1.2 the market

Question 1

Price definition

Answer 1

What the buyer pays for a specific good or service

Question 2

What is quantity demanded ?

Answer 2

The total amount of a good or service that consumers want over a given period of time.

Question 3

What is the effect of income on a normal good ?

Answer 3

Increased income will lead to an increase in quantity demanded

Question 4

What is the effect of income on quantity of an inferior good ?

Answer 4

Increased income may lead to a reduction in quantity demanded

Question 5

What is the demand curve ?

Answer 5

A line showing the demand for a product at different prices

Question 6

Equilibrium definition

Answer 6

The point where there is a balance between supply and demand

Question 7

Name 4 factors that increase supply

Answer 7

-price rise
-increase in productivity
-fall in indirect tax
-developments in technology

Question 8

What does a supply curve show ?

Answer 8

The relationship between price and quantity

Question 9

Numerically what does price elastic demand look like ?

Answer 9

-1 and below

Question 10

Numerically what does price inelastic demand look like ?

Answer 10

Between 0 and -1

Question 11

What is the impact of price rise on a product with price elastic demand

Answer 11

Sales with decrease quickly therefore revenue decreases

Question 12

What is the impact of price rise on a product with price inelastic demand ?

Answer 12

Sales fall slightly, but revenue rises

Question 13

What is the impact of a price cut on a product with elastic demand ?

Answer 13

Sales rise sharply therefore revenue rises

Question 14

What is the impact of a price cut on a product with price inelastic demand ?

Answer 14

Sales rise but not much, therefore revenue falls

Question 15

Price elasticity formula

Answer 15

Price elasticity= % change in the quantity demanded /% change in price

Question 16

What is price elasticity?

Answer 16

Price elasticity measures the extent to which demand for a product changes when it’s price changes

Question 17

What happens to demand when price increases ?

Answer 17

Demand decreases

Question 18

What happens to demand when price decreases

Answer 18

Demand increases

Question 19

What happens to the total revenue of a price elastic product, if the price increases ?

Answer 19

The total revenue decreases

Question 20

What happens to the total revenue of a price elastic product, if the price decreases ?

Answer 20

Total revenue increases

Question 21

What happens to the total revenue of a price inelastic product, if the price increases ?

Answer 21

The total revenue Increases

Question 22

What happens to the total revenue of a price inelastic product, if the price decreases ?

Answer 22

Total revenue decreases

Question 23

Factors leading to change in demand (5)

Answer 23

-price of substitutes
-consumer incomes
-advertising
-external shocks
-seasonality

Question 24

What are complimentary goods ?

Answer 24

Goods that are purchased together because they are consumed together

Question 25

Subsidies defintion

Answer 25

A grant which is given to producers, usually to encourage production of a certain good

Question 26

Substitute goods definition

Answer 26

Goods that can be bought as an alternative to others but perform the same function

Question 27

What is income elasticity of demand ?

Answer 27

Income elasticity of demand (YED) measures the responsiveness of quantity demanded to a change in consumer income.

Question 28

Income elasticity of demand (YED) formula

Answer 28

% change in quantity demanded/ % change in income

Question 29

For YED, if the calculated number is positive an increase in income will…………. demand and if the calculated number is negative an increase in income will ………….. demand

Answer 29

Increase Decrease

Question 30

What is a normal good ? Example

Answer 30

A good that experiences increase in demand due to an increase in consumer income E.g Milk

Question 31

What is an inferior good? Example.

Answer 31

An inferior good is one whose demand drops when peoples income rises E.g instant noodles

Question 32

What is a Luxury good ?

Answer 32

A luxury good is a good for which demand increase more than proportionally as income rises.