Market

Question 1

Define Market

Answer 1

→ A market is a group of buyers and sellers of a particular good or service.

Question 2

Role of Market

Answer 2

Efficiently allocate scarce resources.
Create wealth.
Improve human welfare.

Question 3

Competitive Market

Answer 3

Market in which there are many buyers and many sellers so that each has a negligible impact on the market price.

Seller has limited control over the price, as other sellers are selling similar products.

Question 4

Perfectly Competitive Market

Answer 4

The goods offered for sale are exactly the same.

There are so many buyers and sellers, that no sole individual has influence over the market price.

Question 5

Monopoly

Answer 5

Market where there is only one seller, and therefore they dictate the price.

Question 6

The Demand Curve

Answer 6

The quantity demanded of any good is the amount of a good that buyers are willing and able to purchase.

Question 7

The Law of Demand

Answer 7

With all other factors equal, the quantity demanded of a good falls when the price of the good rises

Question 8

Determinant of Demand

Answer 8

Price of substitutes and complements
 Income
 Tastes and Preferences
 Expectations
 Number of Consumers

Question 9

Normal Good

Answer 9

A good for which, other things being equal, an increase in income leads to an increase in quantity demanded.

Question 10

Inferior Good

Answer 10

A good for which, other things being equal, an increase in income leads to an decrease in quantity demanded.

Question 11

Substitutes

Answer 11

When a fall of the price of good reduced the demand for another good, the two goods are called substitutes.

Price of substitute increases, consumers switch. Causes an outward shift of the demand curve and an increase in demand.

Question 12

Complements

Answer 12

When a fall of the price of good increased the demand for another good, the two goods are called complements.

Price of other good rises quantity demanded of that good falls. Causes an inward shift of the demand curve. A decrease in demand.

Question 13

The Supply Curve

Answer 13

The amount of a good that sellers are willing and able to sell.

Question 14

Determinant of Supply

Answer 14

Price of related commodity Factor cost
Number of suppliers
Technology
Seller Expectation

Question 15

Law of Supply

Answer 15

When everything else is equal, the quantity supplied of a good rises when the price of a good rises.

Question 16

Equilibrium

Answer 16

A situation in which supply and demand have been brought into balance (middle point where the lines intersect).

Question 17

Equilibrium Price

Answer 17

The price that balances the quantity supplied with the quantity demanded.

Question 18

Equilibrium Quantity

Answer 18

The quantity supplied and the quantity demanded at the equilibrium price.

Question 19

Surplus

Answer 19

A situation in which quantity supplied is greater than quantity demanded.
Suppliers are unable to sell all they want at the going price. Also known as excess supply.

Usually responded with cutting prices, leading to an increase in the quantity demanded and a decrease in the quantity supplied.

These are movements along the curve not shifts.

Question 20

Shortage

Answer 20

Demanders are unable to buy all that they want at the going price.
There is a shortage of the good/excess of demand.
Sellers respond with increasing there price as they known that they will not lose sales.
These are movements along the curve not shifts.

Question 21

Shifts in Curves vs Movements Along Curves

Answer 21

A shift in the demand/supply curve is known as a ‘change in demand/supply.’

A movement along a fixed supply/demand curve is also known as ‘change in the quantity supplied/demanded’