MICRO 3 - Price determinations

Question 1

What is demand?

Answer 1

the quantity of a good or service that consumers are able and willing to buy at a given price during a given period of time

Question 2

What will cause movements along the demand curve?

Answer 2

a change in price

Question 3

Factors effecting the demand curve:

Answer 3

population, income, substitutes,/compliments, advertising, trends/fashions, seasons, necessity v luxury, quality

Question 4

What is the law of demand?

Answer 4

an increase in price of goods or services leads to a decrease in qty demanded

Question 5

What relationship is the demand curve?

Answer 5

inverse (slopes downwards)

Question 6

What is the price elasticity of demand?

Answer 6

the responsiveness of a change in demand to a change in price

Question 7

Equation for PED

Answer 7

% change in qty demanded / % change in price

Question 8

What is the PED value of elastic demand?

Answer 8

greater than 1

Question 9

What is the PED for inelastic demand?

Answer 9

between 0 and 1

Question 10

What is the PED for unitary demand?

Answer 10

1

Question 11

What is the PED for perfectly inelastic demand?

Answer 11

0

Question 12

What is the PED for perfectly elastic demand?

Answer 12

infinity

Question 13

Factors influencing PED:

Answer 13

necessity, substitutes, addictiveness/habitual consumption, proportion of income spent on the good, durability, peak / off-peak demand

Question 14

What is income elasticity demand?

Answer 14

the responsiveness of a change in demand to a change in income

Question 15

Equation for YED:

Answer 15

% change in qty demanded / % change in income

Question 16

What is the equation for total revenue?

Answer 16

TR = price x qty

Question 17

What are inferior goods?

Answer 17

demand falls as incomes increase (YED < 0)

Question 18

What are normal goods?

Answer 18

demand increases as income increases (YED > 0)

Question 19

What are luxury/giffen goods?

Answer 19

as income increases, there is an even bigger increase in demand (YED > 1)

Question 20

What is cross elasticity demand?

Answer 20

the responsiveness to a change in demand of one good (A) to a change in price of another good (B)

Question 21

Equation for XED:

Answer 21

% change in qty demanded of A / % change in price of B

Question 22

What XED value do complementary goods have?

Answer 22

negative

Question 23

What XED value do substitute goods have?

Answer 23

positive

Question 24

What XED value do unrelated goods have?

Answer 24

0

Question 25

What is supply?

Answer 25

the quantity of goods and services that producers are willing and able to supply at a given price during a given period of time

Question 26

What causes movements along the supply curve?

Answer 26

price / profit motive

Question 27

Factors that shift the supply curve?

Answer 27

productivity, indirect taxes, number of firms, technology, subsidies, weather, costs of production, wages

Question 28

What is price elasticity of supply?

Answer 28

the responsiveness of a change in supply to a change in price

Question 29

Equation for PES:

Answer 29

% change in qty supplied / % change in price

Question 30

What is the PES value for elastic supply?

Answer 30

greater than 1

Question 31

What is the PES value for inelastic supply?

Answer 31

between 0 and 1 (smaller than 1)

Question 32

What is the PES value for perfectly inelastic supply?

Answer 32

0

Question 33

What is the PES value for perfectly elastic supply?

Answer 33

infinity

Question 34

Factors that influence PES:

Answer 34

time scale, spare capacity, levels of stocks, how suitable factors are, barriers to entry to the market

Question 35

What is equilibirum?

Answer 35

demand = supply

Question 36

When is there an excess demand?

Answer 36

when demand is higher than supply

Question 37

When is there excess supply?

Answer 37

when supply is greater than demand

Question 38

What is derived demand?

Answer 38

when a particular good or FofP is necessary to produce another good or service

Question 39

Example of derived demand:

Answer 39

increase in demand for healthcare = increase in demand for doctors + nurses

Question 40

What is composite demand?

Answer 40

when one good is demanded for more than one use, and increase in demand for one use leads to a decrease in supply available

Question 41

Example of composite demand?

Answer 41

steel for factories or cars

Question 42

What is joint demand?

Answer 42

complementary goods

Question 43

Example of joint demand?

Answer 43

increase in demand for cars = increase in demand for fuel

Question 44

What is competing demand?

Answer 44

substitute goods

Question 45

Example of competing demand:

Answer 45

increase in demand for coke = decrease in demand for pepsi

Question 46

What is joint supply?

Answer 46

production of one good leads to the production of another good

Question 47

Example of joint supply:

Answer 47

production of beef and leather

Question 48

What is an example of an incentive?

Answer 48

high price, an incentive to increase production for profit

Question 49

What is signalling?

Answer 49

a change in price signals consumers and producers a decrease in price will buy more

Question 50

What is rationing?

Answer 50

goods are rationed only to those who can afford them, if supply decreases, price increases, rationing the demand

Question 51

What is consumer surplus?

Answer 51

when a consumer pays less for a good than what they are prepared to pay

Question 52

What is producer surplus?

Answer 52

when a producer receives more for a product than the price they are willing to accept