Economics 2.1

Question 1

market

Answer 1

Any kind of arrangement where people buyers and sellers of goods, services or resources are linked together to carry out an exchange

(can be local, national, international)

Question 2

product markets

Answer 2

goods/services sold here

Question 3

factor markets

Answer 3

factors of productions (resources) sold here

Businesses act as consumers in the product and resource market

Question 4

competition

Answer 4

Process in which rivals compete in order to achieve some objective

Question 5

demand

Answer 5

the relationship between possible prices of a good/service and the quantities that individuals are willing and able to buy over some time period, ceteris paribus

Question 6

law of demand

Answer 6

a law stating that as the price of a good falls, the quantity demanded will increase over a certain time period, ceteris paribus

Question 7

income effect

Answer 7

the law of demand is explained by the substitution and the income effect.

the income effect states that if the price of a good increases then the real income of consumers decreases, and typically, they will tend to buy less of the good – thus working in the same direction as the substitution effect

Question 8

substitution

Answer 8

when the price of a product falls relative to other product prices, consumers tend to purchase more of the product as it is now relatively less expensive.

Question 9

law of diminishing marginal utility

Answer 9

the idea that as an individual consumes additional units of a good, the additional satisfaction decreases

Question 10

marginal utility

Answer 10

the extra/additional utility derived from consuming one more unit of a good/service

Question 11

quantity demanded

Answer 11

the quantity of a good/service demanded at a particular price over a given time period, ceteris paribus

Question 12

demand curve

Answer 12

a curve illustrating the relationship between possible prices of a goods/services and the quantities that individuals are willing and able to buy over some time period, ceteris paribus. it is normally downward sloping

Question 13

market demand

Answer 13

the sum of the individual demand curves for a product of all the consumers in a market

Question 14

substitutes

Answer 14

goods that can be used in place of each other, as they satisfy a similar need

Question 15

complements

Answer 15

goods that are jointly consumed, for example, coffee and sugar

Question 16

supply

Answer 16

quantities of a good that firms are willing and able to supply at different possible prices, over a given time period, ceteris paribus

Question 17

law of supply

Answer 17

a law stating that as the price of a good rises, the quantity supplied will rise over a certain period of time, ceteris paribus

Question 18

quantity supplied

Answer 18

the quantity of a good/service supplied at a particular price over a given time period, ceteris paribus

Question 19

law of diminishing marginal returns

Answer 19

a short-run law of production stating that as more and more units of the variable factor (usually labour) are added to a fixed factor (usually capital) there is a point beyond which total product continues to rise but at a diminishing rate, or equivalently, marginal product starts to decrease

Question 20

marginal costs

Answer 20

the extra/additional costs of producing one more unit of output

Question 21

supply curve

Answer 21

a curve showing the relationship between the price of a good/service and the quantity supplied, ceteris paribus. normally upward sloping

Question 22

market supply

Answer 22

the horizontal sum of the individual supply curves for a product of all the producers in a market