KEY INFO

Question 1

conditions of demand

Answer 1

-Population

-Advertising

-Substitutes price

-Income

-Fashion

-Interest Rates

-Components price

Question 2

Conditions of supply

Answer 2

-Productivity

-Indirect Tax

-No of firms

-Technology

-Subsidy

-Weather

-Costs of production

Question 3

Conditions of Elasticity of demand

Answer 3

-availability of substitutes

-if the good is a luxury or a necessity

-the proportion of income spent on the good

-how much time has elapsed since the time the price changed

Question 4

Conditions of elasticity of supply

Answer 4

-Production lag

-Stocks

-Spare capacity

-Time

-Substitutability of factors of production

Question 5

types of market failure

Answer 5

1) negative externalities, - self interest

2) positive externalities - self interest

3) De-merit goods - information failure

4) Merit goods - information failure

5) Public goods - free rider problem

6) Common access to resources - self interest

7) income inequality - inequity

8) Monopoly power - One dominant seller and high barrier to entry

9) Factor immobility

Question 6

macroeconomic objectives

Answer 6

-growth should be strong, sustained, sustainable

-low unemployment, full employment

-inflation, low and stable (2% in the uk)

-balanced trade (trade deficit and trade surplus are both bad)

-distribution of income to be fair (normative consideration)

Question 7

Expansionary fiscal policy (increase in AD) (very much a Keynesian idea)

Answer 7

-Increase economic growth

-reduce unemployment

-increase demand pull inflation, (if below target)

-reduce income inequality

Answer 8

-PED always negative → law of demand

> -1 demand is price elastic

←1 demand is price inelastic

0 demand is perfectly price inelastic

infinity demand is perfectly price elastic

1 demand is unit price elastic

Answer 9

+=substitutes

-=complements

> 1 Demand between goods is price inelastic

<1 Demand between the goods is price inelastic

0 Demand between the good is perfectly price inelastic

Answer 10

Normal goods are always positive

> 1 Demand is income elastic - NORMAL ELASTIC

<1 Demand is income elastic - NORMAL NECESSITY

Answer 11

Inferior goods are always negative

> -1 Demand is income elastic

←1 Demand is income elastic

0 Demand is perfectly income elastic

Answer 12

PES is always negative

> 1 Supply is price elastic

<1 Supply is price inelastic

0 Supply is perfectly price inelastic

infinity - Supply is perfectly price elastic

1 Supply is unit price elastic