Week 6A

Question 1

What is a free market economy ?

Answer 1

Resources allocated by supply and demand

Question 2

What is a mixed economy ?

Answer 2

Part free market and part planned

Question 3

What is a command(planned) economy?

Answer 3

Resources allocated by government

Question 4

Diff between planned and free markets

Answer 4

Planned- social objectives(government decides what is best for society)
Free- firm aims to maximise profits

Question 5

One type of economics

Answer 5

• positive vs normative
• micro vs macro economics

Question 6

Economic agents

Answer 6

Public sector
Private sector
Business that produce goods and services using factors of production

Question 7

Effective demand

Answer 7

What consumers are willing and able to purchase at each price, all other things unchanged

Question 8

Demand curve

Answer 8

=downwards sloping

Question 9

Change in price

Answer 9

Movement along the demand curve= change in quantity demanded= an extension and contraction of demand

Question 10

Normal products

Answer 10

Demand increases as income increases

Question 11

Inferior products

Answer 11

Demand falls as income increases

Question 12

Upward sloping demand curve

Answer 12

Giffen or veblen good ( quantity demand increases as price increases)

Question 13

Example of veblen good

Answer 13

Toilet paper in Covid

Question 14

Elasticity of demand

Answer 14

Refers to sensitivity of demand to changes in variables

Question 15

When is a price is elastic

Answer 15

Value (ignoring signs) is greater than 1
Revenue increases (price falls)

Question 16

When is a price inelastic

Answer 16

Value (ignoring signs) is less then 1
Revenue decreases( price fall)

Question 17

When is a price unitary elastic

Answer 17

When value =1
Revenue stays the same (price fall)

Question 18

Elasticity of demand calculation

Answer 18

%🔺Q/ %🔺P

Question 19

Income elasticity of demand calculation

Answer 19

%🔺Q/ %🔺I
Positive sign= normal good
Negative sign= inferior or giffen good

Question 20

Cross elasticity of demand calculation

Answer 20

%🔺Q(of product A)/ %🔺P(of product B)
Positive sign= substitutes
Negative sign= compliments(AirPods to phone)

Question 21

Supply curve shows ?

Answer 21

The amount the producers are willing and able to produce

Question 22

What is marginal utility

Answer 22

Extra satisfaction from additional goods

Question 23

When does market occur ?

Answer 23

When buyers and sellers interact to exchange goods and services

Question 24

When does equilibrium occur ?

Answer 24

Quantity supplied = quantity demanded at the given price and there is no incentive for the position to change

Question 25

When is equilibrium reached in free markets

Answer 25

By changes in price

Question 26

An outward shift in demand ?

Answer 26

Increases equilibrium price and quantity

Question 27

An inward shift in demand?

Answer 27

Decreases equilibrium price and quantity

Question 28

An outward and inward shift in supply ?

Answer 28

Decreases equilibrium price and increases quantity Inward shift exactly opposite

Question 29

What is marginal revenue ?

Answer 29

Change in total revenue when an additional unit is sold

Question 30

Price cut on total revenue

Answer 30

Elastic~ increases revenue Unit elastic~ revenue doesn’t change In elastic~ revenue falls

Question 31

Abnormal profits

Answer 31

When revenue is greater than total costs

Question 32

Normal profits

Answer 32

Occur when revenue = total costs

Question 33

Shutdown point

Answer 33

Revenue = variable costs Price= average variable costs When a company no longer benefits from running their operations

Question 34

Break even point

Answer 34

Revenue = total cost

Question 35

Why pursue profits

Answer 35

Source of internal finance Common benchmark of success Higher profits may increase share price

Question 36

Sales revenue maximisation

Answer 36

Produce where marginal revenue = 0

Question 37

Market penetration

Answer 37

Existing products in existing markets

Question 38

Market development

Answer 38

Existing products in new markets

Question 39

New product development

Answer 39

New products to existing markets

Question 40

Diversification

Answer 40

New products in new markets

Question 41

What might shift the demand curve for a product left or right

Answer 41

Could be a fall in income if normal good Increase in price complements Fall in price of substitutes

Question 42

The difference between a change in quantity demanded and a change in demand

Answer 42

A change in qty demanded -is a result of a change of price A change in demand - is a result of non price determinants

Question 43

Elasticity formula

Answer 43

Ed=%🔺(quantity sold)/ %🔺price

Question 44

How does price elasticity of demand vary along a demand curve

Answer 44

When price is high, demand is price elastic;the change in quantity demanded is greater in % than the price change Opposite for inelastic

Question 45

What might shift a supply curve for a product inwards

Answer 45

Increase in costs, less prouducers, tax