AOS1

Question 1

Market

Answer 1

Is any type of arrangement that facilitates the exchange between buyers and sellers. A market does not have to be a physical space but instead must ensure is allows to buyers and sellers to interact.

Question 2

What are the 2 conditions to a perfect market?

Answer 2

1. No individual buyer or seller has the power to influence price (Price Taking). 2. Products sold in the market are homogenous (similar) = encourages lower prices = ⬆️ competitiveness = ⬆️ efficiecy.

Question 3

Consumer Surplus

Answer 3

The difference between the price buyers are willing to pay and the market price. Seen as what the consumer receives if they obtain the good or service for less than the maximum price they are willing to pay.

Question 4

Producer Surplus

Answer 4

The difference between the price the producer is willing to sell the good or service for and the market price. Seen as what the producer receives if they are able to sell the good or service above its economic costs.

Question 5

Price Mechanism

Answer 5

Refers to the way changing markets and hence the movement in relative prices, coordinate the way resources are allocated in an economy.

Question 6

Relative Prices

Answer 6

The prices of products associated with other products. Changes in relative prices send clear signals to producers and consumers and therefore direct resources to their most profitable ends.

Question 7

Law of Demand

Answer 7

States that there is an inverse relationship between the price and quantity demanded. In simpler terms; as price increases, demand will fall. As prices decrease, demand increases.

Question 8

Relative Scarcity

Answer 8

The fundamental economic problem where resources are finite compared to the infinite demands placed upon those resources by individuals needs and wants.

Question 9

Opportunity Cost

Answer 9

The value placed upon the next best alternative that is forgone whenever a choice is made. The cost is not the choice itself but the satisfaction brought by the choice.

Question 10

What causes the demand curve to shift to the right?

Answer 10

⬆️ disposable income
⬆️ price of substitutes 
⬆️ population
⬇️ price of compliments 
⬇️ interest rates 
⬆️ consumer confidence

Question 11

What causes the demand curve to shift to the left?

Answer 11

⬇️ disposable income
⬇️ price of substitutes 
⬇️ population 
⬆️ price of compliments 
⬆️ interest rates
⬇️ consumer confidence

Question 12

Law of supply

Answer 12

States that as price of a product increases, supply will also increase. Conversely, as price decreases, supply will also decrease.

Question 13

What causes the supply curve to shift to the right?

Answer 13

⬇️ cost of production
⬆️ technology
⬇️ interest rates
⬆️ employee training
⬆️ availability of resources
⬆️ subsidies

Question 14

What causes the supply curve to shift to the left?

Answer 14

⬆️ cost of production
⬇️ technology
⬆️ interest rates
⬇️ employee training 
⬇️ availability of resources
⬇️ subsidies

Question 15

Demand shifted to the right (graph).

Answer 15

shortage = upwards pressure on price = contraction in demand = expansion in supply

Question 16

Demand shifted to the left (graph).

Answer 16

Surplus = downwards pressure on price = expansion in demand = contraction in supply.

Question 17

Supply shifted to the right (graph).

Answer 17

Surplus = downwards pressure on price = contraction in supply = expansion in demand

Question 18

Supply shifted to the left (graph).

Answer 18

Shortage = upwards pressure on price = expansion in supply = contraction in demand

Question 19

Price elasticity of demand

Answer 19

The responsiveness of the total quantity demanded of a product to a change in price of that product. Demand curve flattens as PED increases and steepens as PED decreases.

Question 20

Factors affecting PED

Answer 20

Degree of Necessity - necessities have low PED. Producers can ⬆️ price and demand won’t change too much.

Availability of Supply - more substitutes = higher PED.

Proportion of income - more income needed to pay for a product = higher PED.

Question 21

Price elasticity of supply

Answer 21

Refers to the responsiveness of the total quantity supplied of a product to a change in the price of a product. Increase in PES will have a flatter supply curve and a decrease in PES will cause a steeper supply curve.

Question 22

Factors affecting PES

Answer 22

Production period -