4.1.3 price determination in a competitive market

Question 1

demand

Answer 1

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

movement up demand curve

Answer 2

cotraction

Question 3

movement down demand curve

Answer 3

expansion

Question 4

factors shifting out demand

Answer 4

increased population
increased disposable income
related goods (substitutes)
advertising
tastes or fashion
expectations of future price
seasons

Question 5

reason demand curve is downward sloping

Answer 5

dimishing marginal utility

Question 6

price elastcitiy of demand definition

Answer 6

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

Question 7

ped formula

Answer 7

%QDchange/%Pchange

Question 8

the flatter the cuurve…

Answer 8

the more elastic PED>1

Question 9

factors influencing PED

Answer 9

necessity
substitues
addictiveness
proportion of income
durability (makes more elastic)
peak/vs off peak demand

Question 10

the effect of elasticity on tax revenue

Answer 10

more elastic is greater burden for producer

Question 11

inelastcitiy impact on revenue

Answer 11

increase

Question 12

income elasticity of demand definition

Answer 12

the responsiveness of a change in demand to a
change in income.

Question 13

incomer elasticity of demand formula

Answer 13

%QDchange/%Incomechange

Question 14

elasticity of inferior goods

Answer 14

negative

Question 15

elasticity of normal goods

Answer 15

positive

Question 16

elasticity of luxury goods

Answer 16

greater than 1

Question 17

cross elasticity demand definition

Answer 17

the responsiveness of a change in demand of one good,
X, to a change in price of another good, Y

Question 18

formula for cross elasticity of demand

Answer 18

% change in q demanded of good x/ % change in price of good y

Question 19

complementary goods XED

Answer 19

negative

Question 20

subsitutes XED

Answer 20

positive

Question 21

unrelated goods XED

Answer 21

0

Question 22

supply

Answer 22

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

Question 23

why is the supply curve upwards sloping

Answer 23

If price increases, 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 increases.
With larger outputs, firm’s costs increase, so they need to charge a higher
price to cover the costs.

Question 24

factors that shift out the supply curve

Answer 24

productivity
indirect taxes (shift inwards)
number of firms
technology
subsidies
weather
costs of production

Question 25

price elasticity of supply

Answer 25

the responsiveness of a change in supply to a change in price.

Question 26

PES formula

Answer 26

% change in supply / % change in price

Question 27

factors influencing PES

Answer 27

time spare capacity level of stocks how substituable FoP are barriers to entry

Question 28

market equilibrium

Answer 28

when demand equals supply market clearing price

Question 29

functions of price mechanism

Answer 29

increased demand shortages incentivises producers to increase prices new price rations scarce resources

Question 30

derived demand

Answer 30

demand for one good is linked to the demand for a related good. eg bricks and houses

Question 31

Composite demand

Answer 31

This is when the good demanded has more than one use eg Assuming there is a fixed supply of milk, an increase in the demand for cheese will mean that more cheese is supplied, and therefore less butter can be supplied.

Question 32

joint demand

Answer 32

This is when goods are bought together, such as a digital camera and a memory card.

Question 33

joint supply

Answer 33

This is when increasing the supply of one good causes an increase or decrease in the supply of another good. For example, producing more lamb will increase the supply of wool.