

Answer 2

They are smaller markets that make up a market

E.g labour market made out of smaller markets for teachers, engineers and doctors

Question 3

The price charged for and quantity sold for each good or service is determined by…

Answer 3

Supply and demand

Question 4

What are the levels of supply and demand determined by?

Answer 4

Diagrams which demonstrate the price level and quantity demanded/supplied of goods and services

Question 5

What is demand?

Answer 5

The quantity of a good/service that consumers are willing and able to buy at a given price at a particular

Question 6

What a demand curve?

Answer 6

Shows the relationship between price and quantity demanded

-at any given point along the curve it shows the quantity of the good or service that would be brought at a particular price

Question 7

What does it mean when the demand curve slopes downwards?

Answer 7

-it means that the higher the price charged for a good, the lower the quantity demanded

Question 8

In general what do customers aim for?

Answer 8

To pay the lowest price possible for goods and services

Question 9

As prices decrease….

Answer 9

More consumers a willing and able to purchase a good or service

Question 10

Lower prices means ….

Answer 10

Higher demand

Question 11

How can you describe the relationship between price and quantity demand?

Answer 11

The law or diminishing marginal utility
Income effect
Substitution effect

Question 12

Describe the income effect?

Answer 12

(Assuming a fixed level of income)
the income effect means that as a price falls the amount that consumers can buy with their income increases and so the demand increases

Question 13

What is the substitution effect?

Answer 13

-a fall in the price of a good makes it relatively cheaper than other goods, so consumers will increase demand for a cheaper good and reduce demand for expensive good

Question 14

Changes in demand cause?

Answer 14

A shift in the demand curve

Question 15

What does it mean when the demand curve moves left?

Answer 15

There is a decrease in the amount demanded at every price

Question 16

When does it mean when the demand curves moves right?

Answer 16

Increase in the amount demanded at every price

Question 17

Changes in taste and fashion can cause demand curves?

Answer 17

-shifts to the right if something is popular

-shifts to the left if something is out of fashion

Question 18

What are the two factors that can cause a shift in the demand curve?

Answer 18

-fashion
-changes to people’s real income

Question 19

Changes in one market….

Answer 19

Can affect demand in other markets

Question 20

What are interrelated markets?

Answer 20

-one market affect a related market

Question 21

What are substitute goods?

Answer 21

Goods which are alternate to each other (beef and lamb)

-an increase price for one will decrease the demand for it and increase the demand for its substitutes(competitive demand)

Question 22

What are complementary goods?

Answer 22

Goods that are often used together, so they’re in joint demand

E.g strawberries with cream

Question 23

What is derived demand?

Answer 23

Is the demand for a good or a factor of production used in making another good or service

-increase in the demand of fencing-increase derived demand for wood

Question 24

What is composite demand?

Answer 24

Some goods having more than one used

Question 25

What is elasticity of demand?

Answer 25

A measure of how much the demand for a good changes with a change of one of the key influences on demand

Question 26

What is the price elasticity of demand?(PED)

Answer 26

A measure of how the quantity demanded of a good responds to a change in its price

Question 27

How can the price elasticity of demand(PED) be calculated?

Answer 27

Percentage change in quantity demanded/percentage change in price

Question 28

PED can be ….

Answer 28

-elastic -inelastic -unit elastic

Question 29

How do you know if the good is elastic?

Answer 29

If the value of PED is greater than 1, the demand for the good is elastic

Question 30

The higher the value of the PED…

Answer 30

The more elastic the demand is for the good

Question 31

What factors influence the price elasticity of demand?

Answer 31

-substitutes -type of good -percentage of income spend on good -time

Question 32

How does the type of good influence the price elasticity of demand?

Answer 32

-demand for essential items is price inelastic but demand for non-essential items is elastic -demand for goods that are habit forming tend to be price inelastic -demand for purchases than cannot be postponed tends to be price inelastic -demand for products with several uses tend to be price inelastic

Question 33

How does time influence the price elasticity of demand?

Answer 33

-in the long run demand becomes price elastic as it becomes easier to change to alternatives because consumers have had time to shop around

Question 34

How does percentage of income spend on goods influence the price elasticity of demand?

Answer 34

-demand for products that need a large proportion of the consumers income is more price elastic then demand for products that only need a small proportion of income

Question 35

How does substitutes influence the price elasticity of demand?

Answer 35

-the more substitutes a good has, the more price elastic the demand is (if there are many substitutes available than consumers can easily switch to so,etching els if the price rises -the number of substitutes of a good depends on how closely it is defined

Question 36

What is effective demand?

Answer 36

Desire to buy a good or a service and willingness to pay for it

Question 37

What can cause changes in the demand curve? Left or right

Answer 37

-real income -fashion(seasonality eg tastes) -price of complementary goods -external shocks -substitute goods (competition) -derived demand(wood is used for fencing) -composite demand(goods have more than one use-demand curve for fuel leads to changes in demand curve for plastics)

Question 38

What is composite demand?

Answer 38

-composite demand(goods have more than one use-demand curve for fuel leads to changes in demand curve for plastics)

Question 39

What is the most important factor in moving along the demand curve

Answer 39

Prices(everything comes under prices) -everything els is shifting it left or right

Question 40

What is the law of diminishing marginal utility?

Answer 40

The decrease of satisfaction due to overconsumption (added consumption of each item)

Question 41

Describe normal goods supply and demand?

Answer 41

Prices increase, demand decreases Prices decreases, demand increases

Question 42

What are inferior goods?

Answer 42

Goods which people demand less of when their real income increases. Rise in real income causes demand curve to shift to the left

Question 43

What are giffen goods (Collectors items)

Answer 43

They defy the laws of demand e.g paintings -buy expensive products, sell them for more

Question 44

Derived demand?

Answer 44

Demanding something(wood) for what it can do for you fences

Question 45

What does a movement along the demand curve show?

Answer 45

A movement a,on the demand curve shows how quantity demanded responds to a change in price

Question 46

What is meant by a shift in the demand curve?

Answer 46

Shows how demand responds to a change in a non-price factor at any given price

Question 47

What is the proportional rise in demand to proportional rise in price known as

Answer 47

Unity

Question 48

A

Question 49

What is elasticity of demand in simplistic terms?

Answer 49

Consumers responsiveness not a change in the goods price

Question 50

Where there are substitutes the demand curve is very …

Answer 50

Elastic