Chapter 4

Question 1

What is a market

Answer 1

A medium through which buyers and sellers of goods or services come together to trade.

Question 2

4 types of markets

Answer 2

Goods - finished goods or services

Factor - factors of production (land, labour, capital, entrepreneurship)

Commodity - raw materials
Financial - shares and loans

Question 3

What is demand

Answer 3

The extent to which consumers are willing and able to buy a good or service at any price over a set time period.

Question 4

What is The law of demand

Answer 4

The inverse relationship between price and quantity demand

Question 5

What is Utility

Answer 5

The measurement of the amount of satisfaction or enjoyment that a customer gets from consuming a given good or service.

Question 6

What is opportunity cost

Answer 6

The individual has to give up more in comparison to other goods/services they could buy

Question 7

What is extension of demand

Answer 7

An increase in quantity demanded as the price has fallen

Question 8

Contraction of demand

Answer 8

A decrease in quantity demanded as the price has risen

Question 9

Consumer expenditure =

Answer 9

Quantity demanded x price

Question 10

2 types of demand

Answer 10

1. Demand per consumer
2. Aggregate demand, across a whole economy

Question 11

5 Factors influencing demand

Answer 11

1. Level of disposable income
2. Consumer taste
3. Market expectation
4. Size of the population
5. Type of good

Question 12

3 types of good

Answer 12

1. Inferior v normal goods
2. Substitute
3. Complementary goods and services

Question 13

What is an inferior good v a normal good?

Answer 13

The demand for a normal increases as income increases.

The demand for an inferior good falls as income increases

Question 14

What is a substitute good

Answer 14

If the price of strawberries increases, consumers may buy raspberries instead

Question 15

What is a complementary good?

Answer 15

For example, if the demand for strawberries increases the demand for cream may increase as well.

Question 16

What are Giffen and Veblen goods?

Answer 16

Their demand increases, as the price goes up.

Question 17

What is a Giffen good

Answer 17

If it’s a staple good, the consumer will buy more, as the price increases and instead they will stop buying the complementary goods.

Usually:
- inferior
- no substitute available
- a staple good

Question 18

What is a Veblen good?

Answer 18

The more expensive and exclusive a good is, the more desirable to some sectors of society.

• a luxury good
• appear to be exclusive

Question 19

The supply curve

Answer 19

When the price is higher the supplier wants to supply more, as the profit is higher

Question 20

Types of supply

Answer 20

1. Supply: of a particular products

2 aggregate supply: the extend to which suppliers are willing to supply goods and services across a whole economy.

Question 21

What factors affect supply?

Answer 21

1. Cost of making the good/service
2. Price of substitutes
3. Market expectations
4. Number of companies in the industry
5. Technological changes
6. Climate or weather

Question 22

What is the equilibrium?

Answer 22

The equilibrium price is the price in which supply and demand are balanced.