Definitions (Chapter 1-2)

Question 1

Demand

Answer 1

refers to the quantity of a product that buyers are willing and able to buy at various prices in a period of time, ceteris paribus

Question 2

Consumer seeks to maximise?

Answer 2

his utility (i.e. satisfaction)

Question 3

Individual Demand

Answer 3

reflects the quantity demanded (Qdd) for a good by an individual consumer at different prices

Question 4

Market Demand

Answer 4

refers to the combined demand of all individual consumers in the market for a good

Question 5

Law of Diminishing Marginal Utility

Answer 5

explains that as more units of a good are consumed, additional units will provide less additional satisfaction utility than previous units, even though total utility increases.

Question 6

Law of Demand

Answer 6

states that over a given time period, ceteris paribus, the quantity demanded of a good is inversely related to its price.

Question 7

Quantity Demanded

Answer 7

refers to a point on the demand curve that shows a specific quantity demanded at a specific price in a given time period

Question 8

Income

Answer 8

is the sum of all forms of earnings received by a household in a given period of time –> affects the purchasing power of household and its ability to purchase goods and services.

Question 9

Normal Good

Answer 9

goods for which demand will increase when income increases (+ve rs)

Question 10

Inferior Good

Answer 10

goods for which demand will decrease when income increases (-ve rs)

Question 11

substitutes

Answer 11

goods that satisfy a similar want and can thus serve as replacements for one another

Question 12

complements

Answer 12

goods that are consumed together

Question 13

credit

Answer 13

refers to a method of paying for goods or services at a later time, usually paying interest as well as the original amount

Question 14

exchange rate

Answer 14

price at which currencies are traded. it is expressed as how many units of foreign currency one unit of domestic currency can buy

Question 15

Producer’s behaviour

Answer 15

the producer aims to maximise profit which is the difference between the total revenue he earns and total cost incurred in production.

Question 16

Supply

Answer 16

refers to the quantities of a product that producers are willing and able to sell at various prices in a period of time, ceteris paribus

Question 17

Individual Supply

Answer 17

a producer’s supply schedule would show the various quantities he/she is willing to supply at various price levels

Question 18

market supply

Answer 18

the combined supply of all producers in the market for a good (it is derived by summing up the quantity supplied by each producer at each possible price.

Question 19

Law of Supply

Answer 19

states that over a given time period, ceteris paribus, the quantity supplied of a good rises when the price of the good rises.

Question 20

Productivity Level

Answer 20

refers to the quantity of output produced per unit of input (e.g. output per unit of labour)

Question 21

Goods in Competitive Supply

Answer 21

goods that are produced using the same resources –> compete for the same resource (e.g. palm oil & rubber –> both need to be grown on land)

Question 22

Goods in Joint Supply

Answer 22

goods produced jointly, one of which is usually a by-product of the other, or produced by using a different part of the same resource (e.g. beef and leather)

Question 23

Market

Answer 23

The Institution through which buyers and sellers interact and engage in exchange. Markets are usually not regulated by governments (hence considered as free markets) although government policies can at times by implemented to influence the behaviours of buyers and sellers.

Question 24

a surplus occurs when…

Answer 24

quantity demanded is less than quantity supplied at a given price

Question 25

a shortage occurs when…

Answer 25

quantity demanded is more than quantity supplied at a given price

Question 26

consumer surplus

Answer 26

the difference between what consumers are willing to pay for a good (indicated by the demand curve) and what they actually pay (i.e. current market equilibrium price). Consumer surplus is hence the gain to consumers.

Question 27

deadweight loss

Answer 27

can be understood as the total loss of producer and consumer surplus that is not offset by a gain to anyone else in society, represented by area ABC