1.2 How markets work

Question 1

What is rational decision making

Answer 1

When consumers act logically to to maximise their utility

Question 2

What are three factors that affect Demand

Answer 2

-Income
-Trends
-Price of substitutes
-Price of complements
-Size of population
-Amount of advertisement

Question 3

What is diminishing marginal utility

Answer 3

When a person consumes more and more of a product their satisfaction decreases

Question 4

What does PED stand for

Answer 4

Price elasticity of demand

Question 5

What is the equation for PED

Answer 5

PED= % change in quantity demanded ÷ % change in prices

Question 6

If the value is between 0 and -1 is it elastic or inelastic

Answer 6

Inelsatic

Question 7

If the value is -1 is it elastic or inelastic

Answer 7

Elastic

Question 8

If the value is between -1 and infinity is it elastic or inelastic

Answer 8

Elastic

Question 9

What factors effect PED (PLANTS)

Answer 9

Proportion of income
Luxury
Addictive
Necessity
Time
Substitutes

Question 10

What is YED

Answer 10

Income elasticity of Income

Question 11

What is the equation of YED

Answer 11

YED= % change in quantity ÷ % change in income

Question 12

What is a normal good

Answer 12

A good that rises in demand when there is a increase in income

Question 13

What is a inferior good

Answer 13

a good that falls in demand when there is a increase in income

Question 14

What sign does a normal good have

Answer 14

+ (Positive)

Question 15

What sign does a inferior good have

Answer 15

• (Negative)

Question 16

What does XED stand for

Answer 16

Cross Elasticity of Demand

Question 17

What is the equation for XED

Answer 17

XED= % change in quantity demanded in good A ÷ % change in price in good B

Question 18

What XED value does a substitute good have

Answer 18

Positive number

Question 19

What XED value does a complementary good have

Answer 19

Negative number

Question 20

What does PES stand for

Answer 20

Price Elasticity of Supply

Question 21

What is the equation for PES

Answer 21

PES= % in Quantity Supplied ÷ % change in price

Question 22

Define price elasticity of supply

Answer 22

The responsiveness to supply of a good or service after a change in its price

Question 23

What does it mean if the PES value is 0

Answer 23

Perfectly Inelastic Supply

Question 24

What does it mean if the PES value is infinity

Answer 24

Perfectly Elastic Supply

Question 25

What does it mean if the PES value is between 0 and 1

Answer 25

Inelastic Supply

Question 26

What does it mean if the PES value is 1 and infinity

Answer 26

Elastic Supply

Question 27

What factors can influence PES of a good (BRITS)

Answer 27

Barriers to enter market
Resources
Inventory
Time
Spare Capacity