Chapter 3

Question 1

Define market

Answer 1

Voluntary meeting of buyers and sellers with exchange taking place

Question 2

Define demand

Answer 2

Quantity of goods or services that consumers are willing and able to buy at given prices in a given period

Question 3

Define supply

Answer 3

The quantity of a good or service that producers are willing and able to sell at given prices in a given time

Question 4

What is market ruining price

Answer 4

The price at which planned demand = planned supply

Question 5

Define effective demand

Answer 5

Demand with the ability to pay

Question 6

Draw a demand curve

Answer 6

…

Question 7

Difference between market and individual demand

Answer 7

Market demand: quantity of a good or service all consumers in a market are willing and able to buy
Individual demand: quantity of a good or service a particular consumer is willing and able to buy

Question 8

Reason for a move along the curve in demand

Answer 8

Change in price

Question 9

Reasons for a shift in the demand line

Answer 9

• Price of substitute
• Price of complementary
• Personal income
• Tastes and preferences
• Pop size

Question 10

Difference between normal and inferior good

Answer 10

Normal good: good for demand increases as income rises

Inferior: good for demand decreases as income rises

Question 11

Price elasticity of demand equation

Answer 11

% change in demand / % change in price

Question 12

PED answers and draw

Answer 12

infinite= p. elastic 
>1= elastic
1= unit elastic 
<1= inelastic 
0= p. inelastic

Question 13

Factors determining price elasticity of demand

Answer 13

• Substituitability
• % of income
• Necessities or luxuries
• Width of market
• Time (Long run or short run)

Question 14

Income elasticity of demand equation

Answer 14

% change in demand/% change in income

Question 15

YED answers

Answer 15

1+ luxury good
0-1 normal good
0> inferior good

Question 16

Cross elasticity of demand equation

Answer 16

% change in demand good A / % change in price good B

Question 17

XED answers

Answer 17

above 0=substitute
0= no relationship
below 0= complementary

Question 18

Draw supply curve

Answer 18

…

Question 19

Movement along supply

Answer 19

Price change

Question 20

Movement of supply

Answer 20

• Cost if production
• Technical progress
• Taxes imposed by firms
• Subsidies granted

Question 21

Price elasticity of supply

Answer 21

% change in supply / % change in price

Question 22

PES values and graphs

Answer 22

infinite = p. elastic 
>1 = elastic 
1= unit elastic 
<1 = inelastic 
0 = p. inelastic

Question 23

Factors affecting PES

Answer 23

• Length of production period
• Availability of spare capacity
• Ease of accumulating stocks
• Number of firms in a market
• Time

Question 24

Draw supply and demand graph

Answer 24

…

Question 25

Define equilibrium

Answer 25

State of rest when balance between opposing forces

Question 26

Define disequilibrium

Answer 26

A situation in which opposing forces are out of balance

Question 27

Define market equilibrium

Answer 27

Planned demand = planned supply

Question 28

Define market disequilibrium

Answer 28

Planned demand > planned supply

Planned demand < planned supply

Question 29

Draw Demand and supply with excess demand and excess supply

Answer 29

…

Question 30

Draw how to get ride of excess demand and excess supply

Question 31

Explain joint supply

Answer 31

When one good is produced another one is also produced from the same raw material.

Question 32

Define joint demand

Answer 32

Where one is bought with the other

Question 33

Define composite demand

Answer 33

When demand for one use of the good increases supply of the other decreases

Question 34

Define derived demand

Answer 34

Where a good is necessary for the production of other goods e.g engines and cars