15 mark corrections pt4

Question 1

Short run

Answer 1

Time period where at least 1 FOP is fixed (usually capital because it takes time to build factories). it takes time to increase production in the SR so supply in the SR tends to be inelastic (not as responsive to FOP changes)

Question 2

Long run

Answer 2

Time period where all FOP are variables, Able to increase supply and capacity in the LR. tend to be elastic as there’s a longer time to react.

Question 3

Statement examples

Answer 3

Positive-The CPI inflation in 2017 was 3%
Normative-The government should try reduce inequality
Value judgements-It is wrong for firms to prioritise profits over reducing pollution

Question 4

What can be used to distinguish market structures

Answer 4

Ease of entry into the industry and the degree of product differentiation

Question 5

Supply

Answer 5

Quantity of goods and services that firms supply to a market at a particular price. Influenced by changes to COP, productivity and number of suppliers.

Question 6

Demand

Answer 6

A consumers desire to purchase goods and services and willingness to pay a specific price for them.

Question 7

What happens in the long run

Answer 7

Fixed costs become variable

Question 8

What is price mechanisms

Answer 8

Describes how the forces of demand and supply determine the prices of commodities. It allocates resources by setting relative prices to determine the quantity of FOP used in producing each good