3 Price Determination In A Competitive Market

Question 1

What is demand?

Answer 1

The quantity of a good or service that consumers are able and willing to buy at a given price during a given period of time

Question 2

What’s the factors shift of the demand curve?

Answer 2

Population, income, related goods such as substitutes or compliments, advertising, tastes, expectations and seasons

Question 3

What does the downward sloping demand curve show?

Answer 3

The inverse relationship between price and quantity

Question 4

What is price elasticity of demand?

Answer 4

The responsiveness of a change in demand to a change in price

Question 5

Is a price elastic good responsive to change in price?

Answer 5

Yes, the change in price leads to an even bigger change in demand

Question 6

What is a unitary elastic good?

Answer 6

When change in demand is equal to the change in price

Question 7

What is a perfectly inelastic good?

Answer 7

A good start has a demand which does not change when the price changes

Question 8

What is a perfectly elastic good?

Answer 8

demand falls to 0 when price changes

Question 9

What factors influence the price elasticity of demand?

Answer 9

Necessity, substitutes, addictiveness or habitual consumption, proportion of income spent on the good, durability of the good, and peak or off-peak demand

Question 10

What is a subsidy?

Answer 10

Payments from the government to firms to encourage the production of a good and to lower their average costs

Question 11

What is total revenue?

Answer 11

It is equal to average price times quantity sold

Question 12

What is income elasticity of demand?

Answer 12

The responsiveness of a change in demand to a change in income

Question 13

What is an inferior good?

Answer 13

Good we see a fall in demand as income increases

Question 14

What is cross elasticity of demand?

Answer 14

The responsiveness of a change in demand of one good to a change in price of another good

Question 15

What is supply?

Answer 15

The quantity of a good or service that a producer is willing and able to supply at a given price during a given period of time

Question 16

Why are supply curve upwards sloping?

Answer 16

Of price increase, it is more profitable for firms to supply the good, so supply increases
High prices encourage new firms to enter the market because it seems profitable so supply increase
With larger outputa, firm’s costs increas, so they need to charge a higher price to cover the costs

Question 17

What factors shift the supply curve?

Answer 17

Productivity, indirect tax taxes, number of firms, technology, subsidies, weather, cost of production

Question 18

What is the price elasticity of supply?

Answer 18

The responsiveness of a change in supply to change in price

Question 19

What is elastic supply?

Answer 19

When firms can increase supply quickly at little cost

Question 20

What is in elastic supply?

Answer 20

When an increase in supply will be very expensive for firms and take a long time

Question 21

What is perfectly elastic supply?

Answer 21

When any quantity demanded can be met without change in price

Question 22

What factors influence price elasticity of supply?

Answer 22

Timescale, spare capacity, level of stocks, how substitutable factors are and barriers of entry to the market

Question 23

What types of demand are there?

Answer 23

Derived demand, composite demand, and joint demand

Question 24

What is derived demand?

Answer 24

When the demand for one good is linked to the demand for a related good

Question 25

What Is composite demand?

Answer 25

When the good demanded has more than one use an example could be milk

Question 26

What Is joint demand?

Answer 26

When goods are brought together such as a digital camera and a memory card

Question 27

What is joint supply?

Answer 27

When increasing the supply of one good causes an increase or decrease in the supply of another good. For examples producing more lamb will increase the supply of wool