theme 1 - how markets work

Question 1

utility

Answer 1

the satisfaction that consuers get from goods and services that they buy

Question 2

demand

Answer 2

the amount of a product that consumers are willing and able to purchase at any given price

Question 3

PASIFIC

Answer 3

the non price factors influencing demand

Question 4

PINTSWC

Answer 4

the non price factors influencing supply

Question 5

PED

Answer 5

percentage change in quantity demanded/ percentage change in price

ped values are always negative

Question 6

PED < 1

Answer 6

price INELASTIC, a change in price is proportionally smaller than a change in demand

Question 7

PED> 1

Answer 7

price ELASTIC, a change in price results in a proportionally greater change in demand

Question 8

factors influencing PED

Answer 8

-time
-competition for the same product
-branding
-proportion of income spent on a product
-product types vs product of an individual business
-habit forming nature of the good

Question 9

factors influencing YED

Answer 9

yed is income elasticity of demand- necessities - basic goods that a consumer needs to buy and

luxury - goods that consumers like to buy if they are able to afford it

Question 10

normal goods

Answer 10

when incomes increase, demand for normal goods go up e.g. organic goods, electronics, luxury cars

Question 11

inferior goods

Answer 11

when incomes increase, demand for inferior goods fall

e.g. store brand grocery products, low quality clothing

Question 12

XED

Answer 12

the responsiveness of demand for one good to the change in price of another good

percentage change in quantity demanded of good b/ percentage change in price of good a

cross elasticity of demand

Question 13

substitute goods

Answer 13

goods that are very similar and can be close alternatives for each other. substittues have positive xed

Question 14

complementary goods

Answer 14

goods that go together well or are actually used or consumed together
-complementary goods have negative xed

Question 15

supply

Answer 15

the amount of a product which suppliers will offer to the market at a given price

Question 16

pes

Answer 16

price elasticity of supply

perchange change in quantity supplied/ percentage change in price

pes value is always positive

Question 17

price mechanism

Answer 17

this refers to the way in which prices respond to changes in supply or demnd, so that a new equilibrium is reached and the market clears

Question 18

equilibrium

Answer 18

when supply equals demand

Question 19

total revenue

Answer 19

price x quantity

Question 20

excess demand

Answer 20

when demand exceeds supply - there are market shortages

Question 21

excess supply

Answer 21

when supply exceeds demand- there are unsold goods in the market

Question 22

consumer surplus

Answer 22

the extra amount of money consumers are prepared to pay for a good above what they actually pay

Question 23

producer surplus

Answer 23

the extra amount of money that producers are paid, above what they would be willing to take

Question 24

direct tax

Answer 24

a tax that is paid straight from your income e.g. income tax

Question 25

indirect tax

Answer 25

a tax is a tax on spending

Question 26

ad valorum tax

Answer 26

a tax that increases the price by a certain percentage e.g. VAT

Question 27

tax incidence

Answer 27

the idea of who actually pays the tax, the consumer or the producer

Question 28

subsidy

Answer 28

a grant given to a firm to encourage the firm to produce more and/or lower the price of its goods

Question 29

reasons for irrational behaviour

Answer 29

influence of others habitual behaviour computational problems inertia