Market

Question 1

Explain why the black market is illegal.

Answer 1

A black Market i s not regulated or taxed people charge prices above and below the government set price. A black market can involve the sale of illegal/harmful/stolen goods.

Question 2

Why is there more than one market for any product?

Answer 2

More than one distinct group of consumers or products.

Question 3

Describe the effect on the New Zealand price , if the world price is decreased below the Nz price.

Answer 3

The domestic price in NZ will fall. Imports become cheaper so consumers buy them or competition from imports forces local price down.

Question 4

How would you calculate how much a subsidy costs the govt.

Answer 4

Subsidy per unit x Q’

Question 5

Describe the market equilibrium.

Answer 5

The price a which quantity demanded equals quantity supplied. The price at which the market clears and there is neither a shortage nor surplus.

Question 6

Define Market supply

Answer 6

Total of all producers individual supply at each price, OR the horizontal summation of all firms supply curves and schedules at each price.

Question 7

Identify the price consumers pay before and after a subsidy or tax.

Answer 7

Before: p
After:p’

Question 8

Explain what is meant by the market.

Answer 8

The place or situation where buyers and sellers interact to exchange goods and services.

Question 9

Explain why a surplus will not last long in a market.

Answer 9

Market forces a return to the equilibrium, producers are willing to accept a lower price to get rid of unsold stock, as the price falls quantity supplied decreases and the quantity demanded increases until the equilibrium is restored.

Question 10

Describe and explain the disadvantages of a maximum price control.

Answer 10

A maximum price control will create a shortage because quantity supplied is less than quantity demanded. Some consumers may miss out and a black market may be created.

Question 11

List different types of market.

Answer 11

Mail order, retail shop, Private sale, auction, telemarketing.

Question 12

Identify the quantity consumers buy before and after a subsidy or tax.

Answer 12

Before: Q
After: Q’

Question 13

Explain why a shortage will not last long in a market?

Answer 13

Market forces a return to the equilibrium consumers bid up the price, as the price rises quantity supplied increases and the quantity demanded falls until the equilibrium is restored.

Question 14

Qualities and characteristics of money.

Answer 14

Convenient to carry, long lasting, Durable, divisible, Limited in supply.

Question 15

Describe and explain the advantages of a subsidy.

Answer 15

A subsidy lowers the price of the good or service to consumer and increases the quantity supplied. Producers revenue increases.

Question 16

Describe and explain the disadvantages of a subsidy.

Answer 16

A subsidy will cost the government money and has the opportunity cost that this money could be spent on something else, it may support inefficient producers.

Question 17

State the advantage of a subsidy over a price control

Answer 17

a subsidy will increase supply, decrease price and increase the quantity demanded- the market clears and an equilibrium is reached. A maximum price below the equilibrium reduces price to consumers but causes a shortage and the possibility of a black market.

Question 18

Explain the effect of a subsidy on the revenue for a firm.

Answer 18

Revenue will rise because the firm is receiving a payment from the govt. as well as the customers. The price per item a firm recieves will rise and the quantity sold increases.

Question 19

What is a Maximum price control?

Answer 19

A maximum price set by the govt. does not allow price to rise above a certian level. It could be set to ensure that households on low incomes are able to buy certain goods and services. It will only be effective when it is set below the equilibrium price. It leads to shortages.

Question 20

Explain what is meant by the term price controls.

Answer 20

Government imposes a price control (maximum or minimum price) where the price cannot automaticly move back to the equilibrium as it would in a free market, because laws and regulations prohibit this.

Question 21

Define Market Demand

Answer 21

Total of every ones individual demand at each price, or horizontal summation of all individual demand curves and schedules at each price.

Question 22

How would you calculate how much revenues the government raises from an indirect tax.

Answer 22

Tax per unit x Q’

Question 23

Explain how an indirect tax would affect suppliers.

Answer 23

Suppliers will lose sales as the price increases and quantity demanded decreases, revenue is likely to fall and possibly reduce profits.

Question 24

Describe and explain the advantages of a maximum price control.

Answer 24

A maximum price control will lower the price and make the good or service more affordable, and there is no cost to the govt.

Question 25

What is a minimum price control?

Answer 25

A mimimum price is where the market price is not allowed to fall below a certian minimum level. It is imposed to protect producers from recieving unreasonably low prices for their output. It is only effective if it is above the equilibrium price. It leads to surpluses.