CourseWork Test

Question 1

formula of price elasticity (PED)

Answer 1

Q1 - Q0
————-
Q0
————————-
P1 - P0
————-
P0

Question 2

what are the types demand in price elasticity

Answer 2

1- elastic demand
2- inelastic demand
3- perfectly elastic demand
4- perfectly inelastic demand
5- unitary elasticity of demand

Question 3

state the characteristics of elastic demand

Answer 3

• downward slopping curve, less steep & quite flat
• % change of Qd > % change of P
• more than 1 (can be -ve, just ignore)
• clothes, shoes (goods that hv substitutes)

Question 4

state the characteristics of inelastic demand

Answer 4

• downward sloping & steep
• less than 1
• % change of P > % change of Qd
• necessities (w no close substitutes)

Question 5

formula of income elasticity (YED)

Answer 5

Q1 - Q0
————-
Q0
———————–
Y1 - Y0
————-
Y0

Question 6

state the types of income elasticity of demand

Answer 6

1- postiive YED
2- negative YED
3- zero YED

Question 7

if income elasticity of demand is a positive, it means…

(think: income. positive.)

Answer 7

when income rises, demand for goods also rises. (vice versa)

Question 8

in the positive YED, the income is elastic when…

Answer 8

• ans is more than 1
• more than proportionate change of quantity demanded of a good
  type: normal goods (clothes) & luxury goods (diamonds)

Question 9

in the positive YED, the income is inelastic when…

Answer 9

• ans is less than 1
• less than proportionate change of quantity demanded of a good
  type: necessities (bread, milk)

Question 10

if YED is negative, it means…

Answer 10

when income rises, demand of goods fall.
type: inferior goods (broken rice, secondhand products)

Question 11

if YED is zero, it means…

Answer 11

when income rises or falls, demand of goods remains unchanged
type: basic necessities (flour, sugar, oil)

Question 12

formula of cross elasticity (XED)

Answer 12

Qx1 - Qx0
————–
Qx0
——————–
Py1 - Py0
————-
Py0

Question 13

what are the types of XED?

Answer 13

1- positive XED
2- negative XED
3- zero XED

Question 14

in positive XED, it means…

Answer 14

• positive answer
• if price of Y rises, the demand of X rises too.
  type: substitute goods
  relationship: positive (upwards slopping curve)

Question 15

in negative XED, it means…

Answer 15

• negative answer
• if price of Y rises, demand of X falls.
  type: complementary goods
  relationship: negative (downward slopping curve)

Question 16

in zero XED, it means…

Answer 16

• answer is zero
• if price of Y rises, demand of X remains unchanges
  type: unrelated goods
  graph: vertical straight line

Question 17

opportunity cost means

Answer 17

the next best alternative sacrificed for a chosen alternative

Question 18

state the 3 characteristics of private goods + briefly summarise

Answer 18

1- excludability: can be excluded if consumers are not willing or able to pay for it
2- rivalry in consumption: one person’s consumption reduces the quantity left for
others to consume
3- rejectability: if you dont like, can reject and look for another alternative

Question 19

state the 3 characteristics of public goods + brief summary

Answer 19

1- non-excludability: nobody is prevented from using
2- non-rivalry: one person’s consumption will not reduce the quantity left for
another to consume

Question 20

whats the use of an economic system?

Answer 20

to determine how scarce resources are used to produced goods & services

Question 21

state the 3 types of economic systems + brief summary

Answer 21

1- command economy - everything controlled by gov + 3 basic economic problems are solved by gov
2- market ecomony - no gov intervention, economic activities carried out by priv firm or individuals
3- mixed economy - public & priv work tgt for economic growth of country

Question 22

what is planned economy?

Answer 22

command economy

Question 23

what is laissez-faire economy?

Answer 23

capitalist economy, market economy

Question 24

state the factors that affects supply

Answer 24

1- price of related goods
a) competitive supply b) complementary in supply c) substitute in supply
2- technology advancement
3- cost of production
4- government policies
5- number of producers
6- climate

Question 25

state the factors affecting demand

Answer 25

1- price of related goods
a) complementary goods b) substitute goods
2- income
3- advertising
4- government policies
5- climate
6- expected future prices

Question 26

in the market, when quantity demanded exceeds quantity supplied, it means

Answer 26

shortage

Question 27

during a shortage, the expected price of a good or service will…

Answer 27

rise

Question 28

in the market, if the quantity demanded is less than the quantity supplied, it is a

Answer 28

surplus

Question 29

if there is a surplus, the expected price of a good or service will…

Answer 29

fall

Question 30

another word for surplus is

Answer 30

excess supply

Question 31

another word for shortage is

Answer 31

excess demand