Micro Economics

Question 1

Define micro economics

Answer 1

A term used to refer to the things that happen within a business.

Question 2

What does the price theory deal with?

Answer 2

1) Supply
2) Demand
3) Price

Question 3

Define price

Answer 3

The monetary value that the consumer is prepared to pay for it and what the manufacturer is prepared to accept when selling the product or service.

Question 4

Why do consumers want to pay as little as possible for goods and services?

Answer 4

Because they want as much spending money as possible to fund their needs and wants.

Question 5

Why do businesses charge a lot for goods and services?

Answer 5

To make as much a profit as possible; to make sure that the income from the goods and services will surpass their expenses

Question 6

Define the equilibrium price

Answer 6

This is the point at which both the consumer and manufacturer are satisfied with the price of the product or service.

Question 7

What is the relationship between demand, supply and price?

Answer 7

1) If the demand for a product increases, but the supply stays the same then the price will increase.

2) If the opposite is true, namely if the demand for a product decreases and the supply remains the same then the price will decrease.

Question 8

When does something become a demand?

Answer 8

When the product fits these three criteria:
— The consumer has a need for the product
— The consumer can afford the product
— The consumer is prepared to pay the price that has been asked.

Question 9

What is demand related to?

Answer 9

— Time
— Price

Question 10

Give an example of when demand is related to the time and price

Answer 10

The demand for a specific leather jacket, priced at R2 000, will cost more in winter than summer
[this is due to the season and temperatures]

Question 11

The demand curve is always a what relationship?

Answer 11

An inverse relationship

Question 12

On the demand curve, where will price and the quantity demanded always go?

Answer 12

— Price will always be on the y-axis (vertical line)
— The quantity demanded will always be on the x-axis (horizontal line)

Question 13

What are other factors that may influence the demand of a product?

Answer 13

1. Snob-value
2. Can be influenced by the price of another product
   — substitute goods
   — brand names
   — complementary foods
3. Standard of Living
4. Disposable income
   — taxes rates
   — the economic expectations regarding the future will influence the current demand for certain products.
   — attaining credit
5. Change of habits due to advertisements
6. Demographic changes

Question 14

Changes in demand could be the result of what?

Answer 14

• Prices that changed (higher prices) -> lower demand, or a lower price-> greater demand)
• Other factors.

Question 15

If there is a change in demand, how do we show that on a demand curve?

Answer 15

— If the demand increases, a new line will be drawn on the right side of the first line as that is where demand increases.

— If the demand decreases, a new line will be drawn of the left side of the first line as that is where demand decreases.

Question 16

Define supply.

Answer 16

The quantity that a supplier of a specific product is prepared to offer (sell) at a specific time and at a specific price.

Question 17

The supply curve:

Answer 17

When the price that a customer is prepared to pay for a product increases, there is a bigger possibility that the supplier will make a profit. Suppliers/ businesses will always try, as far as possible, to sell products at the highest price.

Question 18

What type of relationship does supply have with price?

Answer 18

A direct relationship.

Question 19

What could the change in supply be a result of?

Answer 19

The increase of decrease of prices:
Higher prices= greater supply and lows prices=smaller supply.

Question 20

Non-price related factors that could result in a change of price in terms of supply.

Answer 20

1) a change in the production methods could result in greater of smaller supply of goods.
2) new competitors that have entered the market will increase the competition between businesses and there will be a larger supply of products.
3) natural disasters, ex droughts and floods
4) international occurrences such as war.

Question 21

When will the supply curve shift to the left and when will the supple curve shift to the right?

Answer 21

Left: decreased supply
Right: increased supply

Question 22

Define the equilibrium price.

Answer 22

The volume (or a point on the graph) where both the consumer (buyer) and the supplier (suppliers) are satisfied with the quantity and the price.