1.2 Price Determination for Goods and Services

Question 1

1 Determinants of Demand for Goods and Services

Answer 1

1. Market Demand
2. Law of Demand
3. Conditions of Demand
4. Normal Goods
5. Inferior Goods

Question 2

2. Elasticities of Demand

Answer 2

1. PED
2. Factors Determining PED
3. YED
4. Different Normal Goods
5. XED
6. Complementary Goods
7. Substitute

Question 3

3. Determinants of Demand

Answer 3

1. Market Supply
2. Law of Supply
3. Ceterus Paribus
4. Conditions of Supply

Question 4

4. Price Elasticity of Supply

Answer 4

1. PES

2. Factors Determining PES

Question 5

5. Determination of Equilibrium Market Price

Answer 5

1. Market Equilibrium

2. Market Disequilibrium

Question 6

6. Interrelationship Between Markets

Answer 6

1. Joint Supply
2. Competing Supply
3. Complementary Good
4. Substitute Good
5. Composite Demand
6. Derived Demand

Question 7

1.1 Market Demand

Answer 7

• Quantity of goods / services that the consumers are willing to buy at different prices

Question 8

1.2 Law of Demand

Answer 8

• As a good’s price falls, more is demanded

Question 9

1.3 Conditions of Demand

Answer 9

1. Price of SUBSTITUTE goods
2. Price of goods in JOINT demand
3. INCOME
4. TASTES
5. POPULATION size

Question 10

1.4 Normal Goods

Answer 10

• Good that’s demand increases as income rises

Question 11

1.5 Inferior Goods

Answer 11

• Good that’s demand decreases as income rises

Question 12

2.1 PED

Answer 12

• % Change in Q Demanded / % Change in P

Question 13

2.2 Factors Determining PED

Answer 13

1. Substitutability
2. Time
3. Percentage of Income
4. Necessities

Question 14

2.3 YED

Answer 14

% Change in Q Demanded / % Change in Income

Question 15

2.4 Superior Goods

Answer 15

• YED is greater than +1

Question 16

2.5 Basic Goods

Answer 16

• YED between 0 and +1

Question 17

2.6 XED

Answer 17

% Change in Q of ‘Good A’ Demanded / % Change in P of ‘Good B’

Question 18

2.7 Complementary Goods

Answer 18

• Joint Demand

Question 19

2.7 Substitute

Answer 19

• Competing Demand

Question 20

3.1 Market Supply

Answer 20

• Quantity of a Good / Service that all firms plan to sell.

Question 21

3.2 Ceterus Paribus

Answer 21

• All things Remaining Constant

Question 22

3.3 Conditions of Supply

Answer 22

• Cost of Production
• Technical Progress
• Taxes Imposed on Firms
• Subsidies Granted

Question 23

4.1 PES

Answer 23

% Change in Q Supplied / % Change in P

Question 24

4.2 Factors Determining PES

Answer 24

1. Length of the Production Period
2. Availability of Space Capacity
3. Ease of Accumulating Stocks
4. Ease of Switching Between Alternative Methods of Production
5. Number of Firms in the Market
6. Time

Question 25

5.1 Market Equilibrium

Answer 25

• Occurs where the D curve and the S curve intersect

Question 26

5.2 Market Disequilibrium

Answer 26

• Any position other than equilibrium

Question 27

6.1 Joint Supply

Answer 27

• When one good is produced, another is produced

- E.g. beef and leather

Question 28

6.2 Competing Supply

Answer 28

• Production of one good competes with production of another.
• E.g. Milk and Cheese

Question 29

6.3 Complementary Goods

Answer 29

• Demanded at same time as another good

Question 30

6.4 Substitute Goods

Answer 30

• a good in competing demand

Question 31

6.5 Composite Demand

Answer 31

• Demand for good with more than one use

Question 32

6.6 Derived Demand

Answer 32

• Demand for a good which is an input into the production of another good