Markets

Question 1

demand

Answer 1

the desire to consume goods and services in the economy

Question 2

Law of Demand

Answer 2

There is an inverse relationship between price and quantity demanded

Question 3

How price affects demand

Answer 3

• if price goes up, demand falls

Question 4

How Income affects demand

Answer 4

Increased income means that consumers can purchase newly afforded goods which increases demand.

Question 5

How Population affects demand

Answer 5

the greater the population, the more demand for the total quantity of goods

Question 6

How Tastes affect demand

Answer 6

Market trends and tastes change, so demand will too

Question 7

How the Price of Substitutes affects demand

Answer 7

As the price of a substitute decreases, demand for the original good also decreases

Question 8

How the Price of Complements affects demand

Answer 8

as the price of a complement increases, demand decreases for the original good

Question 9

How Expected future prices affect demand

Answer 9

Predicting future price increases will increase current market demand

Question 10

Movement along the curve

Answer 10

Movements along the curve happen due to the relationship between price and quantity

Question 11

Shift of the curve

Answer 11

Shifts happen due to non-price factors, which means demand/supply changes regardless of price

Question 12

Law of Supply

Answer 12

There is a direct relationship between price and quantity supplied.

Question 13

How price affects supply

Answer 13

the higher the price and profit opportunity, the greater the incentive to supply

Question 14

How the cost of factors of production affect supply

Answer 14

any change in the costs of one of the factors of production will change supply. If the cost of a resource used in supply increases, supply will decrease as the good is less profitable

Question 15

How price of Substitutes affects supply

Answer 15

An increase in the price of one substitute good causes a decrease in supply of the original good

Question 16

How price of complements affects supply

Answer 16

Increase in the price of a complement causes increase in the supply of the original good.

Question 17

How expected future prices affect supply

Answer 17

If the price is expected to fall, supply will also fall as potential profits have fallen

Question 18

How number of suppliers affects supply

Answer 18

When the amount of firms producing a good increases, supply increases

Question 19

Factors that Affect Supply

Answer 19

price/cost of factors of production/price of subs/price of complements/expected future prices/number of suppliers/technology

Question 20

Factors that Affect demand

Answer 20

price/income/population/tastes/price of subs/price of complements/expected future prices

Question 21

How technology affects supply

Answer 21

when the state of technology improves, the level of supply increases

Question 22

Equilibrium

Answer 22

The point at which quantity demanded and quantity supplied are equal

Question 23

Price Ceiling

Answer 23

• below equilibrium

- results in a shortage of goods

Question 24

Price floor

Answer 24

• Above equilibrium

- results in excess supply –> surplus

Question 25

Merit Goods

Answer 25

A good that the government believes is beneficial to society but may not be produced in adequate quantities. E.g. libraries and schools

Question 26

Public Goods

Answer 26

goods provided by the government as there is no profit incentive for the private sector. They are non-excludable and non-rival. e.g. roads and streetlights

Question 27

Non-Excludable

Answer 27

Nobody can be excluded from their consumption

Question 28

Non-rival

Answer 28

One persons consumption does not reduce the amount available for someone else to consume

Question 29

Externalities

Answer 29

spillover effects on third parties as a result of private activities. e.g. pollution, resource depletion

Question 30

Price Elasticity of Demand

Answer 30

How responsive consumers are to a price change

Question 31

Total Outlay method

Answer 31

revenue is calculated at different price/quantity points and then seeing if revenue has increased, decreased or remained the same allowing for elasticity to be determined

Question 32

Factors affecting elasticity of demand

Answer 32

- necessities and luxuries - existence of close substitutes - proportion of income spent on the good - the length of time since a price change

Question 33

Price Elasticity of Supply

Answer 33

How responsive suppliers are to a change in price.

Question 34

Factors that affect price elasticity of supply

Answer 34

- Durability - Production period - Spare Capacity

Question 35

Perfect Competition

Answer 35

large number of small firms with lots of competition, producing a homogenous product

Question 36

current unemployment rate

Answer 36

7.5%

Question 37

april u/e

Answer 37

5.2%

Question 38

market failure

Answer 38

when the allocation of goods and services is socially undesirable