Demand And Supply

Question 1

Define demand

Answer 1

The amount that consumers are willing and able to buy at each given price level

Question 2

Define effective demand

Answer 2

Demand backed by the ability to pay

Question 3

Define latent demand

Answer 3

Demand where you’re unable to pay for it meaning you can’t afford it

Question 4

Define contraction in demand

Answer 4

When quantity demanded decreases due to a rise in price

Question 5

Define extension in demand

Answer 5

When quantity demanded increases because of a fall in price

Question 6

List things which are determinants in demand

Answer 6

Changes in income
Prices of substitutes
Prices of complementary goods
Consumer confidence
Interest rates

Question 7

Define substitute

Answer 7

Replacement for another product

There are close and weak substitutes

Question 8

Define complementary good

Answer 8

Goods that are consumed together

E.G. PS4 and PS4 controller

Question 9

Define normal good

Answer 9

Goods or services that will see an increase in demand when income rises

Question 10

Define inferior good

Answer 10

Goods or services that will see demand fall when income rises

Question 11

Define composite demand

Answer 11

A good that is demanded for more than one purpose so that an increase in demand for one purpose reduces the supply for an other
E.G. increase in demand for steel in houses reduces supply for cars

Question 12

Define derieved demand

Answer 12

When the demand for one good or service comes from the demand for another good or service.

Question 13

What are the factors of production

Answer 13

Land
Labour
Capital
Enterprise

Question 14

Define opportunity cost

Answer 14

The next best alternative forogne when an economic decision is made.
It’s the next best alternative, not a best range of alternatives

Question 15

Define price elasticity of demand

Answer 15

Measures of the responsiveness of quantity demanded to a change in the price of a good

Question 16

What is the formula for price elasticity of demand

Answer 16

%change in QD

—

Question 17

What happens when the PeD is below -1

Answer 17

The good is price elastic
A fall in price means QD rises by proportionately more then the price cut
A fall in price increases revenue

Question 18

What happens and the PeD is between 0 and -1

Answer 18

The good is price inelastic

When prices fall QD increases but by a smaller proportion than the fall in price

Question 19

Factors that determine PeD

Answer 19

Availability of substitues
Time
Luxury or necesitty
Proportion of income spent on a good

Question 20

Define income elasticity of demand

Answer 20

Measure of the responsiveness of quantity demanded to a change in income

Question 21

What is the formula for IeD

Answer 21

%change QD

—

Question 22

How do you know if the good is a normal good via there IeD

Answer 22

If the number is positive

Question 23

If the number is greater the good is

Answer 23

More luxurious

Question 24

When is the IeD elastic

Answer 24

When the IeD is between -1 and 1

Question 25

Define cross price elasticity

Answer 25

A measure in responsiveness of quantity demanded of one good to a change in the price of another good

Question 26

What is the formula for CPeD

Answer 26

%change QD of good A | —

Question 27

What does it mean when XPeD is negative?

Answer 27

The goods are complementary

Question 28

What does it mean when the XPeD is positive

Answer 28

The goods are substitutes

Question 29

If the XPeD number is small what does that mean

Answer 29

The substitutes arent very close

Question 30

Define rationing function

Answer 30

When consumers don’t buy as much

Question 31

Define incentive function

Answer 31

When producers produce more as they’ll make more

Question 32

Define signalling function

Answer 32

Other industries realising profits are being made elsewhere

Question 33

Define supply

Answer 33

The amount offered for sale by producers at each given price level

Question 34

List some determinants in supply

Answer 34

``` Technological improvements Changes in lahbour productivity Laws Expectations about future prices Number of sellers in the market ```

Question 35

Define price elasticity of supply

Answer 35

Measures of the responsiveness of quantity supplied to changes in the price

Question 36

What is the formula for PeS

Answer 36

%change QS | —

Question 37

What does it mean when the PeS is greater than 1

Answer 37

It’s price elastic

Question 38

What does it mean when PeS is below 1

Answer 38

It’s price inelastic

Question 39

List factors effecting PeS

Answer 39

Time Availability of spare capacity Number of firms in the market Ability to alter production methods

Question 40

Define equilibrium

Answer 40

The price at which demand is equal to supply and there is no tendancy to change

Question 41

Define disequilibrium

Answer 41

The price at which the market supply does not equal demand

Question 42

What is it called when QD is greater than QS

Answer 42

Shortage

Question 43

What is it called when QS is greater than QD

Answer 43

Surplus

Question 44

Define price floor

Answer 44

Price floor is a price control typically set by the government that limits the minimum price a company is allows to charge for a product or service.

Question 45

Define price ceiling

Answer 45

Price floor is a price control typically set by the government that limits the maximum price a company is allows to charge for a product or service.

Question 46

Define excess supply

Answer 46

When quantity supplied at a particular price is greater than the quantity demanded

Question 47

Define excess demand

Answer 47

When quantity demanded at a particular price is greater than the quantity supplied

Question 48

Why prices floors may not work

Answer 48

Black market Difficult to monitor Excess supply