Chapter 1- Micro Economics

Question 1

What is the definition of price?

Answer 1

The monetary value that the consumer is prepared to pay and the manufacturer is prepared to sell for.

Question 2

What is the equilibrium price?

Answer 2

A price that both consumers and manufacturers are satisfied with.

Question 3

What is the relationship between demand, supply and price?

Answer 3

If a product is at high demand, the supply doesn’t increase then the price with increase.
If a product is at low demand, the supply doesn’t increase then the price will decrease.

Question 4

What is the demand of a product measured by?

Answer 4

1. If there is a need for the product
2. If consumers can afford it
3. If consumers are prepared to pay for the product

Question 5

How is demand related to time and price and provide an example.

Answer 5

The demand for a product at a specific price can change over time.
For example a specific jacket could be priced less in summer than winter because the demand is less in summer.

Question 6

What 7 factors influence demand?

Answer 6

1. Snob-value products having a reduced price
2. Substitute goods
3. Complementary goods
4. Standard of living changing a persons habits
5. Economic expectations for the future
6. Advertising
7. Demographic changes

Question 8

What is snob-value and how does it affect demand?

Answer 8

Products which have a value attached and an image of being expensive and high quality. If the price of a snob-value product decreases then people think the quality of the product has decreased and not worth buying.

Question 9

Define the term substitute goods.

Answer 9

Substitute goods are different products which aren’t the original but still satisfy the same need.

Question 10

Define a complementary product and provide an example.

Answer 10

1. An item that is bought together with the main product. It is supposed to increase the popularity of its complement.
2. If tickets for a soccer game are sold at half price then more people would buy the tickets and go to the match and the stadiums would be full. The demand for food and alcohol would increase because there are many people.

Question 11

Define sin tax.

Answer 11

Tax put on certain products like alcohol and cigarettes to attempt and decrease the demand for them.

Question 12

Provide an example on how economic expectations for the future can affect demand.

Answer 12

If there are positive expectations for the future then companies will purchase more machinery and train workers for the future. Demand for capital goods (machinery, equipment, vehicles, buildings etc) and services (training) increases.

Question 13

How does urbanisation affect demand?

Answer 13

Urbanisation in an area increases the demand for basic services like housing, running water, medical care and transport.

Question 14

What happens to the demand curve if the demand changes due to the change in price?

Answer 14

We will stay on the same demand curve, and it will move up or down the curve.

Question 15

What happens to the demand curve if the demand changes are NOT due to the change in price?

Answer 15

The demand curve moves to the left or right.
Demand increases: to the right
Demand decreases: to the left

Question 16

Define supply.

Answer 16

The quantity that a supplier of specific product is prepared to sell at a specific time and price.

Question 17

Is the supply curve negative or positive and why?

Answer 17

The supply curve is positive. This is because when the price the consumer is prepared to pay increases then the more suppliers are willing to supply

Question 18

How does price have an impact con supply?

Answer 18

Higher price ———> greater supply

Lower price ———> smaller supply

Question 19

What factors (besides price) could lead to a change in supply?

Answer 19

1. Natural disasters
2. International occurrences like war
3. Change in production methods
4. New competitors

Question 20

What happens to the supply curve if the change in supply is due to price?

Answer 20

We will stay on the same curve and it will move up and down

Question 21

What happens to the supply curve if the change in supply is not due to price?

Answer 21

The supply curve moves to the left or right.
Supply increases: to the right
Supply decreases: to the left

Question 22

Define disposable income.

Answer 22

Money left to spend and save after being taxed.