unit 2 key words

Question 1

equilibrium price

Answer 1

set by supply and demand
highly competitive markets have low barriers to entry and exists
new buyers and sellers can easily enter the market

Question 2

demand curve graph

Answer 2

shows price in relation to sales

Question 3

market/competitive demand

Answer 3

demand for products that are competing for sales. People can substitute one competing product for another.
If the demand for one product increases, the demand for its competitor will decrease.
i.e. coke and pepsi

Question 4

double coincidence at once

Answer 4

occurs when trading

2 people exchange goods to receive what the other has, which is what they desire or need

Question 5

the ‘law’ of demand

Answer 5

other factors remaining constant there is an inverse relationship between the price of a good and the demand.
as price falls we can see and extension of demand
if prices rise we see a contraction of demand
the ‘law’ doesn’t also hold constant

Question 6

the income effect

Answer 6

when the price of a good falls and more is bought as a result
occurs as customers can maintain current consumption for less
more is bought also as an increase in income

Question 7

the substitution effect

Answer 7

the price of a good falls and it becomes cheaper than an alternative item.
consumers switch their spending (from goods in competitive demand) to this product

Question 8

real disposable income

Answer 8

disposable income,
adjusting to inflation,
after deducing tax and adding benefits

Question 9

define ‘real’ in economic terms

Answer 9

adjusting from inflation

Question 10

substitute products

Answer 10

bought in place of each other

e.g. the next best selling brand if something is sold out or too expensive

Question 11

compliment products

Answer 11

bought with each other, the compliment each other e.g. coffee and mugs

Question 12

normal goods

Answer 12

the quantity demanded increases in response to an increase in consumer incomes
e.g. expensive items that are now more affordable

Question 13

inferior goods

Answer 13

the quantity demanded decreases in response to an increase in consumer incomes
e.g. cheap items that can be substituted

Question 14

elasticity

Answer 14

when a change in one variable (i.e. price) has an effect on another (demand). then we can calculate elasticity

Question 15

price elasticity of demand PED

Answer 15

measures the responsiveness of the quantity of demand for a product following a change in its own price

Question 16

income elasticity of demand YED

Answer 16

how the demand of product responds to income. can be positive or negative

Question 17

cross elasticity of demand XED

Answer 17

measures the change in demand of one product in relation to another.

Question 18

market supply

Answer 18

quantity of good or service that all firms plan to sell at a given price in a time period

Question 19

profit

Answer 19

difference between total sales revenue and total costs

Question 20

total revenue

Answer 20

price money a firm receives from selling its output

price x quantity

Question 21

conditions of supply

Answer 21

determinants of supply (not price) that fix position of supply curve
Cost of Production:
iii. Natural Conditions:
iv. Technology:
v. Transport Conditions:
vi. Factor Prices and their Availability:
vii. Government's Policies:
viii. Prices of Related Goods:

Question 22

increase in supply

Answer 22

rightward shift

Question 23

decrease in supply

Answer 23

leftward shift

Question 24

PES (price elasticity of supply)

Answer 24

measures the extent to which the supply of a good changes in response to the price

Question 25

disequilibrium

Answer 25

excess supply / demand in a market

Question 26

market equilibrium

Answer 26

planned demand = planned supply demand curve crosses the supply curve no excess demand or supply no reason for the price to change in this state

Question 27

market disequilibrium

Answer 27

``` any other price than the equilibrium price excess demand or excess supply exists to correct: excess demand) MP increase until new EP excess supply) MP falls until new EP ``` mp = market price / ep = equilibrium price

Question 28

excess demand

Answer 28

consumers demand more than the supply | price below EP

Question 29

excess supply

Answer 29

firms wish to sell more than consumer demand | selling price above EP

Question 30

joint supply

Answer 30

when one good is produced, so is another form the same raw materials

Question 31

competing supply

Answer 31

raw materials used to make one good cannot be used to make another

Question 32

complimentary good

Answer 32

a good in joint demand or a good that is demanded at the same time as another good

Question 33

substitute goods

Answer 33

goods In competing demand | a good that can be used in place of another

Question 34

composite demand

Answer 34

demand for a good which has more than one use | i.e. cow milk and cheese

Question 35

derived demand

Answer 35

demands of a good which is an input into the production of another good i.e. demand for machinery depends on the demand for the good that its making

Question 36

allocative efficiency

Answer 36

when the available economic resources produce the combination of goods/services that best matches society's tastes&preference

Question 37

productive efficiency

Answer 37

economy as a whole cannot produce more of one good without producing less of another for a frims occurs when AVG. TC are minimised

Question 38

merit goods

Answer 38

benefits are unknown and so with information provided, demand would increase. value judgment

Question 39

complementary / joint demand

Answer 39

two products are necessary to meet one demand. A change in the demand for one of these goods causes a similar change in demand for the other product i.e. cheese and biscuits

Question 40

conditions of demand

Answer 40

Income levels Consumer tastes and preferences Competition. Fashions