2nd Week

Question 1

Law of demand

Answer 1

As the price increases the quantity demanded decreases

Question 2

Law of supply

Answer 2

As the price increases the quantity supplied increases (ceteris paribus)

Question 3

Change in demand

Answer 3

Shift of the curve

Question 4

Change in quantity demanded

Answer 4

Movement along the curve

Question 5

Increase in demand

Answer 5

-Income increases (normal good)
-Income decreases (inferior good)
-Price of a substitute rises
-Price of compliment decreases
-…

Question 6

Price elasticity of demand (ped)

Answer 6

is a measure of how sensitive is the quantity demanded to changes in prices. (Price elasticity of demand is always negative (except when is zero))

Question 7

When prices increases(ped):

Answer 7

Revenues will increase if the demand is inelastic.

Revenues will decrease if the demand is elastic.

Question 8

Inelastic demand

Answer 8

(Ep > -1 or │Ep│< 1)

Question 9

Elastic Demand

Answer 9

(Ep < -1 or │Ep│> 1)

Question 10

Unitary

Answer 10

(Ep = -1 or │Ep│= 1)

Question 11

INCOME DEMAND ELASTICITY

Answer 11

Income elasticity shows how sensitive is the quantity demanded to changes in the level of
income

Question 12

Normal goods (IDE)

Answer 12

Normal goods: When income increases the quantity demanded also increases. So income elasticity is positive.

Question 13

Luxury goods (IDE)

Answer 13

income elasticity is more than one

Question 14

necessity goods (IDE)

Answer 14

income elasticity is less than one, but positive, we consider it a necessity

Question 15

Inferior goods (IDE)

Answer 15

An inferior good shows a negative income elasticity, income and quantity demanded move in opposite directions.

Question 16

Giffen good

Answer 16

A good is Giffen Good when the price and the demand increase simultaniasly

Question 17

The cross-price elasticity (XED)

Answer 17

shows how the quantity demanded of good X changes when
there is a change in the price of a good Y.

Substitute goods show a positive cross price elasticity

Complement goods show a negative cross price elasticity.

Question 18

The quantity supplied will depend on

name some examples

Answer 18

The available technology and the level of productivity.

The number of firms in the market.

The price of the product. The relation is expected to be a positive one, a higher price will make the product more profitable, so quantity supplied will increase.

The price of other products that the firm can easily change form the one is now producing.

The cost structure. (Marginal costs have an impact, a fixed cost has no any consequence on supply)

Question 19

Change in quantity supplied

Answer 19

The quantity changes when there is a change in price. It tends to show a positive slope.

Question 20

Change in supply

Answer 20

The supply will shift to the right or to the left when there is a change in other factors apart from the price, some could be: a change in the number of firms operating in the market, a change in variable cost, technological change, the shortage of a production factor, etc.

Question 21

Increase in supply

Answer 21

-More and more firms enter the market
-An increase in productivity
-A reduction in wages
-A reduction in the amount of production factors

Question 22

Price elasticity of supply

Answer 22

The PES measures the sensitiveness of quantity supplied to changes in the level of prices. As a consequence of the positive slope of the Supply function, the PES is positive (it could be 0 if the supply is totally inelastic).